-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JpMqM40vfPsSkdJKIF8vQ4p5HF/R4EJB9WedSHdZpMgPnz6rc417mHPm+V0742mX YEFaFWY0sTPnxhPLldqPow== 0000950123-97-002817.txt : 19970509 0000950123-97-002817.hdr.sgml : 19970509 ACCESSION NUMBER: 0000950123-97-002817 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMPBELL RESOURCES INC /NEW/ CENTRAL INDEX KEY: 0000718053 STANDARD INDUSTRIAL CLASSIFICATION: 1040 IRS NUMBER: 980098690 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08488 FILM NUMBER: 97569740 BUSINESS ADDRESS: STREET 1: 120 ADELAIDE ST W STREET 2: STE 1910 CITY: TORONTO ONTARIO CANA STATE: A6 BUSINESS PHONE: 4163665201 MAIL ADDRESS: STREET 1: 120 ADELAIDE ST W STREET 2: STE 1910 CITY: TORONTO ONTARIO CANA STATE: A6 10-K405 1 CAMPBELL RESOURCES INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-8488 CAMPBELL RESOURCES INC. (Exact name of registrant as specified in its charter) Canada (Jurisdiction of Incorporation) Not Applicable (I.R.S. Employer Identification No.) 120 Adelaide Street West, Suite 1910, Toronto, Ontario M5H 1T1 (Address of principal executive offices) (416) 366-5201 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of each Exchange on which Registered Common Shares New York Stock Exchange Common Share Purchase Warrants New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X. No . --- --- At March 14, 1997, the registrant had outstanding 150,357,876 common shares, without nominal or par value, the only class of registrant's stock outstanding, and the aggregate market value of the voting stock held by non-affiliates at such date was $172,911,557 (Canadian). Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] 2 DOCUMENTS INCORPORATED BY REFERENCE Certain portions of registrant's Proxy Circular relating to an Annual Meeting of Shareholders scheduled to be held on April 24, 1997 are incorporated by reference into Part III of this report and certain portions of the 1996 Annual Report to shareholders are incorporated herein by reference into Parts I, II, and IV of this report. These portions of such Proxy Circular and Annual Report are filed as exhibits to this Form 10K. 3 CAMPBELL RESOURCES INC. Index Annual Report on Form 10-K for Year Ended December 31, 1996 Page PART I Items 1. and 2. Business and Properties..................................2 Item 3. Legal Proceedings.......................................21 Item 4. Submission of Matters to a Vote of Security Holders........................................22 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.........................22 Item 6. Selected Financial Data.................................22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........23 Item 8. Financial Statements and Supplementary Data....................................................23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................23 PART III Item 10. Directors and Executive Officers of the Registrant.......................................23 Item 11. Executive Compensation..................................24 Item 12. Security Ownership of Certain Beneficial Owners and Management...................................26 Item 13. Certain Relationships and Related Transactions..........27 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................27 4 CURRENCY AND METRIC EQUIVALENTS Unless otherwise indicated, all dollar amounts herein are expressed in Canadian dollars. Amounts expressed in United States dollars are preceded by the symbol "US$". The following table sets forth, for each of the years indicated, certain information concerning the exchange rate for translating Canadian dollars into United States dollars based upon the noon buying rate in the City of New York for cable transfers in Canadian dollars and certified for customs purposes by the Federal Reserve Bank of New York.
Rate at Average December 31 Rate (1) High Low ----------- ---- ---- --- 1992 0.7865 0.8273 0.8757 0.7761 1993 0.7544 0.7751 0.7954 0.7478 1994 0.7129 0.7301 0.7632 0.7105 1995 0.7323 0.7286 0.7431 0.7076 1996 0.7301 0.7332 0.7513 0.7235
(1) The average rate means the average of the exchange rates on the last day of each month during the year. On March 14, 1997, the Noon Buying Rate for Cdn. $1.00 was US $0.7324. TONNAGES referred to in this document are to either short tons equal to 2,000 pounds, referred to herein as tons, or to metric tonnes, equal to 2,204.6 pounds and referred to herein as tonnes or metric tonnes. A reference herein to OUNCES means a troy ounce which is equal to 31.103 grams. To convert grams per tonne to ounces per ton, multiply grams per tonne by 0.029. Distances are referred to either as miles, equal to 1.6093 kilometres; feet, equal to 0.305 metres; kilometres, equal to 0.621 miles; or metres, equal to 3.28 feet. Acreage is referred to as acres, which represents 0.4046 hectares, or hectares, equal to 2.471 acres. As used throughout this report, the term "PROVEN (MEASURED) RESERVES" means reserves for which (a) quantities are computed from dimensions revealed in outcrops, trenches, workings or drill holes; (b) grade and/or quality are computed from the results of detailed sampling and (c) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well-established. The term "PROBABLE (INDICATED) RESERVES" means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. 5 PART I ITEMS 1 AND 2 - BUSINESS AND PROPERTIES GENERAL Campbell Resources Inc. ("Campbell" or the "Corporation") was incorporated in June 1950 under the laws of British Columbia. On September 8, 1982, the Corporation was continued under the Canada Business Corporations Act and on June 8, 1983, in connection with an amalgamation of three other companies, the name of the Corporation was changed from GM Resources Limited to Campbell Resources Inc. The Corporation is a gold mining and natural resource company whose principal assets are the Joe Mann gold mine (the "Joe Mann Mine") located in the Chibougamau area of northwestern Quebec, the Santa Gertrudis gold mine (the "Santa Gertrudis Mine") located in the State of Sonora, Mexico and the Cerro Quema gold property (the "Cerro Quema Property") located in the southern Azuero Peninsula in the Los Santos province of Panama. Segmented financial information with respect to the Corporation's domestic and foreign operations is set out in Note 12 to the Corporation's financial statements for the year ended December 31, 1996. This information is included under Item 14. The Joe Mann Mine, an underground gold mine owned by Meston Resources Inc., a wholly-owned subsidiary of the Corporation, is located near the town of Chibougamau, approximately 350 miles north of Montreal, Quebec. The Joe Mann Mine was brought into production by Campbell in 1987. In July 1994, the Corporation directly and through its subsidiary, Sotula Gold Corp., acquired all of the shares of three Mexican companies which held the Santa Gertrudis Mine from Phelps Dodge Corporation for $11.1 million net of cash acquired. The Santa Gertrudis Mine is an open pit heap leach gold mine located near the town of Magdalena, Mexico, approximately 150 miles south of Tucson, Arizona. The Santa Gertrudis Mine was brought into production in 1991 by its previous owner. The Corporation also conducts an active exploration programme for precious metals in the State of Sonora, where the Corporation has maintained an exploration office since 1970. The Corporation holds its interests in Mexico through its wholly-owned subsidiary, Oro de Sotula, S.A. de C.V. ("Sotula"). Sotula was formed in September 1994 through the merger of the Corporation's four wholly-owned Mexican subsidiaries.. On March 4, 1996, the Corporation acquired all of the shares of Minera Cerro Quema, S.A., a Panamanian corporation ("Minera"), whose primary asset is the Cerro Quema Property. Such shares were purchased from Cyprus Exploration and Development Corporation, a Delaware corporation ("Cyprus"), of Englewood, Colorado, for a price of US$8,372,000 cash, pursuant to the exercise by the Corporation of a right of first refusal which the Corporation had acquired from Compania de Exploracion Mineral, S.A.("CEMSA"), a private Panamanian corporation. At the time of such acquisition, Minera was a wholly-owned subsidiary of Cyprus. 2 6 Cyprus originally acquired an 80% interest in the Cerro Quema Property through a combination of work commitment expenditures and option payments under a 1990 option to joint venture agreement with CEMSA. In 1994, Cyprus increased its interest to 100%, with CEMSA retaining a 3.5% net smelter return royalty (the "Royalty") and a right of first refusal on the sale of the Cerro Quema Property by Cyprus. In December 1995, Cyprus notified CEMSA that it had received an offer, which it considered acceptable, which offer triggered the right of first refusal. The Corporation acquired CEMSA's right of first refusal for aggregate consideration of US$500,000 cash and 1,460,000 Common Shares of the Corporation (the "Common Shares") payable as set forth below. CEMSA also agreed to reduce its Royalty from 3.5% to 2% of net smelter returns with respect to that portion of its Royalty relating to precious metals produced from the Cerro Quema Property. In consideration for this reduction, the Corporation has issued a further 1,040,000 Common Shares to CEMSA as described below. On March 4, 1996, the Corporation completed its acquisition of Minera from Cyprus. On completion of this acquisition, the Corporation paid US$250,000 cash and issued 730,000 Common Shares to CEMSA. In addition, private placement warrants were issued to CEMSA which warrants were exercisable by CEMSA to acquire 1,770,000 Common Shares without further consideration at the time of approval of a positive feasibility study by the Corporation's Board. In November 1996, a positive feasibility study was completed and presented to the Board of Directors on the basis of which approval was given to proceed with pre-production development including road construction and preparation of construction tender documents. Following completion of some additional test work and receipt of required permitting and exploitation concessions, final approval for the project was given on February 20, 1997. Subsequent to this approval the Corporation paid to CEMSA the remaining US$250,000 cash and, upon exercise of private placement warrants, issued to CEMSA the 730,000 Common Shares for the right of first refusal and 1,040,000 Common Shares in consideration of the royalty reduction. The Corporation continues to have, as one of its primary business objectives, the acquisition of additional sources of gold production through the acquisition of producing mines or semi-developed properties, preferably low cost heap leach operations. It is evaluating a number of such investment opportunities in Latin America. The Corporation sells metals on international markets at prices which fluctuate daily based on world market supply and demand and is in competition with other mining companies, insofar as they produce the same product, in a market where price and quality advantages can not be claimed by any of the market participants. 3 7 Factors which allow producers to remain competitive in the market over the long-term are the quality (grade) and size of the orebody, cost of production and the proximity to market. In all these factors the Corporation is competitive to greater or lesser degrees; but because of the number of companies and variables involved, no individual or group of producers can be pointed to as being in direct competition with Campbell. Except as otherwise noted herein, there have been no recent changes with respect to properties which the Corporation owns, or in which it has significant interests, which have materially affected operating profits. Except as herein noted, to the knowledge of the Corporation, it and its subsidiaries are in compliance with all environmental laws and regulations in effect in all jurisdictions in which operations are being conducted. Campbell and its wholly-owned subsidiaries employed 506 persons as of December 31, 1996, of which 353 were covered by collective bargaining agreements. The relationship of Campbell and its subsidiaries with their employees and contractors is considered by Campbell to be satisfactory. See "Employees" on pages 10 and 14. During 1996 and 1995, there were no material strikes or walkouts at the Joe Mann Mine. On September 14, 1996, the collective bargaining unit at the Joe Mann Mine, represented by Le Syndicat des Travailleurs-euses de la Mine Meston ("CSN"), consisting of 184 employees, approved a collective bargaining agreement covering a three year period with wage increases of 0.73% in the first year and 1.22% and in the second and third years. On February 8, 1996, a three year contract was approved by the Metallurgistes Unis d'Amerique covering 29 workers at the Camchib Mill, under which the salary was maintained at current levels for the first year with levels for the second and third years to be increased at the same rate as was agreed to with CSN. In April 1996, the Corporation concluded an agreement with the National Union of Miners, Metallurgists and Similar Workers of the Mexican Republic, which represents the 151 hourly employees at the Santa Gertrudis Mine, for a two-year term, which provides for a 22% increase in wages during the first year of the agreement with a wage re-opener after the first year. 4 8 INTERCORPORATE RELATIONSHIPS The following chart illustrates the principal subsidiaries of the Corporation, together with the jurisdiction of incorporation of each company and the significant properties held by each company: CAMPBELL RESOURCES INC. (Canada) 100% SOTULA GOLD CORP. (Canada) 100% 100% 100% MESTON RESOURCES INC. ORO DE SOTULA, S.A. de C.V. MINERA CERRO QUEMA, S.A. (Quebec) (Mexico) (Panama) Joe Mann Mine Santa Gertrudis Mine Cerro Quema Gold Property Chibougamau Exploration Exploration Properties Properties Camchib Mill
THE JOE MANN MINE HISTORY The Joe Mann property was acquired in July 1980 by Meston Lake Resources Inc. ("Meston Lake"), a predecessor of Meston Resources Inc. ("Meston") (a wholly-owned subsidiary of the Corporation). The original deposit was discovered in 1950. A three compartment exploration shaft was sunk and some 859,000 tons of ore grading 0.176 oz/ton of gold had been mined and milled until June 1975 when rising costs coupled with poor recoveries prohibited further mining. Subsequently, Meston Lake acquired the mine and the shaft was dewatered in 1980 before financial and corporate problems put a halt to the operation. Campbell became involved in the Joe Mann property in 1983 when it acquired a minority position in Meston Lake and entered into a management agreement under which it designed and 5 9 implemented an exploration programme and aided in the financing of this programme with the objective of determining the commercial viability of the project. The mine was dewatered in early 1985 and in June of that year, an underground exploration programme began. The exploration programme resulted in the discovery of 800,000 tons of ore reserves and prompted the decision to re-start production. Commercial production began on April 2, 1987 with proven and probable mineable reserves of 910,000 tons grading 0.22 ounces of gold per ton at December 31, 1986. During 1987, Campbell also increased its ownership in the mine to 100%. The mine has been in continuous production since 1987. To date, the deposit has been mined along a 3,000 foot strike length to a depth of 2,350 feet and remains open at depth. At the Joe Mann Mine, the Corporation's subsidiary Meston holds a number of mining concessions and a mining lease along with 25 mining claims surrounding the concessions. Under Quebec mining law, the Corporation's interest in the mining concessions and lease is maintained in good standing by payment of an annual rental fee of $25.00 per hectare or by the completion of $25.00 of exploration and development work annually per hectare. As to mining claims, a fee of $22.00 per claim must be paid and $500 of exploration work incurred every two years. Exploration expenses may be carried forward to future years and may be applied to claims within a 3.2 square kilometre block distance. Current work credits will entitle the Corporation to retain currently held mining claims for in excess of twenty years. Under the exploration agreements with SOQUEM described under "Mineral Exploration Properties--Chibougamau Exploration Properties" on page 16, SOQUEM pays the annual fees and incurs the expenditures necessary to keep the applicable mining claims in good standing. LOCATION AND ACCESS The Joe Mann Mine is located approximately 40 miles south of Chibougamau, Quebec which is approximately 350 miles north of Montreal. The property consists of mining concessions covering 90 hectares, a mining lease covering 14.8 hectares and 25 mining claims covering approximately 400 hectares. In addition, Meston holds 197 mining claims covering approximately 3,150 hectares outside of the Joe Mann Mine area. The property is accessed from Chibougamau by road. Highway 167 leads to the gravel mine access road, which is approximately 12 miles in length and is serviced by Meston. GEOLOGY The deposit represents a classic Archean vein-type deposit with gold-copper mineralization hosted by quartz veining within three laterally continuous shear systems. In the mine area, the rocks consist predominantly of mafic lavas intruded by gabbro sills and feldspar porphyry dykes. The intrusives appear to have been introduced along a prominent east-west break structure. The gabbro sills which are moderately magnetic are traceable over widths of 400 to 600 feet and for at least thirty miles along strike. Many late diabase dykes of varying thicknesses crosscut the sequence and strike northeast. 6 10 Two principal veins account for approximately 70% of the known reserves and 100% of the current production. The Main Vein is located north of the No. 1 shaft and has an east-west strike length of approximately 3,000 feet with an 80 degree dip to the north. The Main Vein contains about 41% of the reserves. The South Vein accounts for 29% of reserves and is located about 350 feet south of the Main Vein between the No. 1 shaft and the No. 2 production shaft. The South Vein has a strike length of about 3,000 feet in an east-west direction and a north dip. Exploration results indicate that the ore zones continue and are open at depth. In September 1996, a $14.5 million project was approved to deepen the No. 2 production shaft by 1,100 feet to facilitate the opening of six new production levels. For further discussion of the shaft deepening project, see "Mine Exploration and Development" below. MINEABLE RESERVES Mineable reserves at the Joe Mann Mine are continually updated by management to reflect operations and exploration activity and are periodically reviewed by independent consultants. The following table summarizes diluted mineable reserves estimated by management: PROVEN AND PROBABLE MINEABLE RESERVES
December 31, 1996 December 31, 1995 December 31, 1994 Grade Grade Grade Tons (oz/ton) Tons (oz/ton) Tons (oz/ton) Proven 515,522 0.277 664,000 0.264 736,539 0.273 Probable 211,869 0.245 210,840 0.295 310,656 0.262 ------- ----- ------- ----- ------- ----- Total 727,391 0.268 874,840 0.272 1,047,195 0.27 ======= ===== ======= ===== ========= ====
Total diluted proven and probable mineable reserves at the Joe Mann Mine decreased by 147,449 tons from 874,840 tons at December 31, 1995 to 727,391 tons at December 31, 1996. This decrease reflects the development of known reserves above the 2350 foot level, the deepest level currently accessible from the No. 2 production shaft. After taking into account production during 1996 of 265,600 tons grading 0.290 ounces per ton, total diluted proven and probable mineable reserves increased on a net basis during this period by 118,151 tons. Access to the mineralization below the 2350 foot level will be achieved on completion of the deepening of the No. 2 production shaft which is expected to be completed by mid 1998. MINE EXPLORATION AND DEVELOPMENT Extensive lateral mine development and underground diamond drilling were carried out during the last two years. In 1996, 19,300 feet of lateral development and 192,300 feet of diamond drilling were completed at a cost of approximately $5,750,000. This compares to 24,500 feet of lateral development and 204,000 feet of diamond drilling completed during 1995 at a cost of $5,900,000. As a consequence of the programme, continuity of strong gold mineralization has been confirmed to a depth of 3,700 feet, 1,350 feet below the current deepest production level of 7 11 the mine and mineralization remains open at depth. To date, widths are consistent with and grades are somewhat higher than those encountered in the currently mined areas. Total development and diamond drilling expenditures in 1997 are projected at $4,600,000 which will fund 13,300 feet of lateral development and 106,500 feet of diamond drilling. These activities will concentrate on exploration of the West Zone and the main orebody above the 2350 foot level of the mine. A 1,100 foot deepening of the No. 2 production shaft, that will facilitate the opening of six new production levels to a depth of 3,780 feet, was approved in September, 1996. The capital costs of the shaft deepening will be approximately $14.5 million. The shaft deepening commenced in December 1996 and is expected to be completed by mid 1998. The No. 2 production shaft is constructed to permit future deepening without interruption of production. WEST ZONE EXPLORATION POTENTIAL Currently, most of the mining at the Joe Mann Mine is carried out to the east of the No. 2 production shaft. Exploration drilling from surface in 1994, testing the area west of the shaft, discovered significant gold mineralization. The proximity of this zone to the existing shaft, combined with the excess hoisting and milling capacity of the operation, make this an attractive target that could favourably impact both production levels and unit cost at the Joe Mann Mine. In April 1995, a $1.35 million underground exploration programme was approved to investigate the West Zone. The programme commenced in June, 1995. An exploration drift along the 1650 foot level encountered gold mineralization 1,820 feet west of the No. 2 production shaft. A 455 foot interval along the drift averaged 0.27 ounces of gold per ton across a 6.0 foot width. The zone was tested both above and below the drift by 197 short drill holes totalling 43,000 feet. To test the depth potential of the West Zone, 18 deep holes were drilled from the 1650 foot level exploration drift. These holes encountered a number of ore grade gold mineralization down to depths of 3,600 feet and also confirmed that the West Zone approaches the shaft at depth. This underground exploration has confirmed that the West Zone has a strong similarity in grade and width to the main producing ore body. In 1997, a second exploration drift is being driven, along the 1825 foot level, 2,200 feet west of the No. 2 production shaft from which 35,000 feet of drilling is planned. Based on the geology and results to date, management believes that there is good potential for a new economic orebody in this area. MINING Mining is predominantly carried out using the shrinkage stope mining method and currently all stope production comes from above the 2350 foot level. In 1996, 73% of the ore came from the shrinkage stopes, 13% from longhole stoping and 14% from development. . During 1992, the No. 2 shaft was deepened to a depth of 2,676 feet. This deepening project opened up four new levels between the 1825 and 2350 foot levels. The production capacity of the No. 2 shaft system is estimated to be 2,000 tons per day assuming 12 hours of 8 12 hoisting per day. The No. 1 shaft is now inactive, but is maintained to provide standby support for the operation. Mining operations in the stopes utilize jackleg drills and high explosives to break the rock. Ore is loaded into five-ton ore cars at stope draw-points and trammed by electric locomotives to an ore pass. Mucked ore is passed through a rock breaker then hoisted to the surface. All production and development ore is hoisted from the No. 2 productiob shaft to the surface. The equipment used in the mining operations is regularly maintained and is in good working order. The following table sets out production from the Joe Mann Mine for the past three years:
JOE MANN MINE PRODUCTION SUMMARY Year ended December 31 -------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Tons Milled 265,600 282,000 290,000 Gold Grade (oz./ton) 0.290 0.252 0.233 Copper Grade (%) 0.302 0.291 0.232 Gold Produced (ounces) 70,400 64,500 61,100 Copper Produced (000's lbs) 1,473 1,494 1,200 Operating Costs (1) (US$ per oz. $ 272 $ 284 $ 299 of gold)
(1) Operating costs include smelting and refining charges, net of copper and silver by-product credits. MILLING Ore from the Joe Mann Mine is transported approximately 40 miles by truck to the Corporation's Camchib Mill for processing. The Camchib Mill was commissioned in 1955 and is regularly maintained. During 1996, the gold recovery rate at the Camchib Mill which processed ore from the Joe Mann Mine was 93.2% and the copper recovery rate was 96.3% compared to 92.7% and 95.7% respectively in 1995. These higher recovery rates reflect the continuing success of mill improvements made in late 1994. The mill process includes three separate circuits; a gravity circuit, a flotation circuit and a cyanide circuit. Original design capacity at the Camchib Mill was 3,500 tons per day as a flotation mill. The Camchib Mill was modified to include a cyanide circuit. Gold recovered from the gravity and cyanide circuits is formed into dore bars on site and is shipped to the Royal Canadian Mint for refining. The flotation circuit uses standard technology to produce a copper-gold concentrate. The copper-gold concentrate is shipped by rail to Noranda Inc.'s Horne Smelter in Rouyn/Noranda, Quebec for smelting and refining. 9 13 EMPLOYEES At the Joe Mann Mine, 260 persons were employed as of December 31, 1996 of whom 202 were covered by collective bargaining agreements with Le Syndicat des Travailleurs-euses de la Mine Meston (CSN) with respect to the mine workers and with Les Metallurgistes Unis d'Amerique (the United Steelworkers of America) with respect to mill workers. During 1996 and 1995, there were no material strikes or walkouts at the Joe Mann Mine. On September 14, 1996, the collective bargaining unit at the Joe Mann Mine, represented by CSN, consisting of 174 employees, approved a collective bargaining agreement covering a three year period with wage increases of 0.73% in the first year and 1.22% and in the second and third years. On February 8, 1996, a three year contract was approved by the Metallurgistes Unis d'Amerique covering 28 workers at the Camchib Mill, under which the salary was maintained at current levels for the first year with levels for the second and third years to be increased at the same rate as was agreed to with CSN. NET SMELTER ROYALTY In May 1993, Meston sold a graduated net smelter return royalty to Repadre Capital Corporation, a subsidiary of Dundee Bancorp Inc., for $3 million cash. The royalty, based on production from the Joe Mann Mine, is 1.8% at gold prices up to Cdn$500 per ounce increasing to 3.6% at gold prices of Cdn$625 per ounce and greater. A 2% royalty is also payable on copper production in excess of 5 million pounds per year and silver production in excess of 1 million ounces per year. For the year end December 31, 1996, $781,000 was paid to Repadre under this agreement compared to $702,000 paid for the year ended December 31, 1995. THE SANTA GERTRUDIS MINE HISTORY The previous owner of the Santa Gertrudis Mine, Phelps Dodge Corporation, through its Mexican exploration subsidiary, began to explore the Santa Gertrudis district in 1984. The district was recognized to have potential for sediment-hosted gold in fine-grained chemiclastic rocks similar to the gold deposits of the Carlin trend in Nevada. By April 1986, the first deposit was discovered and as exploration continued, an additional eight deposits were discovered soon thereafter. A preliminary feasibility study was completed in 1987 and the final feasibility study completed in October 1988. In 1989, Compania Minera Santa Gertrudis was formed for the purpose of holding the concessions where deposits had been identified and for the eventual mining of the deposits. The decision to begin production was made in 1989 and facility construction started in May 1990. The first shipment of gold precipitate from the initial 2,000 metric tonne of ore per day heap leach facility was made in June 1991. The initial capital investment was US$28.4 million including pre-operating costs of US$5.9 million. In 1992, an expansion was completed increasing mine production to 3,000 metric tonnes of ore per day. 10 14 LOCATION, ACCESS AND INFRASTRUCTURE The Santa Gertrudis Mine is located mid-way between Tucson, Arizona and Hermosillo, Sonora, Mexico, 80 miles south of the United States-Mexico border. The property is accessible by road which is paved except for the last 20 miles. The town of Magdalena is located about an hour drive from the site. The Santa Gertrudis Mine consists of a series of open pits, a heap leach facility, a processing plant and associated facilities. In September, 1995, the Santa Gertrudis property was expanded by 27.4 square miles to encompass a total land position of approximately 75 square miles. Approximately half of the new property was acquired through staking with the other half acquired through option agreements that allow the Corporation to earn a 100% interest through staged payments aggregating a maximum of US $1,000,000 over a five year period. During 1996, an additional 12 square miles were added to the land position through staking. At the Santa Gertrudis mine, the Corporation's subsidiary Sotula holds both exploration and exploitation concessions. In 1996, to maintain these concessions, Sotula was required either to carry out exploration work or have production amounting to approximately $31.00 per hectare and annual fees were required to be paid. Exploration work and production significantly in excess of the required $600,000 were carried out and an aggregate of $50,000 was paid for taxes on the approximate 22,000 hectare property. The Corporation's planned exploration programmes exceed estimated work requirements in the foreseeable future. The mine site includes a diesel power plant, four-bay maintenance shop, warehouse, modern office and telecommunications network, medical building, recovery plant, kitchen, recreational building and residential quarters for employees. GEOLOGY The gold deposits are generally located within a nine mile by two mile belt of sedimentary rocks that trends northwesterly along the southern range front of Cerro Azul. Mineralization occurs throughout the stratigraphic section; however, economically significant deposits are preferentially hosted by limey siltstone and carbonate rocks. The Santa Gertrudis deposits have strong geological similarities to the deposits in the Carlin trend in Nevada. Mineralized zones are usually completely oxidized and other Carlin features such as siliceous alteration, jasperoid zones, carbonaceous material and low angle thrusting are also present at Santa Gertrudis. Thirty-eight gold deposits and occurrences, including the recent discoveries of La Truena and Greta, have been identified in the District. Additional prospects are in the early stages of exploration. 11 15 MINEABLE RESERVES The following table summarizes mineable reserves estimated by management:
SANTA GERTRUDIS MINEABLE RESERVES December 31, 1996 December 31, 1995 December 31, 1994 Grade Grade Grade Tonnes g/tonne Tonnes g/tonne Tonnes g/tonnes ------ ------- ------ ------- ------ -------- Proven 1,287,000 1.87 1,008,000 2.28 861,000 2.21 Probable 291,000 1.46 297,000 1.85 168,000 1.86 ------- ---- ------- ---- -------- ---- Total 1,578,000 1.79 1,305,000 2.18 1,029,000 2.15 ========= ==== ========= ==== ========= ====
Production during 1996 was approximately 965,000 tonnes grading 2.06 grams per tonne. Approximately 1,238,000 tonnes of additional proven and probable reserves grading approximately 1.59 grams per tonne were added to ore reserves. This resulted in an overall increase in proven and probable reserves of 273,000 tonnes net of production during the period. Since the acquisition of the Santa Gertrudis Mine in July, 1994, based on the ore placed on the leach pads and the gold recovered, a recovery rate of approximately 72% has been experienced and is expected to continue. OPERATIONS Mining is on a continuous, round-the-clock basis with hydraulic shovels, front-end loaders, drills and a fleet of twelve 50-tonne haulage trucks. Two 85-tonne haulage trucks were acquired in 1996 to allow more efficient and lower cost stripping of new deposits. The average mining rate is approximately 32,000 tonnes per day of which approximately 3,000 tonnes is ore representing a strip ratio of 9.8:1. The ore is oxidized and processing utilizes conventional heap leach technology. Approximately 70% of the ore is crushed to minus two inches before delivery to the leach pads and the remaining 30%, representing fines, is amenable to direct delivery to the leach pads. Sodium cyanide solutions are dripped over the ore piles on the leach pads and the gold-enriched solutions are collected in solution ponds. Extraction of the gold from the gold-enriched leach solutions is accomplished by pumping the solutions through a series of carbon columns. The gold is adsorbed onto the carbon that is subsequently transported to the plant for stripping using a hot caustic solution. Zinc dust is added to the gold-laden strip solution to facilitate precipitation of the gold. A filter system collects the gold-rich zinc precipitate which is then dried. The zinc precipitate containing 75 to 90% gold and approximately 5% silver is shipped for final refining. During 1996, gold production at Santa Gertrudis was predominantly from the Dora, Maribel, Katman and El Toro pits. All producing pits are within four kilometres of the crusher and leach pads. In 1997, the majority of gold production will be from the Dora, Katman and El Toro deposits with the new La Truena deposit commencing production late in the year. The La Truena deposit is located approximately seven kilometres from the crusher and leach pads. Road 12 16 construction is expected to cost approximately US$250,000 and is expected to commence in the second quarter of 1997. In 1995, feasibility and condemnation work was completed for a Phase IV leach pad to be constructed to the east of the existing Phase I pad. The Phase IV leach pad will provide an additional 2.0 million tonne capacity at a cost of approximately US$500,000. Construction of the Phase IV leach pad is expected to be completed by May 1, 1997. The following table sets out production from the Santa Gertrudis Mine for the past three years:
SANTA GERTRUDIS MINE PRODUCTION SUMMARY Year ended December 31 - - -------------------------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Dry Tonnes leached 965,000 1,135,000 928,085 Gold Grade (g/tonne) 2.06 2.17 1.98 Gold Recovery (%) 72.5 72.0 70.5 Gold Produced (ounces) 54,400 55,600 41,570 Cash Operating Costs (1) $227 $205 $301 (US$ per ounce of gold)
(1) Operating costs include mining, plant, administration and transportation costs. Cash operating costs per ounce of gold for 1996 were US$227 compared to US$205 for 1995. This higher cost is primarily attributable to the higher waste to ore strip ratio in 1996. EXPLORATION The identification of additional ore reserves is a priority at Santa Gertrudis. A team of ten exploration geologists continued a comprehensive exploration programme that began in late 1994. Reconnaissance mapping, prospecting, detailed geological mapping, sampling, drilling and trenching are being systematically applied across the property. In 1996, the exploration programme proved successful in identifying new gold occurrences, new prospective areas and approximately 1,238,000 tonnes of mineable reserves grading 1.59 grams of gold per tonne. These 1,238,000 tonnes are included in the table captioned "Santa Gertrudis Mineable Reserves" on page 12. In 1996, approximately $5.0 million was spent on exploration and reserve definition on the Santa Gertrudis property. A total of 16,000 metres of drilling in 153 holes tested for extensions to existing deposits and completed reserve definition work in the main mine area. Of an additional 210 drill holes totalling 23,000 metres, approximately 30% tested exploration targets in the main mine area and the remaining 70% tested 18 exploration targets in other parts of the property. 13 17 Exploration in 1996 met with success in two key areas, La Truena and Greta. The La Truena deposit was discovered by prospecting at the end of 1995 and a 7,000 metre drill program subsequently identified a 50,000 ounce gold reserve. La Truena consists of three subparallel zones that have been traced a minimum of 450 metres along strike. The gold zones remain open in several directions. Additional exploration drilling is a priority for 1997 on extensions of these zones and on a number of nearby alteration zones. The Greta area, covering about six square miles, is located 4.5 miles southeast of the current mining operations. Numerous gold showings with values as high as 70 grams of gold per tonne have been identified by mapping and follow-up trenching. In 1996, 39 drill holes totalling 4,300 metres tested 8 individual targets in this area. Of several significant drill intersections, the best include 7.43 grams per tonne over 10.3 metres, 4.68 grams per tonne over 18.0 metres and 9.47 grams per tonne over 4.5 metres. The gold mineralization is associated with jasperoid lenses which are characteristic of Carlin-type gold deposits. Follow-up work is planned for several targets in this area in 1997. The identification of additional ore deposits remains a priority at Santa Gertrudis. In 1997, with a budget of $4.3 million, the exploration program will include mapping, geochemistry, prospecting, trenching and drilling as well as the integration of airborne geophysical and remote sensing data. EMPLOYEES The Santa Gertrudis Mine employed 232 persons at December 31, 1996 of whom 151 were covered by a collective bargaining agreement. In April 1996, the Corporation concluded an agreement with the National Union of Miners, Metallurgists and Similar Workers of the Mexican Republic ("Union") for a two year term with the Union representing the employees covered by such agreement which provides for a 22% increase in wages during the first year of the agreement with a wage re-opener after the first year. THE CERRO QUEMA PROPERTY HISTORY The Cerro Quema Property was acquired on March 4, 1996. The history of the Property is described above in Items 1 and 2 "Business and Properties" under the caption "General". LOCATION, ACCESS AND INFRASTRUCTURE The Cerro Quema Property is located approximately 250 km southwest of Panama City, on the southern Azuero Peninsula of Panama. The property is accessible by road and close to hydroelectric power. The regional city of Chitre is approximately 50 km north of the property. Chitre has a population of 35,000 and is served by an airport which has two regular daily flights from Panama City. At the Cerro Quema Property, the Corporation's subsidiary, Minera Cerro Quema held exploration concessions covering approximately 20,000 hectares which comprise the Cerro Quema 14 18 Property. These exploration concessions were converted to three extraction concessions in February, 1997. Pre-extraction activities, which must commence within one year of the date of the extraction concession, commenced in December, 1996. Under Panamanian mining law, a 2% net smelter return royalty is payable on production. In addition, an annual surface tax of approximately US$1.00 per hectare is also payable. GEOLOGY The geology at the Cerro Quema Property consists of host volcanic rocks which originally contained pyrite and very low-grade gold. These rocks have been highly weathered to result in a concentration of gold near the surface. The highest grade ore is at the surface, with the grade gradually declining with depth down to the lower limit of the oxidation boundary. Three near-surface oxide deposits, the La Pava, Quema West and Quemita, currently comprise the project, of which the La Pava deposit is the largest. The Quema West and Quemita deposits are adjacent to each other and approximately 2.5 to 3.0 km from the La Pava deposit. The local topography consists of steep canyons and narrow ridges with little or no extended flat or gently sloping areas. Below the steeper ridge crests and canyons that form the core of the project area, the topography, although still mountainous, is not as extreme and some wider canyons or valleys and rolling hills are present. MINEABLE RESERVES In preparing a positive feasibility, the Corporation, in conjunction with its consultants, has carried out a detailed review of the data produced by Cyprus on the property and has completed some confirmation drilling and test work. It is believed that Cyprus spent approximately US$8.5 million on work on the property, including 17,000 metres of reverse circulation drilling and 4,500 metres of diamond drilling. The following table sets out the probable mineable reserves as estimated by the Corporation in the feasibility study. Grade ----- Tonnes g/tonne ------ ------- Probable 8.8 million tonnes 1.16 Based on a review of the metallurgy of these ore reserves and proposed mining plans and methods and on test work performed on representative samples taken from the property, the Corporation expects that a stripping ratio of 0.64:1 and gold recoveries of 86% can be achieved in an open pit heap leach operation. The oxidized nature of the gold mineralization accounts for the favourable indicated recoveries. MINE FEASIBILITY AND DEVELOPMENT In November, 1996, a positive feasibility study was completed and presented to the Board of Directors on the basis of which approval was given to proceed with pre-production development including road construction and preparation of construction tender documents. Following completion of some additional test work and receipt of required permitting and exploitation concessions, final approval for the project was given on February 20, 1997. 15 19 The positive feasibility study estimates the capital costs to develop an open pit heap leach mine capable of producing 50,000 ounces of gold annually at US$32.8 million which includes provisions for contingencies. The capital costs will be funded from available cash and through debt financing, if necessary. Based on existing reserves the feasibility study indicates an estimated minimum mine life of six years. Construction and upgrading of the access road commenced in mid-November and was completed in late February, 1997. During the 1997 dry season, which extends from December to April, main construction activities will include the La Pava haul road, earthmoving and levelling of the general plant site area, and initial construction of leach pad pond stability dams and the camp infrastructure. Pre-production mining will commence towards the end of the third quarter of 1997. When production commences, the Cerro Quema Mine will have approximately 170 employees. EXPLORATION POTENTIAL A large portion of the 75 square mile property has only been covered by reconnaissance exploration, usually including stream sediment sampling and rock sampling on exposed ridges. More extensive road access that has been built within the past year will allow for exploration of a number of existing prospective exploration targets. An exploration program is expected to be initiated in mid-1998, once access and infrastructure is in place. MINERAL EXPLORATION PROPERTIES The Corporation has interests in precious and base metal properties in the Chibougamau region of northwestern Quebec, in the State of Sonora, Mexico and in the State of Nevada. CHIBOUGAMAU EXPLORATION PROPERTIES Meston owns extensive exploration properties in the Chibougamau area, including mining claims and several former producing mines. These former producing mines include the S-3, Lac Chib, Kokko Creek, Quebec Chibougamau and the Main Mine. In June 1992, Meston entered into two agreements with the Societe quebecoise d'exploration miniere ("SOQUEM") under which SOQUEM may expend up to $7 million towards exploration programmes on the Meston and Chibougamau properties. During 1995, these agreements were amended to extend their term and increase the expenditures. Under the revised terms, SOQUEM can earn a 50% interest in the 197 claim Meston property (excluding the Joe Mann Mine), in exchange for spending $4.2 million (increased from $4 million) by January 6, 1999 (originally June 1, 1997). SOQUEM can also earn a 50% interest in the Chibougamau properties, which comprises 396 claims and three mining concessions, by spending $3.15 million (increased from $3 million) by January 6, 1998 (originally June 1, 1997). Should SOQUEM not spend the amounts set out above, SOQUEM will earn no interest in the properties. Meston has retained the right of first refusal to treat any ore produced from these properties at its Camchib Mill. If either party fails to fund its pro rata share of expenditures once SOQUEM has earned its 50% interest, 16 20 the defaulting party will have its interest diluted. If either party's interest is diluted to 15% or lower, such party's interest will automatically revert to a 3% net smelter return. From the inception of the programme to December 31, 1996, SOQUEM has spent approximately $2,205,000 million on the Meston property and $2,136,000 million on the Chibougamau properties. The Company is not responsible for sharing expenditures with respect to the referenced properties. During 1996, SOQUEM continued surface exploration on both properties consisting of geological mapping, geophysical surveying, stripping and trenching including approximately 19,000 feet of diamond drilling in 22 holes on the Meston property and 15,000 feet of diamond drilling in 12 holes on the Chibougamau properties. MEXICAN EXPLORATION PROPERTIES In addition to the Santa Gertrudis Mine, Sotula currently holds eight exploration properties covering approximately 3,500 hectares as well as 2,000 hectares under option in Sonora State. During 1996, approximately $600,000 was expended on these gold properties and evaluation of acquisition prospects. Approximately $400,000 is budgeted for exploration outside of the Santa Gertrudis property in 1997. WILDCAT PROPERTY In January, 1995, Campbell acquired the Wildcat advanced exploration gold property located in Nevada from Lac Minerals (USA), Inc. for US$300,000. This property is located 80 miles northeast of Reno, Nevada. This area will require further drilling to determine whether the project could be economic. Near-surface higher grade oxide material would be amenable to low cost open pit heap leach mining. The Corporation's interest in the Wildcat property consists of 315 mining claims held directly and under lease agreements. Annual federal and county rental/maintenance fees amounted to US$33,000 in 1996. There are no work assessment requirements. Advance royalty payments of US$29,000 per year are payable pursuant to lease agreements. In November, 1996, Campbell entered into an option to purchase agreement with Sagebrush Exploration Inc. pursuant to which Sagebrush may acquire the Wildcat property until November, 1997 for US$650,000. CAMPBELL FINANCINGS On February 8, 1996, the Corporation entered into an underwriting agreement with First Marathon Securities Limited, Nesbitt Burns Inc. and CIBC Wood Gundy Securities Inc. (the "Underwriters") pursuant to which the Corporation sold 18,000,000 Units, each Unit consisting of one Common Share and one-half of a Common Share Purchase Warrant (a "Warrant"). Each whole Warrant entitles the holder to purchase one Common Share for US$1.50 on or before February 26, 1999. The Corporation received approximately US$21,150,000 from the Underwriters net of underwriting fees and before deducting other expenses of sale, from the sale of such securities. The 18,000,000 Common Shares and 9,000,000 Warrants were registered under the Securities Act of 1933 (the "Act"), on a Registration Statement on Form F-10 (Registration No. 333-770). Reference is made to the Prospectus, dated February 9, 1996, 17 21 contained in said Registration Statement for a description of the details of such offering and to the Warrant Indenture, referred to in such Registration Statement for the terms of the Warrants. The Corporation has separately registered under the Act the 9,000,000 Common Shares issuable upon the exercise of the Warrants pursuant to a Registration Statement on Form F-3 (Registration No.333-1882) which was declared effective on July 25, 1996. In July, 1994, concurrent with the acquisition of Santa Gertrudis, the Corporation entered into an underwriting agreement with First Marathon Securities Limited pursuant to which the Corporation sold US$11,005,000 aggregate principal amount of 7 1/2% Convertible Subordinated Debentures (Unsecured) (the "7 1/2% Debentures"). The 7 1/2% Debentures will mature on July 21, 2004, the tenth anniversary of their date of issue. The 7 1/2% Debentures are convertible at the option of the holder into Common Shares at any time prior to maturity at a conversion price of US$0.50 per Common Share. The 7 1/2% Debentures are redeemable for cash at any time after the fifth anniversary of the date of issue and, at the Corporation's option, may be redeemed in Common Shares on the basis of one Common Share for each US$0.50 of 7 1/2% Debenture principal being redeemed. The right of the Corporation to redeem the 7 1/2% Debentures for cash or Common Shares is conditional on the average price of the Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to redemption. The Corporation may, at its option, repay the 7 1/2% Debentures at maturity by issuing Common Shares of the Corporation at the conversion price of US$0.50 per Common Share. At December 31, 1996, debenture holders had converted US$5,414,000 of debenture principal into 10,828,000 Common Shares. Debentures in the amount of US$5,591,000 remain outstanding as of March 14, 1997. MESTON DEBENTURES AND PREFERENCE SHARES During 1991, a predecessor of Meston entered into a corporate restructuring and financing arrangement (the "Financing") in which it issued to a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate Debentures and Notes (the "Guaranteed Debentures") and $12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares (the "Preferred Shares") and renounced Canadian development expenses. The Guaranteed Debentures bear interest at varying rates and are repayable upon maturity in 2007. The Preferred Shares are retractable in 2007. In order to secure the obligations in respect of the Guaranteed Debentures and the Preferred Shares, a subsidiary of the Corporation entered into an Interest Rate and Currency Exchange Swap Agreement (the "Swap Agreement") with a major international bank and irrevocably assigned all amounts receivable under the Swap Agreement directly to the investors. The proceeds of the Swap Agreement will be used to make all interest payments, repay the Guaranteed Debentures upon maturity and retract the Preferred Shares. Accordingly, such bank is primary obligor under the Financing. The Guaranteed Debentures are subordinate to all current non-trade and future senior indebtedness of the Corporation and its subsidiary. ENVIRONMENTAL MATTERS The Corporation believes that it and its subsidiaries are currently complying in all material respects with applicable environmental legislation. During 1995, proposed amendments to the Quebec Mining Act relating particularly to rehabilitation and restoration plans came into force. This legislation required that a rehabilitation and restoration plan be submitted for approval within one year of the legislation coming into force and that a financial guarantee be furnished with 18 22 respect to such plan. The Corporation filed a preliminary rehabilitation and restoration plan on March 9, 1996, and will file additional information required thereunder within the extensions granted by Quebec mining authorities. Annual financial guarantees are required to be filed in connection with the rehabilitation and restoration plan within 15 days of approval of the plan. The Corporation estimates that these annual amounts will range from $95,000 in the first year to $658,000 in the fourth year. The Corporation currently accrues for the estimated site restoration costs at the Joe Mann Mine over the estimated life of the mine. At the Joe Mann Mine, the total cost of completing the work contemplated under the rehabilitation plan filed on March 9, 1996 is estimated at $1,500,000. This work is to be completed over a four year period and as a consequence is not anticipated to have a material effect on the Corporation's financial condition. At the Santa Gertrudis Mine in Mexico, general guidelines indicate that total reclamation costs could be approximately $2 million. This estimated cost will be more than exceeded by the salvage value of plant and equipment. The Corporation currently accrues for the estimated site restoration costs at the Santa Gertrudis Mine over the estimated life of the mine. On an ongoing basis, environmental compliance costs are not material at the Joe Mann Mine or the Santa Gertrudis operation. At the newly acquired Cerro Quema Property in Panama, the feasibility study indicates rehabilitation costs of up to US$2,000,000 which will be covered by the salvage value of the plant and equipment. Three environmental studies were filed. A Preliminary Evaluation and an Environmental Reconnaissance study were filed by the previous owner and an Environmental Viability study was filed by the Corporation and was approved in December, 1996. Based on current legislation and the recent experience of other mining projects, the Corporation believes that environmental compliance can be achieved without material impact on the economics of the Project. RISK FACTORS MINING RISKS The Corporation is subject to the risks typical in the mining business including uncertainty of success in exploration and development; operational risks including unusual and unexpected geological formations, rock bursts, particularly as mining moves into deeper levels, cave-ins, flooding and other conditions involved in the drilling and removal of material as well as environmental damage and other hazards; risks that intended production schedules or estimated costs will not be achieved; and risks of fluctuations in the price of gold and currency exchange rates. The Cerro Quema Property is a low grade open pit heap leach project located in a region of steep topography which experiences seasonally heavy rainfall. While the rainfall has been taken into account in preparing the feasibility study, and the Corporation believes that its impact on the project can be managed; there can be no assurance that excessive rainfall will not have an unforeseen negative impact on the construction schedule, operating conditions, recovery rates or environmental compliance. 19 23 While the feasibility study for the Cerro Quema project was carefully prepared by experienced engineers and advisors, no assurance can be given that the Cerro Quema Project will be completed as contemplated in the feasibility study for the estimated costs or within the estimated time schedule. Also no assurance can be given that the intended production schedule or estimated operating costs can be achieved. While appropriate testing has been carried out by the Corporation and its independent mining experts, there can be no assurance that recovery rates achieved in small scale laboratory tests will be achieved under onsite conditions or in production scale leaching. Gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, all of which are beyond the Corporation's control, including expectations for inflation, levels of interest rates, the demand for gold, global or regional political, economic and banking crises and production rates in major gold producing regions. The demand for and supply of gold also affect gold prices but not in the same manner as those of the vast majority of other commodities. The aggregate effect of these factors is impossible to predict. If the Corporation's realization on gold sales were to decrease significantly and remain at such a level for any substantial period, the Corporation could determine that it is not economically feasible to continue commercial production. The operating costs per ounce of gold produced from the Corporation's operations are set forth under "Business and Properties" on pages 9 and 13 herein. The figures for ore reserves presented herein are estimates and no assurance can be given that the anticipated tonnages and grades will be achieved or the indicated level of recovery realized. As well, lead times required for pit preparation and development in open pit mining operations can affect production schedules. Gold price fluctuations may render ore reserves containing relatively lower grades of gold mineralization uneconomic. Moreover, short-term operating factors relating to the ore reserves, such as the need for orderly development of ore bodies or the processing of new or different ore grades, may cause the Corporation to be unprofitable in any particular accounting period. The Corporation carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not insured against include environmental pollution, mine flooding, landslides or other natural hazards relating to climate or topography as well as other hazards which cannot be insured against or which the Corporation may elect not to insure against. COMPETITION The Corporation competes with other mining companies in connection with the acquisition of mining claims and leases on gold and other precious metals prospects and in connection with the recruitment and retention of qualified employees. There is significant competition for the limited number of gold acquisition opportunities in North America and Latin America. As a result of this competition, some of which is with companies with greater financial resources than the Corporation, the Corporation may be unable to continue to acquire attractive gold mining properties on terms it considers acceptable. 20 24 Since there is a world market for gold, the Corporation believes that no single company has sufficient market power to materially affect the price or supply of gold in the world market. RISKS OF FOREIGN OPERATIONS The operations at Santa Gertrudis and Cerro Quema are subject to the federal, state and local laws of Mexico and Panama, respectively, including laws and regulations relating to mining operations, environmental protection and reclamation, labour relations and safety, land acquisition and mineral tenure, expropriation of property and taxation and repatriation of profits. Future changes in these laws or regulations or in their application are beyond the control of the Corporation and may adversely affect its operations. The Corporation believes the present attitude of the Mexican government toward foreign investment and the mining industry is favourable. However, in view of recent political and economic events in Mexico, including political assassinations, currency devaluation, inflation and domestic banking failures, investors should consider the risks associated with projects in Mexico. Over the last few years, Panama has modified its laws relating to mining and the taxation of mining operations to stimulate foreign and local investment in the mining sector. These include provisions that permit the duty-free importation of all equipment, spare parts and materials required for mining operations and the duty-free export of all minerals produced. There is an income tax rebate for income from any mine commencing production before February, 1998 equal to 20% of the tax that would otherwise be payable and which results in an effective tax rate of approximately 28% (subject to a further 6% withholding tax on dividends paid from Panama). The Corporation views these legislative changes as reflecting an increasingly supportive regulatory climate for mining investment in Panama. ITEM 3. LEGAL PROCEEDINGS In 1994, Sotula received income tax reassessments claiming payment of income taxes relating to income earned in 1988 and 1989. At December 31, 1995, the total amount claimed, including interest, penalties and inflationary adjustments was approximately Mexican pesos 5,100,000. The Corporation believed that these reassessments were improperly issued and the subsidiary appealed the reassessments. In connection with the appeal, the Corporation pledged Mexican pesos 5,200,000 (Canadian $920,000), which amount was included in cash and short-term deposits at December 31, 1995, to secure a bond posted with the tax authorities as security for the potential liability of the reassessments. During 1996, Sotula was successful in its appeal of these reassessments and the security was released. During 1996, the Corporation's Mexican subsidiary received import duty assessments claiming the subsidiary's interest in certain pieces of machinery and equipment with an approximate value of US$2,200,000 and levying taxes, penalties, interest and inflationary adjustments for a further Mexican pesos 9,200,000. The claim against the subsidiary's assets and the additional amount payable arose as a result of the subsidiary not presenting certain import documentation to tax authorities by a prescribed date in connection with their audit of imports of the claimed machinery and equipment during 1990 and 1991 when the mine was not owned by the Corporation. The Corporation, which has all of the required documentation, has not provided 21 25 for these amounts in its financial statements on the basis of professional advice received indicating the basis for these assessments to be weak and accordingly has appealed the assessments on March 5, 1997 before the Local Tax Legal Administration for Revenues in Nogales, Sonora. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter, no matters were submitted to the shareholders for approval through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET PRICE RANGES FOR COMMON SHARES Information relating to the market prices for the Common Shares appears on page 32 of the 1996 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this document. On March 14, 1997 the closing price of the Common Shares on The Toronto Stock Exchange was $1.15 and on the New York Stock Exchange was US $0.875 as reported by the Globe and Mail. SHAREHOLDERS As of March 14, 1997, Campbell had 13,298 common shareholders of record. DIVIDEND RECORD AND POLICY The Corporation has not paid a dividend on its common shares since 1984. The Corporation's policy is to retain earnings to finance future growth. Dividends on the common shares paid to non residents of Canada will generally be subject to withholding tax under the Income Tax Act (Canada) at the rate of 25%. Such rate may be subject to reduction under the provisions of a tax treaty between Canada and the country in which the recipient is resident. The Canada-U.S. Income Tax Convention (1980) provides for a general reduction in the rate of withholding tax to 15% on dividends paid on shares of a corporation resident in Canada (such as the Corporation) to a resident of the United States, and also provides for a further reduction to 10% where the beneficial owner of the dividend is a corporation, resident in the United States, which owns at least 10% of the voting shares of the corporation paying the dividend, which figure is reduced to 6% for dividends paid in 1996 and 5% for dividends paid after 1996. ITEM 6. SELECTED FINANCIAL DATA Information relating to this item appears on page 31 of the 1996 Annual Report to Shareholders which is incorporated herein by reference and is filed as Exhibit 13.1 to this document. 22 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information relating to this item appears on pages 15 and through 19 of the 1996 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this document. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information relating to this item appears on pages 20 through 31 of the 1996 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this document. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no disagreements on accounting and financial disclosure that require mention in this Form 10-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information relating to the Directors of Campbell is set out in the Election of Directors section of the Proxy Circular in connection with the 1997 Annual Meeting of Shareholders scheduled for April 24, 1997 which is incorporated herein by reference and is filed as Exhibit 20.1 to this document. EXECUTIVE OFFICERS OF REGISTRANT The executive officers of the Corporation, together with the offices of the Corporation held by them, their ages and their experience since January 1, 1992, is set out below: Years in Other Position and Age -------- ------------------ --- Name Office Office Business Experience - - ---- ------ ------ ------------------- John O. Kachmar President and 6 Certified Management 60 Chief Executive Accountant. Prior to August Officer of the 1993, President of Northgate Corporation Exploration Limited; prior to May 1992, Executive Vice President of Northgate Exploration Limited; Toronto, Ontario, mining companies
23 27 Lorna D. Vice President, 9 Lawyer. Vice President, 45 MacGillivray Secretary and Secretary and General Counsel General Counsel of the Corporation; prior to August 1993, Vice President and Secretary of the Corporation, Northgate Exploration Limited, and Sonora Gold Corp., Toronto, Ontario, mining companies. Paul J. Ireland Vice President, 2 Chartered Accountant. Prior 39 Finance to September 1994, Manager of Special Projects, Polaris Realty (Canada)Limited, Toronto, Ontario, real estate company; prior to August 1992, Senior Manager KPMG Peat Marwick Thorne, Toronto, Ontario, independent audit firm. Gary A. Cohoon Vice President, 1 Geologist. Prior to November 48 Exploration 1995, General Manager, Exploration and Development of the Corporation; prior to December 1993, independent geological consultant.
There are no family relationships existing among any of the executive officers, directors, or nominees for same of the Corporation. As a foreign private issuer pursuant to Rule 3a12-3 under the Securities Exchange Act of 1934 ("Exchange Act"), the registrant is not subject to Section 16 of the Exchange Act. ITEM 11. EXECUTIVE COMPENSATION Information required under this item not set out below is set out in the Proxy Circular in connection with the 1997 Annual Meeting of Shareholders which is incorporated herein by reference and is filed as Exhibit 20.1 to this document. Fiscal Year-End Option/SAR Values The table below sets forth the fiscal year-end value of unexercised options and stock appreciation rights (SARs) for each of the executive officers named in the Summary Compensation Table set out in the Proxy Circular in connection with the 1997 Annual Meeting of Shareholders. 24 28 OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable Value At Assumed Annual Rates of Stock Price Appreciation for Option Term Number of Percent of Exercise or Securities Total Base Price Underlying Options/SARs ($/Sh) Option/SARs Granted To (d) Expiration Granted (#) Employees In Date (b) Fiscal Year (e) Name (a) (c) 5% ($) 10% ($) (f) (g) John O. Kachmar 350,000(1,2) 19% $1.48 15/08/2001 $140,000 $315,000 President & CEO Lorna D. 150,000 (1) 8% $1.48 15/08/2001 $60,000 $135,000 MacGillivray V. P., Secretary & General Counsel Paul J. Ireland 150,000 (1) 8% $1.48 15/08/2001 $60,000 $135,000 V. P., Finance Gary A. Cohoon 100,000 (1) 5% $1.48 15/08/2001 $40,000 $90,000 V. P., Exploration
NOTES: (1) These options were granted on August 14, 1996 and are for a term for 5 years. The options are exercisable as to 25% immediately with 25% becoming exercisable cumulatively on each of the first, second and third anniversary date of the grant. (2) Excludes options to acquire 100,000 Common Shares granted during 1996 under the Directors' Stock Option Plan. (3) The exercise price represents the average of the closing prices of the Corporation's Common Shares on The Toronto Stock Exchange during the five days prior to the date of grant. Performance Graph The line graph set forth below provides a comparison of the registrant's cumulative shareholder return on its Common Shares against the cumulative total shareholder return of the TSE 300 Stock Index and The TSE Gold and Precious Metals Index . Such shareholder return is the sum of the dividends paid and the change in the price of stock, and assumes $100 invested on December 31, 1991 in the registrant's Common Shares, the TSE 300 Stock Index and the TSE Gold & Precious Metals Index. 25 29 COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* BETWEEN CAMPBELL RESOURCES INC., THE TSE 300 INDEX AND GOLD AND PRECIOUS METALS INDEX [GRAPH]
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, 1991 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- ---------- CCH Stock Price 100 82.61 191.3 167.39 286.96 271.74 TSE 300 Composite 100 98.57 130.65 130.42 149.37 191.71 Gold and Silver 100 107.61 221.02 199.43 218.23 238.22
*$100 INVESTED ON 12/31/91 IN STOCK OF INDEX - INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required under this item not set out below is set out in the Proxy Circular, in connection with the 1997 Annual Meeting of Shareholders which is incorporated herein by reference and is filed as Exhibit 20.1 to this document. The following table lists the number of shares of Common Shares beneficially owned by each executive officer listed in the table under the caption "Executive Compensation". The percentage ownership calculation for each owner has been made on the basis that there are outstanding 150,357,876 Common Shares. Name Number of Shares % of Class ---- ---------------- ---------- John O. Kachmar 125,000 (1) < 1% Lorna D. MacGillivray 56,051 (2) < 1% Paul J. Ireland 16,638 (3) < 1% Gary A. Cohoon 14,854 (4) < 1% Four executive officers as a group 212,543 (5) < 1% (1) Excludes 1,350,000 Common Shares subject to option, of which 1,037,500 are currently exercisable or exercisable within the next 60 days. (2) Excludes 400,000 Common Shares subject to option, of which 237,500 are currently exercisable or exercisable within the next 60 days. (3) Excludes 300,000 Common Shares subject to option of which 150,000 are currently exercisable or exercisable within the next 60 days. (4) Excludes 325,000 Common Shares subject to option of which 137,500 are currently exercisable or exercisable within the next 60 days. 26 30 (5) Excludes 2,375,000 Common Shares subject to option of which 1,562,500 are currently exercisable or exercisable within the next 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. No reportable transactions or relationships involving the registrant and any of its directors or officers existed during the last fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. FINANCIAL STATEMENTS Auditors' Report Consolidated Balance Sheets as at December 31, 1996 and 1995 Consolidated Statements of Income - Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Retained Earnings (Deficit) - Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994 Notes to the Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES (a) None (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed in the fourth quarter of 1996. During the first quarter of 1997, the Corporation filed a Current Report on Form 8-K dated February 21, 1997. (c) EXHIBITS References to A refer to documentation previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. 27 31 References to B refer to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. References to C refer to documents previously filed as an exhibit to Campbell's registration statement on Form S-8 (Registration No. 33-28296) and incorporated herein by reference. References to D refer to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. References to E refer to documents previously filed as an exhibit to Campbell's Current Report on Form 8-K dated February 28, 1996 and incorporated herein by reference. References to F refer to documents previously filed as an exhibit to Campbell's Current Report on Form 8-K dated March 28, 1996 and incorporated herein by reference. References to G refer to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1995 dated April 12, 1996 and incorporated herein by reference. 3 Articles of Incorporation and By-Laws ------------------------------------- 3.1 Articles of Continuance dated September 7, 1982 (A) 3.2 Articles of Amendment dated November 1, 1982 (A) 3.3 Articles of Amendment dated April 15, 1983 (A) 3.4 Articles of Amendment dated June 8, 1983 (A) 3.5 Articles of Amendment dated September 13, 1983 (A) 3.6 Articles of Amendment dated January 31, 1984 (A) 3.7 Articles of Amendment dated November 8, 1984 (A) 3.8 Articles of Amendment constituted by special resolution of shareholders dated November 7, 1984 (A) 3.9 Articles of Amendment dated September 11, 1985 (A) 3.10 Articles of Amendment dated December 2, 1987 (A) 3.11 By-Law No. 1 as amended and as in effect on the date hereof (A) 3.12 Amendment of By-Law No. 1 (A) 4 Instruments Defining the Rights of Security Holders Including ------------------------------------------------------------- Indentures ---------- 28 32 4.1 Trust Indenture made as of July 21, 1994 between the Corporation and Montreal Trust Company of Canada regarding the 7 1/2% Convertible Subordinated Debentures (B) 4.2 Warrant Indenture made as of February 21, 1996 between the Corporation and Montreal Trust Company of Canada, as Warrant Trustee, regarding the Common Share Purchase Warrants (E) 10 Management Contracts and Compensatory Plans and Arrangements ------------------------------------------------------------ 10.1 The Corporation's Employee Incentive Plan (C) 10.2 Amended Employment agreement dated December 1, 1994 between the Corporation and John O. Kachmar (B) 10.3 Amended Employment agreement dated December 1, 1994 between the Corporation and Lorna D. MacGillivray (B) 10.4 Amended Employment agreement dated December 10, 1996 between the Corporation and Paul J. Ireland 10.5 Consulting agreement dated November 12, 1993 between the Corporation and Francis S. O'Kelly (D) 10.6 Directors' Stock Option Plan (D) Material Contracts - - ------------------ 10.7 Royalty Agreement with Repadre Capital Corporation made as of April 23, 1993 (D) 10.8 Stock Purchase Agreement dated July 6, 1994 between the Corporation, Sotula Gold Corp., Sonoran Mining Corporation and Compania Minera Zapata S. de R.L. de C.V. relating to the purchase of Santa Gertrudis (B) 10.9 Bullion Dealing Master Agreement and Security Agreement between the Corporation and Citibank dated February 24, 1995 regarding forward gold sales (B) 10.10 Asset Purchase Agreement dated January 27, 1995 between Campbell Gold Exploration Inc. and Lac Minerals (USA), Inc. regarding the Wildcat Property. (B) 10.11 Underwriting Agreement, dated February 8, 1996, between the Corporation and First Marathon Securities Limited, Nesbitt Burns Inc. and CIBC Wood Gundy Securities Inc. regarding the public offering of common shares and common share purchase warrants. (E) 29 33 10.12 Purchase and Sale Agreement dated March 4, 1996 between Cyprus Exploration and Development Corporation, Campbell Resources Inc. and Compania de Exploracion Mineral, S.A. (F) 13.1 Certain Portions of the Annual Report to the Shareholders for the year ended December 31, 1996 contained on pages 15 to 32 inclusive. 20.1 Proxy Circular dated March 13, 1997 in connection with the 1997 Annual Meeting of Shareholders scheduled to be held on April 24, 1997. 21.1 Significant subsidiaries. 23.1 Consent of KPMG. 27.1 Financial Data Schedule 30 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAMPBELL RESOURCES INC. Dated: March 26, 1997 By:/s/JOHN O. KACHMAR --------------------- John O. Kachmar President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - - --------- ----- ---- /s/ JOHN O. KACHMAR Principal Executive Officer March 26, 1997 - - -------------------------------- John O. Kachmar, President and Chief Executive Officer and Director /s/ PAUL J. IRELAND Principal Financial and March 26, 1997 - - -------------------------------- Accounting Officer Paul J. Ireland, Vice President, Finance /s/ JAMES D. BEATTY March 26, 1997 - - -------------------------------- James D. Beatty, Director /s/ GRAHAM G. CLOW March 26, 1997 - - -------------------------------- Graham G. Clow, Director /s/ ROD P. DOUGLAS March 26, 1997 - - -------------------------------- Rod P. Douglas, Director /s/ JAMES C. McCARTNEY March 26, 1997 - - -------------------------------- James C. McCartney, Q.C. Chairman and Director /s/ DONALD R. MURPHY March 26, 1997 - - -------------------------------- Donald R. Murphy, Director Francis S. O'Kelly March 26, 1997 - - -------------------------------- Francis S. O'Kelly, Director /s/ G.E."KURT" PRALLE March 26, 1997 - - -------------------------------- G.E."Kurt" Pralle, Director /s/ JAMES D. RAYMOND March 26, 1997 - - -------------------------------- James D. Raymond, Director
31 35 CAMPBELL RESOURCES INC. 1996 FORM 10-K EXHIBIT INDEX 10.4 Amended Employment agreement dated December 1, 1996 between the Corporation and Paul J. Ireland (7 pages) 13.1 Certain portions of the 1996 Annual Report to Shareholders contained on pages 15-32 inclusive (19 pages) 20.1 Notice and Proxy Circular dated March 13, 1997 in connection with the 1996 Annual Meeting of Shareholders scheduled to be held on April 24, 1997 and Form of Proxy (20 pages) 21.1 Significant subsidiaries 23.1 Consent of KPMG 27.1 Financial Data Schedule EX-10.4 2 AMENDED EMPLOYMENT AGREEMENT-12/01/96 1 EXHIBIT 10.4 THIS AGREEMENT entered into the 1st day of December, 1996. BETWEEN: CAMPBELL RESOURCES INC. a corporation incorporated under the laws of Canada (hereinafter called the "CAMPBELL") -and- PAUL J. IRELAND of the City of Toronto, in the Municipality of Metropolitan Toronto (hereinafter called the "EMPLOYEE") WHEREAS the Employee is employed as an executive officer of Campbell pursuant to an Employment Agreement dated the 1st day of October, 1994 (the "1994 Agreement"); AND WHEREAS Campbell wishes to enter into this agreement with the Employee to replace the 1994 Agreement and to amend certain terms and conditions of his continued employment as Vice President, Finance of Campbell, including certain rights in the event of a Change of Control, as more particularly described herein; NOW THEREFORE THIS AGREEMENT WITNESSETH that for other good and valuable consideration, and the sum of one dollar ($1.00) now paid by each party hereto to the other (the receipt whereof is hereby by each of them acknowledged), the parties here covenant and agree as follows: 1. The Employee shall be employed as Vice President, Finance of Campbell on a full time basis and shall perform such duties and exercise such powers as are from time to time assigned to the Employee. The Employee shall also serve as a director, officer or employee of such affiliates or associates of Campbell as Campbell may from time to time require. The Employee shall devote his full time and attention to the affairs of Campbell and its affiliates and associates. 2. The Employee shall be paid an annual salary of $130,000, payable monthly in arrears. Salary reviews shall be carried out by the Compensation Committee of the Board of Directors on a periodic basis. 3. While employed by Campbell, the Employee shall be entitled to health and other benefits, as set out on Schedule A which are provided to senior employees by Campbell under its benefit plans subject to such eligibility and other requirements as may apply. Campbell shall provide pension benefits through participation in a Campbell Pension Plan or at Campbell's option, through contributions made to the Employee's RRSP, such pension benefits to be in accordance with Campbell's policy for senior employees. 2 4. The Employee shall be entitled to four weeks annual vacation to be taken at such time as Campbell may prescribe. Only two weeks of this vacation entitlement may be carried forward from year to year provided that no vacation entitlement may be carried forward for more than one year. 5. Subject to the provisions of paragraph 8 hereof, the employee's employment under this agreement may be terminated as follows: (a) by the Employee, upon three months notice in writing; (b) in the event of a Change of Control, as defined in paragraph 13, the Employee shall have the right, within six months thereof on thirty days notice in writing to Campbell, to resign his position as Vice President, Finance and any other directorships or offices that he may hold as a result of his employment with Campbell and upon such resignation to be paid forthwith twenty-four months salary by way of lump sum payment plus benefits as set out in paragraphs 7 and 8 below. In addition, the employee shall be entitled to have an additional twenty-four months of credited service from the date of resignation added to his pension entitlement under the Pension Plan. Such credited service is to be calculated on the basis that the Employee had been employed for the additional twenty-four months at a salary equal to that paid to the Employee at the time of such resignation; (c) by Campbell, for cause, at any time forthwith, without notice or payment in lieu of notice. For greater certainty, cause shall not include the refusal of the Employee to accept either a relocation from his existing city of residence or a change in the nature of employment that would lessen the status, authority or responsibility of the Employee; or (d) by Campbell, upon payment forthwith of a lump sum amount equal to twenty-four months salary in lieu of notice plus benefits as set out in paragraphs 7 and 8 below. 6. For the purposes of this agreement, the salary payable to the Employee under subparagraphs 5(b) or (d) is in lieu of notice or other compensation to which the Employee may otherwise be entitled and the Employee shall be under no obligation to act to mitigate any payment due hereunder or otherwise suffer a reduction of any payment due hereunder to the Employee by virtue of any compensation or payments which the Employee may receive after cessation of employment by Campbell from any other source whatsoever. 7. In the event that the Employee resigns under subparagraph 5(b) or the Employee's employment is terminated under subparagraph 5(d), the Employee shall be entitled to continuation of the benefits set out in paragraph 3 for twenty-four months from the date of resignation or termination or payment forthwith by Campbell of a lump sum amount in lieu thereof. 8. The Employee's outstanding rights if any at the time of resignation or termination under Campbell's Employee Incentive Plan shall continue for twenty-four months from the date of 3 resignation or termination except that the Employee's right under any stock options outstanding at the time of resignation or termination shall immediately become fully exercisable and shall expire at the close of business on the ninetieth day following the date of resignation or termination or the next business day if the ninetieth day is not a business day. Should the Employee exercise outstanding options, Campbell shall deliver the share certificate(s) representing the shares issued pursuant to the exercise of options against payment to Campbell of the aggregate exercise price at a closing to be held within five (5) business days of receipt by Campbell of notice of exercise of option in writing. If the Employee has not previously elected to participate in the share purchase plan of the Employee Incentive Plan, he shall be deemed not to have any outstanding rights under such plan. 9. In the event that the Employee becomes permanently disabled, the Employee or Campbell may terminate this agreement by giving 90 days notice in writing provided that the Employee shall be entitled to receive long term disability benefits under Campbell's long term disability policy and provided that Campbell agrees to pay to the Employee, a monthly amount equal to the amount of the Employee's monthly salary not covered by the benefits under Campbell's long term disability policy along with the other benefits to which the Employee would be entitled for twenty-four months from the date that the Employee becomes permanently disabled. In the event that the Employee is not entitled to receive long term disability benefits under Campbell's long term disability policy or Campbell will not agree to pay the Employee the amount not covered by the long term disability policy of Campbell, then Campbell will only be entitled to terminate this agreement pursuant to subparagraph 5(d). For the purposes of this paragraph, permanent disability means any medical condition, as determined by a legally qualified medical practitioner selected by Campbell which to a substantial degree, prevents or impairs the Employee from performing his obligations and duties and has existed for a continuous period of more than 120 days in any 365 consecutive days or for periods aggregating 185 days in any 365 consecutive days and in the opinion of the medical practitioner is like to continue. 10. It is agreed by the Employee and Campbell that the notice periods and payments provided in paragraph 5 are reasonable and fair, given all the circumstances, and that no other notice periods, express or implied, shall apply. 11. In the event that the Employee exercises his right of resignation under subparagraph 5(b), or is terminated under subparagraph 5(d) subject to any restriction in the right of Campbell to grant an indemnity to the Employee pursuant to the provisions of the Canada Business Corporations Act, Campbell hereby agrees to indemnify and save the Employee, his heirs, executors, administrators and other legal personal representatives, harmless from and against any and all losses, claims, actions, suits, proceedings, damages, liabilities, charges, or expenses of whatsoever nature or kind, (including, without limitation, any investigation expenses or other expenses and disbursements incurred in connection with testifying or otherwise participating in any legal or other proceedings before any court or regulatory authority) , that the Employee may sustain or incur, arising from or connected with or in respect of any actions, suits or proceedings proposed, commenced or prosecuted against the Employee or to which the Employee may be or may become subject, by reason of or in respect of, anything done or permitted by the Employee in or about the execution of the duties of the Employee in his role as an executive officer or 4 employee of Campbell, or any of its associated or affiliated companies, or by reason of his acting or having acted as an executive officer of Campbell, or any of its associated or affiliated companies and from all other costs, charges and expenses that the Employee may sustain or incur by reason of or arising from or in any manner connected with or in relation to his employment by Campbell or the affairs thereof. In case any action or other proceedings is brought against the Employee, in respect of which indemnity may be sought hereunder, the Employee shall give Campbell prompt notice of any such action or other proceeding of which the Employee has knowledge, and Campbell shall undertake the investigation and defence thereof on behalf of the Employee, including employment of counsel acceptable to the Employee and payment of all fees and expenses. No admission of liability and no settlement of any action or other proceedings brought against the Employee shall be made without the consent of Campbell and the Employee, such consent not to be unreasonably withheld. Notwithstanding that Campbell agrees to undertake the investigation and defence of any action or other proceeding brought against the Employee, the Employee shall have the right to employ separate counsel in any such proceeding and participate in the defence thereof, but Campbell shall not be liable to pay the fees and expenses of such counsel unless: (a) employment of such counsel has been authorized by Campbell, or (b) Campbell has not assumed the defence of the action or other proceedings within a reasonable period of time after receiving notice thereof, or (c) the named parties to any such action or other proceedings include Campbell and the Employee, and the Employee shall have been advised by counsel that there may be a conflict of interest between Campbell and the Employee, or (d) there are one or more legal defences available to the Employee which are different from or in addition to those available to Campbell. The indemnity herein provided to the Employee shall not apply in the event and to the extent that a court of competent jurisdiction in a final judgement shall determine that the Employee was guilty of gross negligence or fraud. 12. In the event that the Employee exercises his right of resignation under subparagraph 5(b) or is terminated under subparagraph 5(d), Campbell hereby agrees, effective the date of such resignation, to release, remise, acquit and forever discharge the Employee, his heirs, executors, administrators and other legal personal representatives and all of the Employee's respective lands, assets, properties, estates and effects whatsoever and wheresoever situate, of and from any and all liabilities of every nature and kind, whether contingent or otherwise, debts, sum and sums of money, accounts, dues, contracts, agreements, indemnity, covenants, whether express or implied, claims, demands, legal costs, interest, loss or injury of every kind or nature 5 whatsoever, actions, suits damages, causes of action, manner of actions, claims, counter-claims and demands whatsoever and however arising either at law or in equity or otherwise, against the Employee which Campbell ever had, has at the date of such resignation or which Campbell, its successors or assigns or any of them, at any time thereafter can, shall, or may have, for or by reason of, or in any way arising from, any cause, matter or thing whatsoever existing up to the date of such resignation, including, without limitation, any matter arising out of or in any way related to or connected with or by reason of the Employee's having been an executive officer or employee of Campbell, or any of its associated or affiliated companies, or by virtue of the employment of the Employee by Campbell. The release and discharge provided herein shall not apply in circumstances in which a court of competent jurisdiction in a final judgment shall determine that the Employee was guilty of gross negligence or fraud. For greater certainty, this release and discharge does not waive Campbell's right to collect money loaned to the Employee which is validly owing and outstanding at the time of exercise of the right of resignation or termination of employment. 13. For purposes of this agreement, "CHANGE OF CONTROL" means at any time from the Effective Date of this agreement: (a) a change of one-third or more of the directors of Campbell unless approved by a majority of the Board of Directors; or (b) any acquisition of twenty per cent (20%) or more of the common shares of Campbell, or voting rights in respect thereof, by any person or company which is accompanied by a request by that person for representation on the Board of Directors of Campbell and which acquisition is not approved by a majority of the directors of Campbell; 14. Any notice or other communication required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if (a) enclosed in a sealed envelope and delivered in person to the party hereto to whom it is addressed (or in the case of Campbell, to the receptionist or other responsible employee, not being the Employee) at the relevant address set forth below; or (b) telexed, telegraphed, telecopied or sent by other means of recorded electronic communication if to Campbell, addressed to the President, Suite 1910, 120 Adelaide Street West, Toronto, Ontario M5H 1T1 and if to the Employee, addressed to him at his most recent address as shown on the records of Campbell. Any notice or other communication so given or made shall be deemed to have been given or made and to have been received on the day of delivery, if delivered, and the day of sending, if sent by telex, telegraph, telecopy or other means of recorded electronic communication, provided such delivery or sending is during normal business hours on a business day or if not on the next business day thereafter. Either party hereto may change his or its address for notice by notice to the other party hereto given in the manner aforesaid. 15. No provision of this agreement may be modified or amended unless such modification or 6 amendment is authorized by the Board of Directors or a Committee thereof and is agreed to in writing, signed by the Employee and Campbell. No waiver by either party hereto or any breach by the other party hereto of any condition or provision of this agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or any prior or subsequent time. 16. This agreement contains all of the terms and conditions agreed by the parties hereto and supersedes all prior agreements and understandings. No agreements or representations, oral or otherwise, express or implied, with respect to the employment of the Employee by Campbell have been made by either party which are not set forth expressly in this agreement. 17. This agreement may not be assigned by either party without consent. 18. This agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators and successors. 19. This agreement shall be subject to and governed by the laws of the Province of Ontario. The Courts of Ontario shall have exclusive jurisdiction with respect to any dispute or other matter arising hereunder. 20. The invalidity, illegality or unenforceability of any provision hereof shall not in any way affect or impair the validity, legality or enforceability of the remaining provisions hereof. 21. The legal fees and other costs and expenses pertaining to the enforcement of this agreement or any of the terms hereof shall be borne by Campbell and shall be paid forthwith upon demand by the Employee on submission of duly receipted accounts. 22. The Employee acknowledges and agrees that he has been given full opportunity to obtain independent legal advice with respect to this agreement and executes this agreement voluntarily and with full knowledge of the rights granted and obligations imposed hereby. IN WITNESS WHEREOF Campbell has hereunto affixed its corporate seal under the hands of its proper officers in that behalf duly authorized and the Employee has hereto affixed his hand and seal. CAMPBELL RESOURCES INC. /s/JAMES C. MCCARTNEY ------------------------------ James C. McCartney, Chairman c/s /s/JOHN O. KACHMAR ------------------------------ John O. Kachmar, President and Chief Executive Officer /s/CHEVAUNE MORRIS /s/PAUL J. IRELAND l.s - - ----------------------------- ---------------------------- WITNESS AS TO THE SIGNATURE PAUL J. IRELAND OF THE EMPLOYEE 7 SCHEDULE "A" Health and other benefits of Paul J. Ireland Car allowance of approximately $400/month Travel insurance coverage of $500,000 Membership in the Board of Trade Employee Incentive Plan - Share Incentive Plan - Stock Options - participation under Share Purchase Plan and eligibility in the Share Bonus Plan Medical-dental and other benefits under policy with Metropolitan Life EX-13.1 3 SELECT PORTIONS OF THE '96 ANNUAL REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - -------------------------------------------------------------------------------- OVERVIEW The Company recorded net income for the year of $9 million or $0.062 per share compared to $10.5 million in 1995 or $0.086 per share and $5.3 million or $0.045 per share in 1994. The decrease in earnings during 1996 primarily results from an increase in exploration expense at the Santa Gertrudis Mine, increased depreciation and amortization at the Joe Mann Mine, and lower realized copper prices offset in part by higher interest income. Income in 1995 also included $1.6 million being the balance of the deferred hedging gain that arose in 1991 for which there was no comparable in 1996. The increase in income in 1995 primarily results from the inclusion of the results of the Santa Gertrudis Mine in Mexico for the full year as compared to approximately five months during 1994. Net income for the fourth quarter of 1996 decreased to $0.9 million compared to $3.6 million in 1995 as expected, primarily due to the scheduled decrease in gold production from the Santa Gertrudis Mine as discussed further below. Significant events at Campbell during 1996 which impact current and future results include the acquisition of the Cerro Quema gold project in Panama and the subsequent completion of a positive feasibility study thereon, the approval of the shaft deepening project at the Joe Mann Mine, continued exploration success at the Santa Gertrudis Mine and an equity offering which raised net proceeds of $28.6 million to fund future capital expenditure programs and potential acquisitions. The following table summarizes certain key statistics:
1996 1995 1994 - - ------------------------------------------------------------------------------------------------------------------- Gold produced (ounces) 124,800 120,100 81,300 Gold revenue per ounce US$396 US$402 US$410 Average Comex market price US$388 US$384 US$384 Cash production cost per ounce US$252 US$247 US$293
- - -------------------------------------------------------------------------------- REVENUE Revenue from metal sales decreased marginally in 1996 to $67.2 million compared to $67.4 million in 1995 and $46.9 million in 1994. The 4% increase in gold production during 1996 compared to 1995 was offset by a reduction in the overall gold price per ounce recorded as the 1995 comparable included US$10 per ounce relating to the recognition of deferred revenue from past hedging gains. In addition, copper revenues were lower in 1996 compared to 1995 due to lower copper prices and there was also an increase in gold revenue from the Joe Mann Mine's development ore that was deferred for accounting purposes. The 44% increase in revenue in 1995 compared to 1994 is primarily attributable to the 48% increase in gold production to 120,100 ounces of gold from 81,300 ounces in 1994, offset in part by the reduction in the recognition of the deferred revenue from past hedging gains. The average realized gold price compared to the average Comex market price is disclosed in the table above. The difference between the realized price and the market price is primarily attributable to the Company's hedging activities and, for 1995 and 1994, the recognition of the deferred hedging gain that arose in 1991. The deferred hedging gain included in metal sales was $1.6 million (US$10 per ounce) in 1995 and $3.2 million for 1994 (US$29 per ounce). This gain was fully amortized by June 30, 1995. Campbell's general policy, as approved by the Board of Directors, is to hedge a maximum of 50% of its gold production for up to two years, dependent on market conditions and planned capital expenditure commitments. Due to the Company's future capital commitments with respect to the Cerro Quema project in Panama, Campbell may undertake to hedge up to 150,000 ounces of gold production from this project. At December 31, 1996, 62,500 ounces has been hedged (see Note 10(a) to Consolidated Financial Statements). Dependent on market conditions, the Company may also undertake a similar sized program with respect to its shaft deepening project at the Joe Mann Mine. 15 2 With respect to gold price hedging, the Company either sells gold forward in US dollars or in Canadian dollars. Where the gold sold forward is denominated in US dollars and the sale relates to the Joe Mann Mine in Canada, then the Company may also enter into a US / Canadian dollar forward sale agreement to fix the sale proceeds in Canadian dollars and therefore fund the operating and capital expenses of the Canadian operation. As disclosed in the notes to the financial statements, under Canadian GAAP the Company recognizes the gain or loss on these financial instruments in sales revenue when the related production is delivered as they are considered hedges of future production revenue. Similarly, with respect to the Mexican operation, the Company may enter into forward currency agreements to sell US dollars and purchase Mexican pesos to fund the Mexican operations. The Company recognizes the gain or loss on these financial instruments on settlement as part of the cost of purchased goods as they are considered hedges of the cost of goods to be purchased. Under U.S. GAAP, foreign exchange forward contracts would be marked to market at the balance sheet date and any gains or losses included in income at that time (see note 14(d) to Consolidated Financial Statements). Revenues from copper production at the Joe Mann Mine accounted for 3.1% of total revenue in 1996 compared to 4% in 1995 and 1994. Copper production remained constant in 1996 compared to 1995 at 1.5 million pounds and 1.2 million pounds in 1994. The increase in 1995 is due to higher mill head copper grades and higher recoveries. EXPENSES Mining expense increased to $44.5 million in 1996 compared to $43.1 million in 1995 and $34.8 million in 1994. The cash production cost per ounce of gold produced was US$252 in 1996 compared to US$247 in 1995 and US$293 in 1994. Joe Mann Mine The cash production cost at the Joe Mann Mine for 1996 was US$272 per ounce of gold produced compared to US$284 in 1995 and US$299 in 1994. In Canadian dollars, the cash cost was $371 per ounce of gold produced in 1996, $389 in 1995 and $408 in 1994. The decrease in the Canadian dollar cash cost per ounce in 1996 is attributable to higher gold production. The decrease in 1995 was attributable to higher gold production and the increased copper by-product credits. The Joe Mann Mine increased production by 5,900 ounces of gold to 70,400 ounces in 1996 compared to 64,500 ounces in 1995. The increase in the average mill head grade for the year to 0.29 ounces of gold per ton compared to 0.252 ounces per ton in 1995 together with the increased mill recoveries at 93.2% in 1996 compared to 92.7% in 1995 more than offset the decrease in tons milled to 265,600 tons in 1996 compared to 281,700 tons in 1995. The higher head grades result from a continued emphasis on dilution control in the shrinkage stopes together with the scheduled mining during 1996 of some higher grade shrinkage and long-hole stopes. The increase in production by 3,400 ounces in 1995 compared to 61,100 ounces in 1994, was due to an increase in mill head gold grades to 0.252 ounces per ton from 0.233 ounces per ton in 1994 marginally offset by a decrease in tonnage milled to 281,700 tons from 290,000 tons in 1994. The increase in gold grade and the reduction in tons milled in 1995 compared to 1994 was attributable to successful emphasis on mine grade control resulting in lower dilution as well as significant reductions in the amount of lower grade development ore processed. The Company expects to produce approximately 70,000 ounces of gold at a cash cost of US$280 per ounce from the Joe Mann Mine in 1997. 16 3 Santa Gertrudis Mine The cash production cost at the Santa Gertrudis Mine for 1996 was US$227 per ounce of gold produced compared to US$205 in 1995. For the period since acquisition in July, 1994, to December 31, 1994, the cash cost was US$287 per ounce of gold produced. The increase in the cash cost per ounce in 1996 is primarily due to the increase in the effective waste to ore strip ratio (the Company defers the cost of waste in excess of the pit average strip ratio) from 6 : 1 in 1995 to 8:1 in 1996. This has been offset in part by the impact in early 1996 of the higher grade ore that was placed on the leach pads in the last quarter of 1995. The reduction in the cash cost per ounce in 1995 compared to 1994 was due to the increase in gold production, the impact of the devaluation of the Mexican peso, reductions in mine personnel since acquisition and other cost savings. The Santa Gertrudis Mine produced 54,400 ounces of gold in 1996 compared to 55,600 in 1995 and 16,300 ounces from the date acquired on July 20 to December 31, 1994. Gold produced in the fourth quarter of 1996 decreased to 10,300 ounces compared to 16,900 ounces in the fourth quarter of 1995 as scheduled. The decrease is due to both lower grade ore deposits currently being mined and a decrease in the tonnes of ore mined as equipment was used to strip the Dora Phase 2B pit in preparation for production commencing in the first quarter of 1997. For 1996, 0.98 million tonnes of ore were placed on the leach pads with an average grade of 2.04 grams per tonne compared to 1.2 million tonnes with a grade of 2.17 grams per tonne in 1995 and 0.3 million tonnes with a grade of 1.93 grams per tonne for the period since acquisition to December 31, 1994. The Company expects to produce approximately 55,000 ounces of gold at a cash cost of US$250 per ounce from the Santa Gertrudis Mine in 1997. The increase in the cash cost is due to the anticipated increase in the effective strip ratio to 9.5:1. General Administration General administration expense was $3.1 million in 1996 compared to $2.8 million in 1995 and $2.2 million in 1994. The increase in 1995 is primarily attributable to higher capital and business taxes and the provision of more comprehensive investor services. Depreciation and Amortization Depreciation and amortization expense was $9.8 million in 1996 compared to $8.3 million in 1995 and $6.5 million in 1994. The amortization on a per ounce produced basis was $78 per ounce in 1996 compared to $69 in 1995 and $79 in 1994. The increase in depreciation per ounce in 1996 is due to a refinement in the amortization process at the Joe Mann Mine. The decrease in depreciation per ounce in 1995 is due to the inclusion of Santa Gertrudis Mine production for the whole year compared to five months in 1994 and, to a lesser extent, the increase in reserves at the Joe Mann Mine during the year. Exploration Total exploration expenditures for 1996 were $7.2 million compared to $4.5 million in 1995 and $1.9 million in 1994. Of this amount, $1.7 million (1995 - $1.2 million; 1994 - $0.8 million) relates to the Joe Mann Mine and $4.9 million (1995 - $2.8 million; 1994 - $0.4 million) relates to the Santa Gertrudis Mine. These amounts have been capitalized to natural resource properties in accordance with the Company's accounting policies. The balance of the exploration expenditures of $0.6 million (1995 - $0.5 million; 1994 - $0.7 million) relates to grass roots exploration in Mexico and was expensed. In addition to grass roots exploration, the expense for 1996 includes $2.6 million (1995 - $1.3 million; 1994 - nil) representing the amortization and / or write-off of exploration costs at the Santa Gertrudis Mine that had been previously capitalized. The amortization is with respect to production from the mine during the year and the write-off is with respect to individual exploration target costs where economic mineralization was not identified. The Company expects to spend approximately $5 million on exploration in Mexico and $0.9 million at the Joe Mann Mine during 1997. 17 4 OTHER INCOME (EXPENSE) Other income was $3.6 million in 1996 compared to $1.3 million in 1995 and $3.5 million in 1994. Interest income on short-term deposits increased to $3.2 million from $1.7 million in 1995 and $1.0 million in 1994. The increase in 1996 is due to the increase in the interest bearing balances following the public share issue for US$22.5 million in early 1996. The increase in 1995 was due to the increase in interest bearing balances and interest rates. Included in other income in 1994 is the gain of $3 million on the sale of the Company's 30% interest in the La Colorada Mine. Interest expense on the Company's convertible debentures which were issued in July, 1994, was $0.7 million in 1996 compared to $1.2 million in 1995 and $0.6 million in 1994. The decrease in 1996 is attributable to the conversion of a portion of the debentures to common shares during 1995 and 1996 (see Note 6 to Consolidated Financial Statements). INCOME TAXES The Company recorded income tax expense of $0.6 million in 1996 compared to $1 million in 1995 and $0.4 million in 1994. Reference should be made to Note 9 to the Consolidated Financial Statements for additional information on the reported tax provisions. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, the Company's working capital increased 64% to $65.5 million compared to $40 million in 1995 and includes cash and short-term deposits of $55.3 million in 1996 and $32.3 million in 1995. Cash flow from operations before the net change in non-cash operating working capital increased 15% to $21.4 million in 1996 compared to $18.7 million in 1995 and $6 million in 1994. Shareholders' Equity As disclosed in Note 7 to the Financial Statements, in February, 1996 the Company issued 18 million units comprising one common share and one half common share purchase warrant at a unit price of US$1.25 per unit for net proceeds of $28.6 million. The Company believes these proceeds, together with existing cash resources and future cash flows, will be sufficient to fund the construction of the Cerro Quema gold project, complete the $14.5 million shaft deepening project at the Joe Mann mine as well as leave sufficient reserves for future operations and acquisition opportunities as they arise. As a result of this issue, net income for the year of $9 million, the conversion of US$2.2 million of convertible debentures into common shares of the Company, and the shares issued as partial payment to acquire the Cerro Quema project, Campbell's shareholders' equity increased to $142.1 million at December 31, 1996 from $99.6 million at December 31, 1995. Capital Expenditures As noted above and in Note 2 to the Consolidated Financial Statements, the Company acquired the Cerro Quema gold project in March, 1996, for a total cost including expenses of approximately $13.2 million of which $1.3 million represented the issue of shares to the former holder of the right of first refusal on the property and the balance was paid in cash. The Company completed a final feasibility study in November, 1996 and proceeded to the next phase of the project performing additional metallurgical tests and commencing construction of the access road. On February 20, 1997, the Board of Directors authorized the Company to proceed with construction of the project. The next phase, which includes the earthworks for the construction of the leach pads, plant and haul roads has now started. In addition, in March, 1997 the Company made the final payment to CEMSA for the right of first refusal and the reduction in the royalty from 3.5% to 2%. The project has probable mineable reserves of 8.8 million tonnes grading 1.16 grams of gold per tonne for approximately 327,200 contained ounces of gold. Total construction costs are estimated at US$32.8 million most of which will be incurred in 1997 and 1998. The Company is targeting mid 1998 for the commencement of commercial production. 18 5 In September of 1996 Campbell announced that it was proceeding with the deepening of the shaft at the Joe Mann Mine by a further 1,100 feet to access ore below the current mine workings. Construction on this project began in December, 1996 and is estimated to take 18 months to complete at a cost of $14.5 million. During 1996, in addition to the acquisition of the Cerro Quema project noted above, the Company also spent $14.4 million on capital expenditures including $5.5 million at the Joe Mann Mine of which $1.6 million is for the shaft deepening, $1.7 million for capital additions at the Santa Gertrudis Mine mainly for haulage trucks, $4.9 million for exploration at Santa Gertrudis and $3.4 million at the Cerro Quema project. Capital expenditures during 1995 totalled $7.9 million including $4 million at the Joe Mann Mine, $1.6 million at the Santa Gertrudis Mine in addition to the deferred exploration of $2.8 million. Investing activities during 1994 include the acquisition of the Santa Gertrudis Mine for $11.1 million, net of cash acquired, $5.9 million at the Joe Mann Mine and $0.5 million at the Santa Gertrudis Mine. For 1997, in addition to the construction of the Cerro Quema project and Santa Gertrudis exploration expenditures, the Company expects to incur capital expenditures at the Joe Mann Mine of approximately $11.3 million including $8.6 million on the shaft deepening project, and approximately $1 million at the Santa Gertrudis Mine. OUTLOOK Campbell anticipates 1997 production of 125,000 ounces of gold at a cash cost of approximately US$265 per ounce. The current low gold price compared to 1996 and the scheduling of production from both the Joe Mann Mine and Santa Gertrudis Mine during the year will result in a net loss during the first quarter of 1997. Dependant on gold prices, this should reverse as production increases during the remainder of the year. For 1997 much of the Company's focus will be on cost control, both operating and capital costs, particularly in light of the significant fall in gold prices since year end. Campbell's construction projects at the Cerro Quema property in Panama and at the Joe Mann Mine will require close scrutiny by management to ensure these projects are completed on time and on budget. Exploration at the Santa Gertrudis Mine will again be a top priority for the Company as evidenced by the commitment of $4.3 million in funding as we build on the significant knowledge gained to date on the property. Campbell's cash position and strong Balance Sheet will ensure it has the financial strength to complete its current projects and continue its search for and evaluation of other acquisition targets in its continuing efforts to expand. The profitability of the Company is directly influenced by the price of gold, the Company's ability to control its costs, the lead times required for pit preparation and development at the Santa Gertrudis Mine and the relative Canadian, US and Mexican foreign exchange rates. The price of gold and the relative exchange rates are volatile and beyond the Company's control although it does engage in some limited hedging from time-to-time to protect against a portion of the volatility. 19 6 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING - - -------------------------------------------------------------------------------- To the Shareholders of Campbell Resources Inc.: The accompanying consolidated financial statements of the Company were prepared by management in accordance with accounting principles generally accepted in Canada, consistently applied and within the framework of the summary of significant accounting policies in these consolidated financial statements. Management is responsible for all information in the annual report. All financial and operating data in the annual report is consistent, where appropriate, with that contained in the consolidated financial statements. A system of internal accounting control is maintained in order to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. This system includes established policies and procedures, the selection and training of qualified personnel and an organization providing for appropriate delegation of authority and segregation of responsibilities. The Board of Directors discharges its responsibilities for the consolidated financial statements primarily through the activities of its Audit Committee composed of three directors, none of whom are members of management. This Committee meets with management to assure that it is performing its responsibility to maintain financial controls and systems and to approve the annual consolidated financial statements of the Company. The Audit Committee also meets with the independent auditors to discuss the results of their audit, their review of internal accounting controls and their audit report prior to submitting the consolidated financial statements to the Board of Directors for approval. The consolidated financial statements have been audited on behalf of the shareholders by the Company's independent auditors, KPMG, in accordance with generally accepted auditing standards. The auditors' report outlines the scope of their examination and their opinion on the consolidated financial statements. /s/ John O. Kachmar /s/ Paul J. Ireland - - ----------------------------- ---------------------------- John O. Kachmar Paul J. Ireland President and Vice President, Finance Chief Executive Officer AUDITOR'S REPORT TO THE SHAREHOLDERS - - -------------------------------------------------------------------------------- We have audited the consolidated balance sheets of Campbell Resources Inc. as at December 31, 1996 and 1995 and the consolidated statements of income, retained earnings (deficit) and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1996 and 1995 and the results of its operations and the cash flows for each of the years in the three-year period ended December 31, 1996 in accordance with generally accepted accounting principles. /s/ KPMG - - ------------------------------ Chartered Accountants Toronto, Canada February 21, 1997 20 7 CONSOLIDATED BALANCE SHEETS - - -------------------------------------------------------------------------------- as at December 31, 1996 and 1995 (Expressed in thousands of Canadian dollars)
1996 1995 - - -------------------------------------------------------------------------------- ASSETS Current assets Cash and short-term deposits $ 55,302 $ 32,271 Receivables 8,270 7,837 Inventories (note 3) 9,134 6,387 Prepaids 749 499 - - -------------------------------------------------------------------------------- Total current assets 73,455 46,994 - - -------------------------------------------------------------------------------- Other assets (note 4) 1,271 2,713 - - -------------------------------------------------------------------------------- Natural resource properties 149,879 121,526 Less accumulated depreciation and amortization (59,307) (47,530) - - -------------------------------------------------------------------------------- 90,572 73,996 - - -------------------------------------------------------------------------------- Total assets $ 165,298 $ 123,703 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 5,504 $ 4,320 Accrued liabilities 2,337 2,591 Income taxes payable 94 123 - - -------------------------------------------------------------------------------- Total current liabilities 7,935 7,034 - - -------------------------------------------------------------------------------- Other liabilities 881 593 Convertible debentures (note 6) 7,657 10,782 Deferred mining taxes 6,767 5,740 Shareholders' equity Capital stock (note 7) 118,605 85,040 Foreign currency translation adjustment (248) (175) Retained earnings 23,701 14,689 - - -------------------------------------------------------------------------------- Total shareholders' equity 142,058 99,554 - - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 165,298 $ 123,703 ================================================================================
Commitments and contingencies (note 10) Approved by the Board /s/ John O. Kachmar ---------------------------------- Director /s/ James D. Beatty ---------------------------------- Director See accompanying notes to the consolidated financial statements. 21 8 CONSOLIDATED STATEMENTS OF INCOME - - -------------------------------------------------------------------------------- for the Years Ended December 31, 1996, 1995 and 1994 (Expressed in thousands of Canadian dollars except per share amounts)
1996 1995 1994 - - ------------------------------------------------------------------------------------------ Metal sales $ 67,180 $ 67,418 $ 46,940 - - ------------------------------------------------------------------------------------------ Expenses Mining 44,501 43,101 34,822 General administration 3,064 2,846 2,182 Depreciation and amortization 9,770 8,344 6,467 Exploration 3,179 1,838 661 - - ------------------------------------------------------------------------------------------ 60,514 56,129 44,132 - - ------------------------------------------------------------------------------------------ Income from operations 6,666 11,289 2,808 - - ------------------------------------------------------------------------------------------ Other income (expense) Other income (note 8) 3,595 1,318 3,512 Convertible debenture interest expense (661) (1,166) (571) - - ------------------------------------------------------------------------------------------ 2,934 152 2,941 - - ------------------------------------------------------------------------------------------ Income before income taxes 9,600 11,441 5,749 Income taxes (note 9) 588 980 442 - - ------------------------------------------------------------------------------------------ Net income $ 9,012 $ 10,461 $ 5,307 ========================================================================================== Earnings per share $ 0.062 $ 0.086 $ 0.045
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT) - - -------------------------------------------------------------------------------- for the Years Ended December 31, 1996, 1995 and 1994 (Expressed in thousands of Canadian dollars)
1996 1995 1994 - - ---------------------------------------------------------------------- Balance at beginning of year $14,689 $ 4,228 $(1,079) Net income 9,012 10,461 5,307 - - ---------------------------------------------------------------------- Balance at end of year $23,701 $14,689 $ 4,228 ======================================================================
See accompanying notes to the consolidated financial statements. 22 9 CONSOLIDATED STATEMENTS OF CASH FLOWS - - -------------------------------------------------------------------------------- for the Years Ended December 31, 1996, 1995 and 1994 (Expressed in thousands of Canadian dollars)
1996 1995 1994 - - --------------------------------------------------------------------------------------------------- Cash provided by (used in): Operating activities Net income $ 9,012 $ 10,461 $ 5,307 Items not involving cash Depreciation and amortization 9,604 8,199 6,467 Recognition of deferred hedging gains (1,603) (3,206) Deferred mining taxes 358 318 Gain on sale of the La Colorada property (2,956) Other 2,465 1,328 358 - - --------------------------------------------------------------------------------------------------- 21,439 18,703 5,970 Net change in non-cash operating working capital (2,478) (1,978) (4,956) - - --------------------------------------------------------------------------------------------------- 18,961 16,725 1,014 - - --------------------------------------------------------------------------------------------------- Financing activities Issues of capital stock 33,565 4,519 164 Reduction of convertible debentures (3,006) (3,998) Proceeds from issue of convertible debentures, net 13,874 - - --------------------------------------------------------------------------------------------------- 30,559 521 14,038 - - --------------------------------------------------------------------------------------------------- Investment activities Expenditures on natural resource properties (13,968) (7,934) (6,889) Acquisition of Cerro Quema gold project (13,185) Mining tax credits received 669 1,175 2,977 Decrease (increase) in other assets 214 226 (880) Acquisition of Santa Gertrudis, net of cash acquired (11,054) Proceeds from sale of assets 6,915 - - --------------------------------------------------------------------------------------------------- (26,270) (6,533) (8,931) - - --------------------------------------------------------------------------------------------------- Effect of exchange rate change on cash and short-term deposits (219) (1,614) (744) - - --------------------------------------------------------------------------------------------------- Increase in cash and short-term deposits 23,031 9,099 5,377 Cash and short-term deposits at beginning of year 32,271 23,172 17,795 - - --------------------------------------------------------------------------------------------------- Cash and short-term deposits at end of year $ 55,302 $ 32,271 $ 23,172 =================================================================================================== Changes in non-cash operating working capital Receivables $ (433) $ (1,190) $ (2,763) Inventories and prepaids (2,997) (934) (786) Accounts payable 1,184 1,032 110 Accrued liabilities (203) (739) (1,676) Income taxes payable (29) (147) 159 - - --------------------------------------------------------------------------------------------------- $ (2,478) $ (1,978) $ (4,956) ===================================================================================================
See accompanying notes to the consolidated financial statements. 23 10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- (Tabular amounts are expressed in thousands of Canadian dollars) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared by management in accordance with accounting principles generally accepted in Canada which, except as described in note 14, conform in all material respects with accounting principles generally accepted in the United States. Management makes various estimates and assumptions in determining the reported amounts of assets and liabilities, revenues and expenses for each period presented, and in the disclosure of commitments and contingencies. Changes in the estimates and assumptions will occur based on the passage of time and the occurrence of certain future events. The principal accounting policies followed by the Company, which have been consistently applied, are summarized as follows: Intercorporate Investments: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. Cash and Short-Term Deposits: Cash and short-term deposits includes short-term money market instruments which are highly liquid to be held to maturity and are carried at amortized cost which approximates market. The Company's policy is to invest in highly rated instruments and to limit the amount of credit exposure to any one institution. Currency Translation: The U.S. dollar is considered to be the functional currency of the Company's Mexican operations as most of those activities are conducted in U.S. dollars. Monetary assets and liabilities of the Mexican operations are translated from Mexican pesos into U.S. dollars at the year end rate of exchange and non-monetary assets and liabilities are translated at historical rates of exchange. Exchange gains or losses are included in the determination of earnings. The U.S. dollar financial statements of the Mexican operations are translated into Canadian dollars at the year end rate of exchange for the balance sheet and the average rate of exchange for the year for the statement of income. Exchange gains or losses are included as a separate component of shareholders' equity. The Panamanian operations are translated into Canadian dollars using the temporal method whereby monetary assets and liabilities are translated at the year end rate of exchange and non-monetary assets and liabilities are translated at historical rates of exchange. Gains and losses on foreign currency transactions are included in the determination of earnings. Inventories: Mining and milling materials and supplies are valued at the lower of average cost and net replacement cost. Ore in stockpiles is valued at the lower of average cost and net realizable value. Mining costs associated with waste rock removal are deferred and charged to mining expense on the basis of the average stripping ratio for each pit. The direct production costs associated with ore on leach pads are deferred and amortized as the contained gold is recovered. Direct production costs include direct labour, benefits, supplies and equipment operating costs and maintenance. Mineral Exploration and Development: Exploration expenditures are charged to income in the period incurred except where these costs relate to specific properties for which economically recoverable reserves exist, in which case they are deferred. Significant property payments for active exploration properties are capitalized. If no mineable ore body is discovered, previously capitalized costs are expensed. Development costs incurred to expand existing capacity, develop new ore bodies and develop property substantially in advance of production are capitalized. Depreciation and Amortization: Mining properties and deferred mine development costs are amortized using the unit-of-production method over the life of the estimated ore reserves. Depreciation of other assets is provided on the straight-line basis over their estimated useful lives. Mining properties and deferred expenditures are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future cash flows expected to result from the use of the properties and their eventual disposition are less than the carrying amount, then these properties are written down to their estimated recoverable amount determined on a non-discounted basis. Recognition of Metals Revenue: Gold and copper revenues are recognized at the time of production. Gains and losses on futures contracts and other instruments that effectively establish prices for future production are not recognized in income until reflected in sales revenue when the related production is delivered. Site Restoration: Provisions are established for estimated future costs of site restoration of mining properties, including the removal of production facilities at the end of their useful lives. Costs are based upon estimates of the anticipated method and extent of site restoration to meet current legal and industry standards. These standards are continually changing and the estimated provision is reviewed annually. The amount of the provision is amortized over the estimated life of the underlying asset and the annual charge, determined on the same basis as the amortization of the underlying asset, is included in depreciation and amortization. 24 11 Comparative Figures: Certain comparative figures have been reclassified to conform with the current financial statement presentation. 2 ACQUISITION OF CERRO QUEMA GOLD PROJECT On January 26, 1996 the Company purchased the right of first refusal to acquire a 100% interest in the shares of Minera Cerro Quema, S.A., whose primary asset is the Cerro Quema gold project in Panama. Concurrently the Company exercised the right of first refusal and purchased the shares for US$8,372,000 cash closing on March 4, 1996. The Company paid the former holder of the right of first refusal ("CEMSA") US$250,000 cash and issued 730,000 common shares on closing and an additional US$250,000 cash and 730,000 common shares in March, 1997 following approval by the Board of Directors of a positive feasibility study for the Cerro Quema gold project. The cost of the acquisition including expenses, but excluding the payment to CEMSA in 1997, amounted to $13,185,000 and has been included in natural resource properties. In addition, CEMSA has agreed to a reduction in the precious metals net smelter royalty on the Cerro Quema property from 3.5% to 2% in consideration for which the Company issued an additional 1,040,000 common shares also in March, 1997. 3 INVENTORIES
1996 1995 - - ------------------------------------------------------- Materials and supplies $5,813 $4,490 Ore in stockpiles 3,321 1,897 - - ------------------------------------------------------- $9,134 $6,387 =======================================================
4 OTHER ASSETS
1996 1995 - - ------------------------------------------------------- Advances $ 775 $1,008 Deferred financing costs 657 928 Cash deposit securing tax appeal 920 - - ------------------------------------------------------- 1,432 2,856 Accumulated amortization 161 143 - - ------------------------------------------------------- $1,271 $2,713 =======================================================
During 1996, the cash deposit securing the tax appeal was released to the Company on the successful conclusion of the appeal. 5 NATURAL RESOURCE PROPERTIES (a) In June 1993, the Company entered into an agreement with the Government of Canada and the Government of Quebec pursuant to which the Company agreed to incur $3,900,000 of exploration and development expenses on the Joe Mann Mine of which the Government of Canada and the Government of Quebec will each fund 25%. By the end of the agreement, March 31, 1995, the Company had incurred the required total of $3,900,000 (1994 - $3,284,000; 1993 - $700,000) of eligible exploration and development expenses and had received government funding in the amount of $1,852,500 (1994 - $1,247,000; 1993 - $487,500). The balance outstanding was received in February, 1996. The Company accounted for the government funding using the cost reduction method reflecting the funding received in the period the related expenditure was incurred. (b) During 1992, the Company entered into agreements under which the Societe Quebecoise d'Exploration Miniere ("Soquem") could earn a 50% interest in the Joe Mann property (excluding the Joe Mann Mine) by spending $4,000,000 on exploration programs on the property by June 1, 1997 and could earn a 50% interest in the Company's other properties in the Chibougamau area by spending $3,000,000 on exploration programs by June 1, 1997. During 1995, these agreements were modified to extend both the date that the expenditures must be incurred by and the amount to January 6, 1999 and $4,200,000 for the Joe Mann property and January 6, 1998 and $3,150,000 for the Chibougamau property. At December 31, 1996, Soquem had incurred total qualifying expenditures of approximately $2,205,000 (1995 - $1,750,000) on the Joe Mann property and $2,136,000 (1995 - $1,925,000) on the Chibougamau area property. 6 CONVERTIBLE DEBENTURES In July 1994, the Company issued US$11,005,000 of 7.5% Convertible Subordinated Debentures (Unsecured). The debentures are unsecured, bear interest at 7.5% payable in arrears on June 1 and December 1 each year and mature on July 21, 2004. The debentures are convertible at the option of the holder into common shares of the Company at any time prior to maturity at a conversion of US$0.50 per common share. The debentures are redeemable for cash at any time after the fifth anniversary of the date of issue or, at the Company's option, may be redeemed in common shares on the basis of one common share for each US$0.50 of debenture principal being redeemed. The right of the Company to redeem the debentures for cash or common shares is conditional on the average price of the Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to notice of redemption. The Company may, at its option, repay the debenture at maturity by issuing common shares of the Company at the conversion price of US$0.50 per common share. 25 12 During 1996, debenture holders converted US$2,307,000 (1995 - US$3,107,000; 1994 - nil) of debenture principal into 4,614,000 (1995 - 6,214,000; 1994 - nil) common shares of the Company resulting in a balance outstanding at December 31, 1996 of US$5,591,000 (1995 - US$7,898,000; 1994 - US$11,005,000). 7 CAPITAL STOCK a) Authorized shares Preference shares - unlimited, issuable in series without par value Common shares - unlimited b) Issued and outstanding shares (in thousands):
Number of Shares Amount - - ------------------------------------------------------- Balance, December 31, 1993 117,225 $ 80,357 Employees Incentive Plan and Directors' Stock Option Plan 303 164 - - ------------------------------------------------------- Balance, December 31, 1994 117,528 80,521 Conversion of convertible debentures 6,214 3,998 Employee Incentive Plan and Directors' Stock Option Plan 724 521 - - ------------------------------------------------------- Balance, December 31, 1995 124,466 85,040 Conversion of convertible debentures 4,614 3,006 Public issue for cash 18,000 28,585 Issued to CEMSA (Note 2) 730 1,256 Employee Incentive Plan and Directors' Stock Option Plan 778 718 - - ------------------------------------------------------- Balance, December 31, 1996 148,588 $118,605 =======================================================
On February 21, 1996, the Company issued 18,000,000 units consisting of 18,000,000 common shares and 9,000,000 warrants from treasury at US$1.25 per unit for total proceeds, after underwriting fees and other costs, of US$20,950,000. The warrants entitle the holder to purchase one common share of the Company for US$1.50 on or before February 26, 1999. The weighted average number of common shares outstanding during the year ended December 31, 1996 amounted to 145,907,000 (1995 - 121,214,000; 1994 - 117,274,000). c) Reservations of capital stock At December 31, 1996, in addition to the shares reserved for issuance under the terms of the common share purchase warrants, convertible debentures (see note 6) and the balance of the Cerro Quema first right of refusal and royalty reduction cost (see note 2), the Company has reserved 3,895,335 common shares for future issuance under the Employee Incentive Plan and 4,650,000 common shares for future issuance under the Directors' Stock Option Plan. The Employee Incentive Plan comprises a Share Option Plan, a Share Purchase Plan, a Share Bonus Plan and a Share Loan Plan. Options granted under the Directors' and Employee share option plans expire not later than five years from the date on which they were granted and all current options expire on or before December 11, 2001. Changes in the share option plans are as follows (in thousands):
1996 1995 1994 - - ------------------------------------------------------- Balance at beginning of year 5,090 4,925 3,530 Granted 2,900 900 2,625 Exercised (790) (585) (150) Expired (25) (150) (1,080) - - ------------------------------------------------------- Balance at end of year 7,175 5,090 4,925 ======================================================= Average option price at end of year $1.18 $0.95 $0.85 Options exercisable at end of year 5,319 3,940 3,131 Average price for options exercised during year $0.82 $0.60 $0.57
The Share Purchase Plan calls for Company contributions of an amount equal to 50 per cent of the employees' contributions, which can amount to a maximum of 5 per cent of their basic annual salaries or wages. The common shares are issued on a quarterly basis at market value. Under the Share Bonus Plan, shares can be issued to full-time salaried employees as a bonus in recognition of services as determined by the Compensation Committee or the Board of Directors. The Share Loan Plan provides the Compensation Committee or the Board of Directors the discretion to make loans to full time employees to enable them to acquire shares in the Company. No loans are outstanding under this plan. 8 OTHER INCOME
1996 1995 1994 - - ---------------------------------------------------------------- Interest income $ 3,167 $ 1,722 $ 1,027 Other income 520 69 (13) Currency translation gains (losses) (92) (473) (458) Gain on sale of 30% interest in La Colorada mine 2,956 - - ---------------------------------------------------------------- $ 3,595 $ 1,318 $ 3,512 ================================================================
In 1994, the Company's former joint venture partner exercised its option to acquire the Company's 30% interest in the La Colorada mine in Sonora, Mexico, including the 1% net smelter return for US$5,350,000. The sale resulted in a gain of $2,956,000 which is included in other income. 26 13 9 INCOME TAXES a) Geographic components The geographic components of income before income taxes is as follows:
1996 1995 1994 - - ----------------------------------------------- Canada $ 3,089 $ 2,371 $1,411 Mexico 6,511 9,070 4,338 - - ----------------------------------------------- $ 9,600 $11,441 $5,749 ===============================================
The geographic components of income taxes is as follows: Current income tax expense: Canada $229 $246 $182 Mexico 1 416 260 - - ------------------------------------------------------------ 230 662 442 Deferred mining tax expense - Canada 358 318 - - ------------------------------------------------------------ $588 $980 $442 ============================================================
(b) Deferred income taxes The payment of certain income taxes is deferred due to the recognition of amounts for tax purposes in different periods than for accounting purposes. The principal timing difference is depreciation and amortization. (c) Effective tax rate The effective income tax rate differs from the combined Canadian federal and provincial basic statutory income tax rates. The principal factors causing this difference are as follows:
1996 1995 1994 - - ----------------------------------------------------------------------- Combined basic statutory rate 43.7% 43.0% 42.0% - - ----------------------------------------------------------------------- Expected provision based on combined basic statutory rates $ 4,173 $ 4,932 $ 2,417 Resource allowance (1,800) (543) (360) Mining taxes 358 318 Utilization of prior year losses carried forward (2,922) (3,666) (1,830) Foreign earnings subject to different tax rates (687) (847) (370) Tax benefit not currently recognized 1,235 119 297 Other 231 667 288 - - ----------------------------------------------------------------------- $ 588 $ 980 $ 442 =======================================================================
(d) Loss carryforwards At December 31, 1996, the Company and its subsidiaries had operating losses for income tax purposes in Canada approximating $370,000 and in Mexico approximating $8,300,000 which are available to reduce taxes in future years and expire over the period to the year 2003. In addition, the Company has non-operating losses for income tax purposes in Canada of approximately $10,600,000 available to apply against future taxable capital gains. The Company has an additional $17,200,000 of non-operating loss carryforwards which have been denied by the tax authorities. The Company is objecting to the tax authorities' position. The Company also had unclaimed deductions for income tax purposes in excess of carrying values for financial statement purposes in the amount of approximately $20,600,000. The potential future benefit of these tax savings has not been recorded in the accounts. 10 COMMITMENTS AND CONTINGENCIES (a) At December 31, 1996 the Company's forward hedging program consisted of the following:
1997 1999 2000 - - --------------------------------------------------------------------- Gold (ounces): Fixed forward contracts - amount 17,500 - average price (US$) $ 448 Put contracts - amount 30,000 - average price (US$) $ 380 Participating forwards - amount 25,000 20,000 - average price (US$) $ 434 $ 450 Copper (thousands of pounds): Fixed forward contracts - amount 660 - average price (US$) $ 1.02
(b) At December 31, 1996, the Company had sold forward US$8,200,000 to purchase Canadian dollars during 1997 at an average rate of Cdn$1.351 to the US dollar. (c) The Company's Joe Mann Mine is subject to a graduated net smelter return royalty increasing from 1.8% up to a gold price of Canadian $500 per ounce to 3.6% at a gold price of Canadian $625 per ounce. 27 14 (d) During 1996, the Company's Mexican subsidiary received import duty assessments claiming the subsidiary's interest in certain pieces of machinery and equipment with an approximate value of US$2,200,000 and levying taxes, penalties, interest and inflationary adjustments for a further Mexican pesos 9,200,000. The claim against the subsidiary's assets and the additional amount payable arose as a result of the subsidiary not presenting certain import documentation to tax authorities by a prescribed date in connection with their audit of imports of the claimed machinery and equipment during 1990 and 1991 when the mine was not owned by the Company. The Company, which has all of the required documentation, has not provided for these amounts in these financial statements on the basis of professional advice received indicating the basis for these assessments to be weak and accordingly intends to appeal the assessments. (e) During 1991, a subsidiary of the Company entered into a corporate restructuring and financing arrangement ("Arrangement") in which it issued to a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate Debentures and Notes ("Debentures") and $12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares ("Preferred Shares"). The Debentures are unsecured, subordinate to all existing non-trade debt and future senior debt, bear interest at varying rates, are repayable upon maturity in 2007, and cannot be prepaid. The Preferred Shares are redeemable at any time at an amount of $240,000 per Preferred Share, rank equally and parri passu with the common shares for dividends when declared, and are retractable in 2007. In order to secure the performance of the Debentures and Preferred Shares the Company's subsidiary entered into an Interest Rate and Currency Exchange Swap Agreement ("Swap Agreement") with a major international bank. The Swap Agreement provides for the conversion of one floating rate interest basis to another and for differences in the timing of payments so as to match the interest payment requirements under the Debentures, repay the Debentures upon maturity and retract the Preferred Shares. All payments are denominated in Canadian dollars. The Company's subsidiary placed Canadian dollar deposits with the counter party to the Swap agreement which deposits have been charged to secure the performance under the Swap agreement. These deposits earn interest at Canadian Bankers Acceptance rates. The Swap Agreement was irrevocably assigned directly to the investors. Accordingly the bank is the primary obligor under the Arrangement. 11 PENSION PLAN The Company maintains a defined benefit pension plan for certain employees which provides benefits based on length of service and remuneration. The most recent actuarial valuation of the plan was as at December 31, 1993. As at December 31, 1996, the estimated projected benefit obligation was approximately $2,271,000 (1995 - $2,179,000) and the market value of assets aggregated $3,555,000 (1995 - $3,225,000). 12 SEGMENTED DATA The Company's operations consist principally of the exploration, development, mining and processing of precious metals in Canada, Mexico and Panama. The following is a summary of the Company's operations by geographic area :
1996 1995 1994 - - ----------------------------------------------------------------------------- Revenue: Canada $ 38,226 $ 38,209 $ 36,422 Mexico 28,954 29,209 10,518 - - ----------------------------------------------------------------------------- $ 67,180 $ 67,418 $ 46,940 ============================================================================= Income (loss) from operations: Canada $ (152) $ 2,002 $ 1,175 Mexico 6,818 9,287 1,633 - - ----------------------------------------------------------------------------- $ 6,666 $ 11,289 $ 2,808 ============================================================================= Identifiable assets: Canada $ 70,892 $ 70,279 $ 74,677 Mexico 25,755 19,880 17,433 Panama 16,719 Corporate 51,932 33,544 21,670 - - ----------------------------------------------------------------------------- $ 165,298 $123,703 $113,780 =============================================================================
Corporate assets primarily consist of cash and short-term deposits. 13 FAIR VALUE AND CREDIT RISK DISCLOSURES At December 31, 1996 the fair value of the Company's convertible debentures was estimated to be $14,500,000 (1995 - $24,000,000) compared to the carrying amount of $7,657,000 (1995 - $10,782,000) based on a quoted price. The carrying amount of cash and short-term deposits, receivables and accounts payable in the consolidated balance sheets approximates fair value. The fair value of the Company's off-balance sheet financial instruments is based on the notional gain or loss accrued using the market prices on the reporting date and at December 31, 1996 was approximately $1,460,000 (1995 - $750,000) for the forward gold and copper sales and approximately $45,000 (1995 - - - a loss of $225,000) for the foreign currency contracts. 28 15 The Company is exposed to credit-related losses in the event of non-performance by counter parties to financial instruments but does not expect any counter parties to fail to meet their obligations. The Company deals with only highly rated counter parties, normally major financial institutions including banks. The credit risk exposure of derivative instruments is represented by the fair value of contracts with a positive fair value at the reporting date. The credit risk amounts to the maximum amount that would be at risk if the counter parties failed completely to perform under the contracts. 14 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The effect on the financial statements of differences between generally accepted accounting principles (GAAP) in Canada and the U.S. is outlined below: (a) Deferred Income Taxes If the Company had changed from the deferred method of accounting for deferred income taxes under Canadian GAAP to the liability method under U.S. GAAP at January 1, 1993, in accordance with Financial Accounting Standards Board Statement No. 109, then the financial statements would reflect the cumulative effect of such a change in accounting methodology in 1993 and adjustments for the application of Statement No. 109 during 1996, 1995 and 1994. The effects on the consolidated statement of earnings of the above differences are as follows:
1996 1995 1994 - - ------------------------------------------------------------------ Net income under Canadian GAAP $ 9,012 $10,461 $5,307 Application of liability method under FAS 109 (1,363) 5,199 - - ------------------------------------------------------------------ Net income under U.S. GAAP $ 7,649 $15,660 $5,307 ================================================================== Net income per share under U.S. GAAP $ 0.05 $0.13 $ 0.05 ==================================================================
Net income per share under U.S. GAAP is based on a weighted average number of common shares and common share equivalents outstanding using the treasury stock method during 1996 of 146,959,000 (1995 - 123,467,000; 1994 - 117,459,000). Fully diluted net income per share is not materially dilutive. Deferred income taxes and retained earnings under U.S. GAAP at December 31, 1996 would be a liability of $1,904,000 (1995 - $541,000) and $27,537,000 (1995 - $19,888,000), respectively. Significant components of the Company's deferred tax assets and liabilities under U.S. GAAP disclosure requirements are as follows:
1996 1995 - - ------------------------------------------------------- Deferred tax assets: Resource property $12,571 $10,469 Net operating loss carryforwards 2,989 3,637 Other 1,000 - - ------------------------------------------------------- 16,560 14,106 Valuation allowance 7,166 7,305 - - ------------------------------------------------------- $ 9,394 $ 6,801 - - ------------------------------------------------------- Deferred tax liabilities: Resource property - Mining tax $ 6,357 $ 5,815 Other 4,941 1,527 - - ------------------------------------------------------- $11,298 $ 7,342 - - ------------------------------------------------------- Net deferred tax liability $ 1,904 $ 541 =======================================================
The tax loss carry forwards disclosed in note 9(d) have been tax effected for purposes of the above disclosure at the rate of 34% for Mexican tax losses and 44.62% for Canadian tax losses. Excluding the deferred mining tax liability for the resource property which is carried on the Canadian GAAP Balance Sheet at December 31, 1996 at $6,767,000, the unclaimed deductions for income tax purposes in excess of carrying values for financial statement purposes disclosed in note 9(d) have been tax effected in the disclosure above at the rate effective in the applicable jurisdiction, which averages 42%. (b) Statements of Cash Flows Under Canadian accounting principles, the issuance of common shares on the conversion of convertible debentures and as part of the purchase consideration for the acquisition of the Cerro Quema project has been reflected as a financing activity in the consolidated statements of cash flows. Under United States accounting principles, these non-cash transactions would have been excluded from financing activities and separately disclosed in the notes to the consolidated financial statements. Included in cash and short-term deposits at December 31, 1996 are investments of $49,427,000 (1995 nil) with maturities on acquisition of greater than 90 days. Under U.S. GAAP these investments would not be included in cash and short-term deposits. 29 16 After adjusting for the above, for U.S. GAAP purposes the sources of cash from financing activities would be $29,303,000 the use of cash for investing activities would be $74,441,000 and there would be a decrease in cash and short-term deposits for the year ending December 31, 1996 of $26,396,000 resulting in a cash and short-term deposits balance at December 31, 1996 of $5,875,000 and a short-term investments balance of $49,427,000. The following additional disclosures are also required:
1996 1995 1994 - - ------------------------------------------------------- Cash taxes paid $1,009 $1,527 $ 680 Cash interest paid $ 596 $ 993 $ 427
(c) Contingent Liability Under U.S. GAAP the contingent liability disclosed in note 10 (e) would be reflected in the balance sheet. Accordingly, for U.S. GAAP total assets and liabilities would increase by $50 million. The increase in assets represents investments (non-current) comprising Canadian dollar payments under the Swap agreement and Canadian dollar deposits with the counter party to the Swap agreement. The liabilities (non-current) represent the Guaranteed Subordinate Debentures and Notes of $38 million and the Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares of $12 million which would be included outside of shareholders' equity. (d) Foreign Exchange Contracts In accordance with Canadian GAAP, certain long-term foreign exchange contracts are considered to be hedges of sales revenue denominated in foreign currencies or the cost of goods to be purchased in foreign currencies. Gains and losses related to changes in market values of such contracts are deferred and recognized when the contract is settled as part of sales revenue or the cost of purchased goods as appropriate. Under U.S. GAAP, changes in the market value of the contracts would be included in current earnings. The impact of this GAAP difference has not been material during the reporting periods presented. 30 17 FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA - - -------------------------------------------------------------------------------- (Expressed in thousands of Canadian dollars, except for share and exchange rate data)
Year Ended December 31 1996 1995 1994 1993 1992 - - ------------------------------------------------------------------------------------------------------------------- Metal sales $ 67,180 $ 67,418 $ 46,940 $ 30,668 $ 34,840 Income (loss) from continuing operations 9,012 10,461 5,307 (1,743) (910) Net income (loss) 9,012 10,461 5,307 (3,493) (910) Earnings (loss) per share - from continuing operations 0.06 0.09 0.05 (0.02) (0.01) - Net income (loss) 0.06 0.09 0.05 (0.03) (0.01) Total assets 165,298 123,703 113,780 91,916 86,951 Long-term debt 7,657 10,782 15,438 -- -- Deferred hedging gain -- -- 1,603 4,809 8,302 Shareholders' equity 142,058 99,554 84,800 79,278 68,165 Book value per share 0.96 0.80 0.72 0.68 0.69 Gold production - ounces 125,000 120,000 81,000 55,000 70,000 Foreign exchange rate - US dollars Year end/average 0.73/0.73 0.73/0.73 0.71/0.73 0.76/0.78 0.79/0.83 High/low 0.75/0.72 0.75/0.70 0.76/0.71 0.80/0.74 0.88/0.77 Shares outstanding (in thousands) At year end 148,588 124,466 117,528 117,225 99,298 Weighted average during year 145,907 121,214 117,274 106,051 99,252 - - -------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Expressed in thousands of Canadian dollars, except per share amounts)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter - - --------------------------------------------------------------------------------------- Year ended December 31, 1996 Metal sales $18,397 $18,733 $16,191 $13,859 Operating income 3,227 2,862 837 (260) Net income 3,466 3,227 1,465 854 Earnings per share 0.02 0.02 0.01 0.01 - - --------------------------------------------------------------------------------------- Year ended December 31, 1995 Metal sales $16,493 $16,445 $16,191 $18,289 Operating income 2,493 2,422 2,438 3,936 Net income 2,010 2,586 2,258 3,607 Earnings per share 0.02 0.02 0.02 0.03 - - ---------------------------------------------------------------------------------------
31 18 SHAREHOLDER INFORMATION - - -------------------------------------------------------------------------------- Campbell Resources Inc. common shares are listed on the New York, Toronto and Montreal stock exchanges and trade under the symbol 'CCH'. The warrants are listed on the New York Stock Exchange trading under the symbol 'CCH.ws' and on the Toronto and Montreal stock exchanges trading under the symbol 'CCH.wt'. Each warrant entitles the holder to purchase one common share of Campbell Resources Inc. for US$1.50 on or before February 26, 1999. There are 9.0 million warrants issued and outstanding. Campbell Resources is included in the TSE 300 and TSE 200 Indexes. QUARTERLY TRADING STATISTICS COMMON SHARE PRICES
Toronto Stock Exchange New York Stock Exchange (Cdn$) (US$) - - ------------------------------------------------------------------------- High Low Volume High Low Volume - - ------------------------------------------------------------------------- 1996 4th Quarter 1.60 1.20 2,454,280 1.250 0.875 10,471,000 3rd Quarter 1.70 1.35 3,342,945 1.250 1.00 12,038,100 2nd Quarter 1.82 1.53 8,256,690 1.375 1.125 16,728,300 1st Quarter 1.98 1.36 16,823,841 1.500 0.937 33,223,300 - - ------------------------------------------------------------------------- 1995 4th Quarter 1.44 1.05 12,115,775 1.125 0.75 18,697,200 3rd Quarter 1.30 0.98 8,134,279 1.00 0.625 15,842,500 2nd Quarter 1.25 0.95 7,249,193 0.875 0.625 14,820,500 1st Quarter 1.10 0.80 4,662,321 0.75 0.50 12,765,700 - - ------------------------------------------------------------------------- WARRANT PRICES - - ------------------------------------------------------------------------- Toronto Stock Exchange New York Stock Exchange (Cdn$) (US$) - - ------------------------------------------------------------------------- High Low Volume High Low Volume - - ------------------------------------------------------------------------- 1996 4th Quarter 0.60 0.48 485,500 0.437 0.375 198,300 3rd Quarter 0.62 0.40 902,050 0.562 0.406 342,000 2nd Quarter 0.78 0.50 1,390,550 -- -- -- 1st Quarter 0.65 0.40 1,426,100 -- -- --
Trading began February 26,1996 Trading began July 26,1996 - - ------------------------------------------------------------------------------- TRANSFER AGENTS MONTREAL TRUST COMPANY MONTREAL TRUST COMPANY CHASEMELLON SHAREHOLDER SERVICES 151 Front Street West Place Montreal Trust 85 Challenger Road 8th Floor 1800 McGill College Avenue Overpeck Center Toronto, Ontario M5J 2N1 Montreal, Quebec Ridgefield Park, New Jersey Phone: (416) 981-9500 H3A 3K9 U.S.A. 07660 Fax: (416) 981-9800
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 EX-20.1 4 NOTICE AND PROXY CIRCULAR 1 [LOGO] CAMPBELL RESOURCES INC. Suite 1910, 120 Adelaide Street West Toronto, Ontario M5H 1T1 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS NOTICE is hereby given that the Annual Meeting of Shareholders of Campbell Resources Inc. (the "Corporation") will be held at the Board of Trade of Metropolitan Toronto, Boardroom "A", 4th floor, Adelaide Street Entrance, 1 First Canadian Place, Toronto, Ontario on Thursday, April 24, 1997 at 9:30 A.M. (Eastern Daylight Saving Time) for the following purposes: 1. to receive the Consolidated Financial Statements of the Corporation and Auditors' Report thereon for the fiscal year ended December 31, 1996; 2. to elect directors for the ensuing year; 3. to appoint auditors for the ensuing year and to authorize the Directors to fix their remuneration; and 4. to transact such other business as may properly come before the Meeting or any adjournment or adjournments thereof. The Board of Directors of the Corporation has fixed the close of business on March 18, 1997 as the record date for the determination of shareholders entitled to notice of and to vote at the Meeting and any adjournment thereof. If you do not expect to be present at the Meeting, please sign, date and fill in the enclosed form of proxy and return it by mail in the enclosed addressed envelope. All instruments appointing proxies to be used at the Meeting must be deposited with the Secretary of the Corporation at the Corporation's office in Toronto, or at the office of the Corporation's transfer agent, Montreal Trust Company, in Toronto not later than 5:00 p.m. (Eastern Daylight Saving Time) on Tuesday, April 22, 1997. Shares represented by instruments appointing proxies that are not so deposited will not be voted at the Meeting. By Order of the Board of Directors /s/ Lorna D. MacGillivray --------------------------------------------- Lorna D. MacGillivray Vice President, Secretary and General Counsel Dated: March 13, 1997. 2 CAMPBELL RESOURCES INC. PROXY CIRCULAR ANNUAL MEETING OF SHAREHOLDERS THIS PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE MANAGEMENT AND BOARD OF DIRECTORS OF CAMPBELL RESOURCES INC. (THE "CORPORATION" OR "CAMPBELL") OF PROXIES TO BE VOTED AT THE ANNUAL MEETING OF SHAREHOLDERS (THE "MEETING") TO BE HELD ON APRIL 24, 1997 AT THE BOARD OF TRADE OF METROPOLITAN TORONTO, BOARDROOM "A", 4TH FLOOR, ADELAIDE STREET ENTRANCE, 1 FIRST CANADIAN PLACE, TORONTO, ONTARIO. The record date for determination of shareholders entitled to receive notice of the Meeting is March 18, 1997. If a person has acquired ownership of shares since that date he may, in accordance with the provisions of the Canada Business Corporations Act, produce properly endorsed share certificates or otherwise establish that he owns such shares and demand, not later than the close of business on April 14, 1997, to be included in the list of shareholders entitled to vote at the Meeting, in which case the transferee is entitled to vote his shares at the Meeting. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON, WHO NEED NOT BE A SHAREHOLDER, OTHER THAN THE PERSONS SPECIFIED IN THE ENCLOSED FORM OF PROXY TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING. SUCH RIGHT MAY BE EXERCISED BY STRIKING OUT THE NAMES OF MANAGEMENT'S NOMINEES IN THE ENCLOSED FORM OF PROXY AND INSERTING THE NAME OF THE PERSON TO BE APPOINTED IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY, SIGNING THE FORM OF PROXY AND RETURNING IT IN THE REPLY ENVELOPE PROVIDED. Any person giving a proxy may revoke it by depositing an instrument in writing executed by him or by his attorney authorized in writing at the registered office of the Corporation at any time up to the close of business on the last business day preceding the Meeting or any adjournment thereof or with the Chairman at the Meeting or in any other manner permitted by law. ALL PROPERLY EXECUTED PROXIES, NOT THERETOFORE REVOKED, WILL BE VOTED ON ANY POLL TAKEN AT THE MEETING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED THEREIN. IF NO INSTRUCTIONS ARE GIVEN WITH RESPECT TO ANY PARTICULAR MATTER, THE PROXY AUTHORIZES A VOTE IN FAVOUR OF SUCH MATTER AND IT WILL BY VOTED ACCORDINGLY. Proxies must be received by the Corporation not later than 5:00 p.m. (Eastern Daylight Saving Time) on Tuesday, April 22, 1997. All dollar amounts contained in this Proxy Circular are expressed in Canadian dollars unless specifically stated otherwise. As of March 13, 1997, the Noon Buying Rate in New York City for Canadian dollars was U.S.$0.7335 VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF As of March 13, 1997, the Corporation had outstanding 150,357,876 Common Shares entitled to be voted at the Meeting. Each Common Share is entitled to one vote. 1 3 To the knowledge of the Corporation, as of March 13, 1997, the following is the only party who beneficially owned or exercised control or direction over more than 5% of the Common Shares of the Corporation:
Name and Address Number of Common Shares Percentage of Class - - ---------------- ----------------------- ------------------- Heartland Advisors, Inc. 7,665,000(1) 5.1% 790 North Milwaukee Street Milwaukee, WI 53202 1. Based on U.S. Securities and Exchange Commission Schedule 13G filing dated February 12, 1997).
ELECTION OF DIRECTORS (ITEM NO. 2 OF NOTICE OF MEETING) Shareholders will be asked to elect nine directors to serve, subject to the Corporation's by-laws, until the next annual meeting of shareholders or until their respective successors have been duly elected or appointed. IT IS THE INTENTION OF THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY TO VOTE AT THE MEETING FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED BELOW. IF ANY SUCH NOMINEE SHOULD BE UNABLE TO SERVE, AN EVENT NOT CURRENTLY ANTICIPATED, PROXIES WILL BE VOTED FOR SUCH PERSON AS SHALL BE DESIGNATED BY THE BOARD OF DIRECTORS OF THE CORPORATION TO REPLACE SUCH NOMINEE. The following table sets forth certain information concerning the persons to be nominated for election as directors of the Corporation, including their beneficial ownership of Common Shares of the Corporation as of March 13, 1997. Unless otherwise indicated, each nominee holds sole voting and investment power over his shares.
Number of Name & Municipality of Principal Occupation Director Common Percent Residence and Business Experience Since Age Shares of Class - - ---------------------- ----------------------- -------- --- ------ -------- James D. Beatty Chief Executive Officer, Trinity 1983 52 2,500(1) * Toronto, Ontario Capital Corporation, Toronto, Ontario, investment company. Graham G. Clow Mining Engineer; Senior Vice 1996 46 2,500(2) - Oakville, Ontario President, North American Operations, Breakwater Resources Ltd., President, CanZinco Ltd., Toronto, Ontario; prior to June, 1996, President, Granduc Mining Corporation; prior to June, 1993, Vice President, Project Development, Curragh Inc., Toronto, Ontario, mining companies.
2 4
Number of Name & Municipality of Principal Occupation Director Common Percent Residence and Business Experience Since Age Shares of Class - - ---------------------- ----------------------- -------- --- ------ -------- Roderick P. Douglas Mining Engineer; Director of Ashton 1994 71 10,000(3) * Vancouver, B.C. Mining of Canada Inc., Vancouver, B.C., mining company. John O. Kachmar President and Chief Executive Officer 1992 60 125,000(4) * Toronto, Ontario of the Corporation; prior to August 1993, President of Northgate Exploration Limited, Toronto, Ontario, mining company. James C. McCartney Q.C. Chairman of the Corporation; 1993 59 30,000(5) * Toronto, Ontario Partner, McCarthy Tetrault, Barristers & Solicitors, Toronto, Ontario; Director of Algoma Steel Inc., Sault Ste Marie, Ontario, steel company. Donald R. Murphy President, Societe de developpement 1987 53 nil(1)(6) - Rouyn/Noranda, Quebec de la Baie James, Matagami, Quebec, government owned corporation; Director of MSV Resources Inc., Montreal, Quebec; and Espalau Mining Corporation, Val d'Or, Quebec; mining companies. Francis S. O'Kelly Mining Engineer; Director of 1993 55 5,000(7) * New York, New York Rayrock Yellowknife Resources Inc., Toronto, Ontario and Glamis Gold Ltd., Vancouver, B.C.; mining companies. G. E. "Kurt" Pralle Mining and Metallurgical Consultant; 1993 62 100,000(7) * Ramsey, New Jersey prior to August 1993, Vice-President and Senior Mining Engineer, Citicorp, New York, New York.
3 5
Number of Name & Municipality of Principal Occupation Director Common Percent Residence and Business Experience Since Age Shares of Class - - --------- ----------------------- ----- --- ------ -------- James D. Raymond Corporate Investor and Director; 1979 71 10,000(8) * Montreal, Quebec Director of Cineplex Odeon Corporation, Toronto, Ontario, entertainment company; Canadian 88, Calgary, Alberta, oil and gas company; Denbridge Capital Corporation, Toronto, Ontario investment company; Agritek Bio Ingredients Corporation, Montreal, Quebec, international research and marketing company of natural biotechnological livestock feed additive ingredients.
Notes: (1) Excludes 500,000 Common Shares subject to option. (2) Excludes 150,000 Common Shares subject to option. (3) Excludes 250,000 Common Shares subject to option. (4) Excludes 1,350,000 Common Shares subject to option. (5) Excludes 800,000 Common Shares subject to option. (6) Excludes 26,110 Common Shares held by Societe de developpement de la Baie James of which Mr. Murphy is President. (7) Excludes 400,000 Common Shares subject to option. (8) Excludes 600,000 Common Shares subject to option. * Less than 1% of the outstanding Common Shares. As of March 13, 1997, the directors and officers of the Corporation as a group beneficially owned 372,443 Common Shares representing approximately 0.3% of the outstanding Common Shares of the Corporation excluding 5,975,000 Common Shares subject to option. The information as to Common Shares beneficially owned or over which control or direction is exercised, not being within the knowledge of the Corporation, has been furnished by the respective directors and officers individually. COMMITTEES OF THE BOARD OF DIRECTORS The Executive Committee of the Board of Directors consists of three directors, Messrs. Kachmar, McCartney and Raymond and has substantially all of the powers of the Board of Directors, except those required by law to be exercised by the Board of Directors. The Audit Committee of the Board of Directors consists of three directors, Messrs. Beatty, Douglas and Murphy. The Audit Committee reviews the Corporation's financial statements and audit procedures and reports thereon to the Board of Directors. The Compensation Committee consists of three directors, Messrs. Beatty, McCartney and Pralle. The Compensation Committee considers and approves compensation, remuneration and incentive arrangements for officers and senior employees of Campbell. The Corporation does not have a nominating committee. 4 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 7 The Board has identified the principal risks associated with the Corporation's business. These risks and the steps taken to minimize such risks are reviewed on an ongoing basis at the regularly scheduled quarterly meetings of the Board. In 1990, the Board adopted an Environmental Policy, as recommended by the Mining Association of Canada, which is administered at each site by an environmental committee comprised of the President and Chief Executive Officer, the General Manager and the environmental officer of the site. The President and Chief Executive Officer reports to the Board on a quarterly basis which enables the Board to monitor the effectiveness of compliance with environmental policy. The Board also approves a Treasury and Investment Policy which governs investment of the Corporation's cash and foreign exchange and currency hedging. Compliance with this policy is reviewed by the Board and the Audit Committee on a quarterly basis. The Board has delegated responsibility for communication with the public and the Corporation's shareholders to its Vice President, Secretary and General Counsel and its Manager of Investor Relations. Procedures are in place to ensure timely dissemination of information about the Corporation. Any significant shareholder concerns which may be communicated to the above persons are communicated to the Board at its regularly scheduled quarterly meetings. The responsibility of monitoring the effectiveness of the Corporation's internal financial information systems has been delegated to the Vice President, Finance who reports to the Board on a quarterly basis. The duty of monitoring the technical affairs of the Corporation falls to the President and Chief Executive Officer who is a member of the Board and of the environmental committees. A program for succession of management and training has not been adopted. Given the availability of trained mining industry personnel in Canada and the size of the Corporation, management personnel who are already trained are engaged as required to fill vacancies. The Corporation does not have a standing nominating committee for directors nor does it have an ongoing process for the training or evaluation of performance of directors, as recommended by the Report. The Corporation is a medium sized company which is still in a growth stage and accordingly, a variety of technical, legal and financial experience at the Board level is important. When it is determined that additional expertise is required on the Board, a number of candidates are considered and the full Board meets with a proposed nominee. The decision to nominate or appoint an additional director is taken by the Board as a whole. In August, 1996, in order to add technical expertise to the Board, given extensive development projects being undertaken by the Corporation, Mr. Graham G. Clow, an experienced mining engineer, was appointed a director following the above process. 6 8 The performance of the management team is reviewed annually by the Compensation Committee in the context of the Corporation's success in meeting its objectives which are established as part of the review of the annual financial forecast. This Committee is comprised solely of non-management members being the Chairman and two independent directors. The philosophy of the Compensation Committee is stated below under "Report on Executive Compensation". In addition, the Compensation Committee periodically reviews the compensation paid to members of the Board and makes recommendations to the Board on compensation of directors. COMPENSATION OF DIRECTORS All directors of the Corporation receive an annual director's fee of $6,000 and an attendance fee of $750 per meeting and out-of-pocket expenses relating to attendance at a board or committee meeting. The Corporation paid aggregate remuneration of $140,250 to the 9 incumbent directors and 1 former director in their capacities as such during the fiscal period ended December 31, 1996. In 1996, the Corporation purchased directors' and officers' liability insurance with a liability limit of $10,000,000 for which the Corporation paid an annual premium of $57,780 in 1996. The policy contains a deductible clause of $250,000 payable by the Corporation. In 1996, the Corporation entered into an agreement with Mr. Francis S. O'Kelly, a director of the Corporation, pursuant to which Mr. O'Kelly agreed to provide consulting services to the Corporation on a part-time basis for a monthly fee of US$1,500. Pursuant to this agreement, the Corporation paid Mr. O'Kelly US$18,000 in 1996. In 1996, the Corporation continued to engage the law firm McCarthy Tetrault of which James C. McCartney, Q. C., a director and chairman of the Corporation, is a senior partner to provide legal advice to the Corporation. An aggregate of $149,000 was paid to McCarthy Tetrault for legal services in 1996. DIRECTORS' STOCK OPTION PLAN At December 31, 1996, options to acquire an aggregate of 3,700,000 Common Shares were outstanding under the Directors' Stock Option Plan. During 1996, options to acquire an aggregate of 1,050,000 Common Shares exercisable between $1.26 and $1.48 per share were granted. During the year, two directors exercised options to acquire an aggregate of 130,000 Common Shares at $0.57 per share. EXECUTIVE COMPENSATION The following table (presented in accordance with the regulation (the "Regulation") made under the Securities Act (Ontario)) sets forth all annual and long-term compensation for services 7 9 in all capacities to the Corporation and its subsidiaries for the fiscal years ended December 31, 1996, 1995 and 1994 (to the extent required by the Regulation) in respect of the individuals who were at December 31, 1996, the Chief Executive Officer and the other most highly compensated individuals who were serving as executive officers of the Corporation and whose total salary and bonus exceeded $100,000 (the" Named Executive Officers"): SUMMARY COMPENSATION TABLE ================================================================================
Annual Compensation Long-Term Compensation ------------------------------------- ------------------------------------ Awards Payouts ------------------------- ------- Securities Under Restricted Other Options/ Shares or Annual SARs Restricted LTIP All Other Name and Salary Bonus Compensation granted Share Units Payouts Compensation Principal Position Year ($) ($) ($)(3) (#) ($) ($) ($) - - ------------------------------------------------------------------------------------------------------------------------------------ John O. Kachmar 1996 225,000 200,000 -- 450,000 Nil Nil 18,000(4) President & Chief 1995 225,000 170,000(1) -- -- Nil Nil 12,500(4) Executive Officer 1994 225,000 89,000(2) -- 300,000 Nil Nil 9,500(4) - - ------------------------------------------------------------------------------------------------------------------------------------ Lorna D. MacGillivray 1996 115,000 56,500 -- 150,000 Nil Nil 3,000(4) Vice President, 1995 115,000 52,500 (1) -- -- Nil Nil Nil Secretary & General 1994 100,000 19,692 (2) -- 200,000 Nil Nil 5,500(4) Counsel - - ------------------------------------------------------------------------------------------------------------------------------------ Paul J. Ireland 1996 115,000 56,500 -- 150,000 Nil Nil Nil Vice President, Finance 1995 106,000 52,500(1) -- -- Nil Nil Nil 1994 27,000(5) 2,000(5) -- 150,000 Nil Nil Nil - - ------------------------------------------------------------------------------------------------------------------------------------ Gary A. Cohoon 1996 115,000 31,500 -- 100,000 Nil Nil Nil Vice President, 1995 106,000(6) 2,100 -- 150,000 Nil Nil Nil Exploration 1994 -- -- -- -- Nil Nil Nil ====================================================================================================================================
Notes: (1) Of the $170,000 bonus paid to Mr. Kachmar, $40,000 was paid in cash and the balance paid through the issuance of 50,000 Common Shares issued net of income tax. Of the $52,500 bonuses paid to each of Ms. MacGillivray and Mr. Ireland, $20,000 was paid in cash and the balance through the issuance of 12,500 Common Shares issued net of income tax. (2) Of $89,000 bonus paid to Mr. Kachmar, $15,000 was paid in cash and the balance paid through the issuance of 50,000 Common Shares issued net of income tax. Of the $19,692 bonus paid to Ms. MacGillivray, $8,000 was paid in cash and the balance through the issuance of 7,900 Common Shares issued net of income tax. (3) Perquisites and other personal benefits for the Named Executive Officers did not exceed 8 10 the lesser of $50,000 and 10% of total annual salary and bonus. (4) Represents director's fees. (5) Represents compensation for the period from September 26, 1994 when Mr. Ireland joined the Corporation until December 31, 1994. (6) Includes compensation in all capacities for the full year. Mr. Cohoon became an executive officer on November 13, 1995. The following table (presented in accordance with the Regulation) sets forth stock options granted under the Share Option Plan (the "Option Plan") portion of the Employee Incentive Plan, during the fiscal year ended December 31, 1996 to the Named Executive Officers: OPTION/SAR GRANTS IN LAST FISCAL YEAR ================================================================================
% of Total Options/SARs Market Value of Securities Under Granted to Exercise Securities Underlying Options/SARs Employees or Base Price Options/SARs on Date Expiration Name Granted($)(1) in Fiscal Year ($/Security)(3) of Grant ($/Security) Date - - ---------------------------------------------------------------------------------------------------------------------------------- John O. Kachmar 350,000(1)(2) 19% 1.48 1.48 15/08/2001 President and CEO - - ---------------------------------------------------------------------------------------------------------------------------------- Lorna D. MacGillivray 150,000(1) 8% 1.48 1.48 15/08/2001 Vice President, Secretary and General Counsel - - ---------------------------------------------------------------------------------------------------------------------------------- Paul J. Ireland 150,000(1) 8% 1.48 1.48 15/08/2001 Vice President, Finance - - ---------------------------------------------------------------------------------------------------------------------------------- Gary A. Cohoon 100,000(1) 5% 1.48 1.48 15/08/2001 Vice President, Exploration ====================================================================================================================================
Notes: (1) These options were granted on August 14, 1996 and are for a term of 5 years. The options are exercisable as to 25% immediately with 25% becoming exercisable cumulatively on each of the first, second and third anniversary date of the grant. (2) Excludes options to acquire 100,000 Common Shares granted during 1996 under the Directors' Stock Option Plan. (3) The exercise price represents the average of the closing prices of the Corporation's Common Shares on The Toronto Stock Exchange during the five days prior to the date of grant. 9 11 The following table (presented in accordance with the Regulation) sets forth information concerning the exercise of stock options and SAR's by Named Executive Officers in 1996 and the number and the unrealized value of exercisable and unexercisable stock options held by Named Executive Officers at December 31, 1996. AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES ================================================================================
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 - - -------------------------------------------------------------------------------------------------------------------------------- John O. Kachmar Nil Nil 1,037,500(1)/312,500 $260,000(1)/34,000 President and CEO - - -------------------------------------------------------------------------------------------------------------------------------- Lorna D. MacGillivray 38,820(2) $107,000(2) 237,500/162,500 $ 56,500/34,000 Vice President, Secretary and General Counsel - - -------------------------------------------------------------------------------------------------------------------------------- Paul J. Ireland Nil Nil 150,000/150,000 $ 76,500/25,500 Vice President, Finance - - -------------------------------------------------------------------------------------------------------------------------------- Gary A Cohoon Nil Nil 137,500/187,500 $ 22,750/22,750 Vice President, Exploration ================================================================================================================================
Note: (1) Includes options granted under the Directors' Stock Option Plan to acquire 100,000 Common Shares exercisable at $0.57 share, 200,000 Common Shares at $1.10 per share and 100,000 Common Shares at $1.48 per share. (2) Represents the deemed value of 100,000 Common Shares at a market value of $1.64 per share, less the exercise price of $0.57 per share. After tax withheld by the Corporation, 38,820 Common Shares were issued at $1.64 per share. EMPLOYEE INCENTIVE PLAN The Corporation maintains an Employee Incentive Plan consisting of the Share Purchase Plan, the Share Option Plan, the Share Bonus Plan and the Share Loan Plan. Directors who are not officers do not participate in the Employee Incentive Plan. SHARE OPTION PLAN The Share Option Plan is intended to promote the interests of Campbell and its shareholders by making provisions for stock options as an additional incentive to attract, retain and motivate officers and salaried employees. Grants are made at the discretion of the Board of Directors or a committee of the board comprised of members, a majority of whom are not eligible to participate in the Plan (the 10 12 "Compensation Committee"). The Board of Directors or the Compensation Committee may, in its discretion, determine which officers or employees will be granted options, the number of Common Shares to be the subject of each option, the purchase price of such shares and the duration of the options, which may not exceed five years. The Board of Directors or the Compensation Committee may also impose other terms and conditions respecting any option granted as it may consider appropriate or necessary. Freestanding "SARs" are not provided for under the Share Option Plan. The options may, at the discretion of the Board of Directors or the Compensation Committee, be accompanied by SARs which entitle the holder to elect to terminate his or her options, in whole or in part and, in lieu of receiving the Common Shares ("Option Shares") to which the terminated options relate, elect to receive that number of Common Shares, disregarding fractions, which have a total value equal to the product of the number of Option Shares times the difference between the fair value (at the date of such election) and the option price per share of the Option Shares, less any amount withheld on account of income taxes, which income taxes will be remitted on the employee's behalf by the Corporation. All currently outstanding options are accompanied by SARs. During 1996, options to purchase 750,000 Common Shares were granted under the Share Option Plan to four officers who are Named Executive Officers defined under the Regulation and options to purchase 1,100,000 Common Shares were granted to employees and officers who are not Named Executive Officers. These options are exercisable at $1.48 per share and are exercisable as to 25% immediately, with a further 25% becoming exercisable cumulatively on each of the first, second and third anniversary dates and are accompanied by SARs. All of the options were granted for a term of five years. During 1996, one Named Executive Officer exercised SAR's attached to options to acquire 100,000 Common Shares to acquire 38,820 Common Shares (see table on page 10) and employees who were not Named Executive Officers exercised options to acquire an aggregate of 560,000 Common Shares for an aggregate consideration of $517,950. As at December 31, 1996, a total of 3,475,000 Common Shares were issuable upon exercise of options under the Plan including 1,975,000 Common Shares issuable upon exercise of options held by the four Named Executive Officers. Such options are exercisable at exercise prices ranging from $0.57 to $1.48 per share. These options expire between August 17, 1998 and August 15, 2001. SHARE PURCHASE PLAN The Share Purchase Plan is designed to encourage employees of Campbell to purchase Common Shares on a regular basis. Employees of Campbell who have been continuously employed by Campbell for at least one year, or less at the discretion of the Compensation Committee or the Board of Directors, are eligible each January 1 to participate in the Share Purchase Plan. Each eligible employee may contribute up to 5% of his or her basic salary to the Share Purchase Plan through monthly deductions. On a quarterly basis, Campbell will contribute an amount equal to 50% of the employee's contributions to such date and each participating employee will then be issued Common Shares having a value equal to the aggregate amounts contributed by such employee and Campbell. In 1996, 5,886 Common Shares 11 13 were issued to Lorna D. MacGillivray in respect of which Campbell contributed $2,875 and 5,887 Common Shares were issued to Gary A. Cohoon in respect of which Campbell contributed $2,875 and 37,449 Common Shares were issued to employees who are not Named Executive Officers in respect of which Campbell contributed $18,381 pursuant to the Share Purchase Plan. SHARE BONUS PLAN The Share Bonus Plan is intended to promote the interests of Campbell and its shareholders by permitting the Board of Directors or the Compensation Committee, in its discretion, to issue Campbell Common Shares to full-time salaried employees of Campbell as a bonus in recognition of services provided to Campbell by such employee. The issue of Common Shares to such employee may be subject to such terms and conditions as are determined by the Board of Directors or the Compensation Committee. During 1996, no Common Shares were issued pursuant to the Share Bonus Plan. SHARE LOAN PLAN The Share Loan Plan is intended to provide an additional incentive to motivate full time officers who will make important contributions to the success of Campbell by assisting such persons to acquire shares of the Corporation. The Compensation Committee may in its discretion make loans to full time officers of the Corporation. Such loans shall be subject to such terms and conditions including rates of interest, if any, as the Compensation Committee may consider appropriate. During 1996, no loans were granted and no loans are outstanding under the Share Loan Plan. INDEBTEDNESS OF DIRECTORS AND OFFICERS No directors or officers of the Corporation are indebted to the Corporation. PENSION PLAN The Corporation has a defined benefit pension plan (the "Pension Plan") available on a voluntary basis to all employees of the Corporation and its subsidiaries other than those who are subject to the provisions of a collective agreement. The Pension Plan provides a pension equal to 2% of the average annual salary not including bonuses and other compensation during the three most highly paid years for each year of credited service subject to the maximum benefit limitation applicable to registered pension plans under the Income Tax Act (Canada). Benefits under the Pension Plan vest after two years. Early retirement is permitted after age 55, subject to reductions. The Pension Plan also provides that certain members may be designated as "Class A" non-contributory members. Head office and certain senior employees have been designated as "Class A" non-contributory members. The following table sets forth the benefits calculated under the Pension Plan at various salary levels and years of employment on the assumption such benefits become payable upon retirement at age 12 14 sixty-five. Benefits under the Pension Plan are not reduced by social security or other offset amounts. The payment of such benefits is subject to the maximum benefit limitation applicable to registered pension plans under the Income Tax Act (Canada) which currently is $1,722 for each year of service. PENSION PLAN TABLE ================================================================================
Years of Service ------------------------------------------------------------------------------------------------- Remuneration 15 20 25 30 35 - - ---------------------------------------------------------------------------------------------------------------------- $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 ======================================================================================================================
The Chief Executive Officer does not participate in the Pension Plan. Ms. MacGillivray had 3.4 years of credited service under the Pension Plan at December 31, 1996. No other Named Executive Officer participates in the Plan. EMPLOYMENT CONTRACTS On August 1, 1993, the Corporation entered into an employment agreement with Mr. Kachmar as President and Chief Executive Officer. The agreement stipulates, among other things, a base salary of $285,000 per annum effective January 1, 1997. On December 1, 1994, Mr. Kachmar's agreement was amended to provide that in the event that Mr. Kachmar's employment is terminated, he will be entitled to be paid up to thirty-six months' salary and benefits. In the event of a change of control, as defined, Mr. Kachmar will be entitled to resign within six months thereof and be paid thirty-six months' salary and benefits. The amendment also provides that in the event of resignation or termination, options held by Mr. Kachmar will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. On August 1, 1993, the Corporation entered into an employment agreement with Ms. MacGillivray as Vice President, Secretary and General Counsel. The agreement stipulates among other things, a base salary of $130,000 per annum effective January 1, 1997. On December 1, 1994, Ms. MacGillivray's agreement was amended to provide that in the event that Ms. MacGillivray's employment is terminated, she will be entitled to be paid up to twenty-four months' salary and benefits. In the event of a change of control, as defined, Ms. MacGillivray will be entitled to resign within six months thereof and be paid twenty-four months' salary and benefits. The amendment also provides that in the event of resignation or termination, options held by Ms. MacGillivray will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. On October 1, 1994, the Corporation entered into an employment agreement with Mr. Paul J. 13 15 Ireland as Vice President, Finance. The agreement stipulated a base salary of $130,000 effective January 1, 1997. On December 10, 1996, Mr. Ireland's agreement was amended to provide that in the event that his employment is terminated, he will be entitled to be paid up to twenty-four months' salary and benefits. In the event of a change of control, as defined, Mr. Ireland will be entitled to resign within six months thereof and be paid twenty-four months' salary and benefits. The amendment also provides that in the event of resignation or termination, options held by Mr. Ireland will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. COMPOSITION OF THE COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors considers and approves compensation, remuneration and incentive arrangements for directors, officers and senior employees of the Corporation. The members of the Compensation Committee are James C. McCartney, Q.C. (Chairman), James D. Beatty and G. E. "Kurt" Pralle. Mr. McCartney is Chairman of the Corporation and he is also Chairman of the Compensation Committee. Mr. McCartney is a senior partner with the law firm McCarthy Tetrault which provides legal advice to the Corporation. Neither Mr. Beatty nor Mr. Pralle is, nor was, at any time, an officer or employee of the Corporation or any of its subsidiaries. The Committee held its first meeting on February 28, 1994, at which an executive compensation philosophy and policy, to be followed by the Committee in its future consideration of executive compensation and incentive arrangements, was approved. EXECUTIVE COMPENSATION PHILOSOPHY AND POLICY The Corporation's Executive Compensation Policy is primarily based on a pay for performance philosophy. The main objective of the policy is the alignment of all financial reward systems with shareholder interests. The compensation structure must also reflect the Corporation's current financial position and the scope of its operations. As a consequence, a heavy emphasis is placed on the long-term business objectives of creating wealth, decreasing risk by expanding operations, and providing returns to the Corporation's shareholders. The particular elements of the executive compensation program for senior executives of the Corporation, designed to encourage, compensate and reward employees on the basis of individual and corporate performance, may be summarized as follows: - BASE SALARY The program is designed to attract and retain executive officers by delivering a competitive rate of base pay. Market competitive rates will be determined by comparison with average compensation levels of comparable mining companies. It is believed that the average pay of these companies is a reasonable reference point from which to target and manage base pay, while recognizing the need for executive level experience and skills in the current phase which will further the Corporation's achievement of its growth objectives. - ANNUAL INCENTIVE COMPENSATION The Corporation currently does not offer a short-term variable pay or incentive plan but may in future implement an annual incentive plan. The Corporation's 14 16 Employee Incentive Plan has a Share Bonus Plan component which may be used to provide annual incentive compensation. The use of this plan can combine both short and longer term incentives and, through increased shareholding, would also align the interests of executive officers with those of the Corporation's shareholders. Grants of annual bonuses would be based on the employee's contribution towards the Corporation's success in meeting its goals. - STOCK OPTION PROGRAMS The Corporation strongly believes that by providing those persons who have substantial responsibility for the management and growth of the Corporation with an opportunity to acquire the Corporation's stock, the interests of shareholders and executives will be increasingly aligned. The number of stock options that will be granted to executive officers will be based on competitive practices of comparable mining companies and will reflect an emphasis on long-term performance awards. Options will generally become exercisable gradually over their term and will generally be for a five-year term. REPORT ON EXECUTIVE COMPENSATION In August, 1996, the Compensation Committee approved the granting of additional stock options to executive officers of the Corporation under the Employee Incentive Plan. In approving this grant of additional options, the Committee took into account the number, terms and pricing of previously outstanding options and the employee's level of responsibility and potential contribution to the Corporation's achieving its long-term goals. The Committee also reviewed and recommended the granting of additional options to directors under the Directors' Stock Option Plan at its August meeting. Base salary and annual incentive compensation of senior executives were reviewed by the Committee on December 9, 1996. Corporate performance relative to 1996 objectives was reviewed and the market performance of the Corporation's Common Shares was compared to key market indices. The Committee also reviewed the compensation arrangements of a peer group of five Canadian based gold producers of similar size and circumstance. The recommendations of John O. Kachmar, the Corporation's Chief Executive Officer, were taken into account by the Committee. During this review, the Committee considered the appropriate balance between the three components of executive compensation: base salary, annual incentive compensation and long-term incentives. While base salaries were increased, the cash compensation of executive officers was maintained in the lower half of the peer group levels. CHIEF EXECUTIVE OFFICER COMPENSATION In considering compensation of the Chief Executive Officer, the Committee reviewed the Chief Executive Officer's performance in establishing and pursuing a strategic direction for the Corporation; building and maintaining a sound management team; providing leadership and implementing a course of action to achieve the Corporation's goals and objectives, taking the necessary actions to ensure that the 15 17 Corporation is profitable and pursuing all growth opportunities. In addition, the Committee considered the Chief Executive Officer's contribution to the achievement of the Corporation's 1996 objectives. The Chief Executive Officer's contribution in this area represented the most important factor in the grant of the annual incentive award as set out in the Summary Compensation Table. The Chief Executive Officer's compensation package was compared to the peer group levels as discussed above. Both Mr. Kachmar's base salary and annual incentive are in the lower half of the peer group levels. Mr. Kachmar's base salary, which was established when he joined the Corporation in August, 1993 and his annual incentive award were increased to ensure that his compensation remains competitive with those of peer group companies. March 13, 1997 COMPENSATION COMMITTEE James D. Beatty James C. McCartney, Q.C. G. E. "Kurt" Pralle SHAREHOLDER RETURN PERFORMANCE GRAPH The chart below (as required by the Regulation) compares the yearly percentage change in the cumulative total shareholder return on the Corporation's Common Shares against the cumulative total shareholder return of The TSE 300 Stock Index for the five fiscal year periods commencing December 31, 1991 and ending December 31, 1996. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* BETWEEN CAMPBELL RESOURCES INC. AND THE TSE 300 INDEX [LINE GRAPH]
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, 1991 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- ---------- CCH Stock Price 100 82.61 191.3 167.39 286.96 271.74 TSE 300 Composite 100 98.57 130.65 130.42 149.37 191.71
*$100 INVESTED ON 12/31/91 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31. 16 18 APPOINTMENT OF AUDITORS (ITEM NO. 3 OF NOTICE OF MEETING) UNLESS SUCH AUTHORIZATION IS WITHHELD, THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE AT THE MEETING FOR THE RE-APPOINTMENT OF KPMG, CHARTERED ACCOUNTANTS, AS AUDITORS OF THE CORPORATION TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND TO AUTHORIZE THE BOARD OF DIRECTORS TO FIX THEIR REMUNERATION. Representatives of KPMG are expected to be present at the Meeting and will have the opportunity to make statements if they so desire and will be available to respond to appropriate questions. OTHER MATTERS WHICH MAY COME BEFORE THE MEETING Management does not know of any matters to be presented to the Meeting other than those specifically set forth in the Notice of Annual Meeting of Shareholders. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING AND ARE SUBMITTED TO A VOTE, ALL PROXIES WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS NAMED THEREIN. PROPOSALS BY SHAREHOLDERS Pursuant to the Canada Business Corporations Act (the "Act"), resolutions intended to be presented by shareholders for action at the 1998 Annual Meeting must comply with the provisions of the Act and be deposited at the Corporation's head office not later than January 24, 1998 in order to be included in the Proxy Circular and form of proxy relating to such Meeting. SOLICITATION OF PROXIES The Corporation will bear the cost of this proxy solicitation. The Corporation will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to beneficial owners of Common Shares and requesting authority to execute proxies. In addition to the use of the mails, proxies may be solicited by telephone or facsimile and in person, by the directors, officers and regular employees of the Corporation, none of whom will receive any extra compensation therefor. MISCELLANEOUS The Corporation files with the United States Securities and Exchange Commission an annual report on Form 10-K containing certain information with respect to the Corporation and its business and properties, including financial statements and related schedules. A copy of this Form 10-K will be filed with Canadian securities commissions in lieu of an Annual Information Form. Upon the written request of any beneficial owner of the Corporation's Common Shares, the Corporation will mail to such owner, without charge, a copy of its Form 10-K for the fiscal year ended December 31, 1996. Requests for copies of the Form 10-K should be addressed to: Manager, Investor Relations Campbell Resources Inc. 120 Adelaide Street West, Suite 1910 Toronto, Ontario, Canada M5H 1T1 17 19 APPROVAL BY DIRECTORS The Board of Directors of the Corporation has approved the contents of this Proxy Circular and has approved its being sent to shareholders. By Order of the Board of Directors /s/ Lorna D. MacGillivray --------------------------------------------- Lorna D. MacGillivray Vice President, Secretary and General Counsel Dated: March 13, 1997 18 20 FORM OF PROXY CAMPBELL RESOURCES INC. THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON THURSDAY, APRIL 24, 1997. The undersigned shareholder of CAMPBELL RESOURCES INC. (the "Corporation") hereby nominates, constitutes and appoints James C. McCartney or, failing him, John O. Kachmar, or failing him, Lorna D. MacGillivray, or, instead of any of them _______________________________________________________ lawful attorney and proxy of the undersigned, with full power of substitution to vote in respect of all common shares held by the undersigned at the above noted meeting or any and all adjournments thereof in the following manner: 1. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the election of the directors. 2. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the appointment of KPMG as auditors for the coming year and authorizing the directors to fix remuneration. 3. Upon such other matters (none known at the time of solicitation of this proxy) as may properly be brought before the Meeting or any and all adjournments thereof. The shares represented by this proxy will be voted as directed by the shareholder. IF NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AS DIRECTORS, AND FOR THE APPOINTMENT OF KPMG AS AUDITORS. THE PROXY CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO AMENDMENTS OR VARIATIONS TO THE MATTERS IDENTIFIED IN THE nOTICE OF MEETING AND ANY OTHER matters which may prOPERLY COME BEFORE THE MEETING. YOU HAVE THE RIGHT TO APPOINT ANY PERSON (WHO NEED NOT BE A SHAREHOLDER) TO ATTEND AND ACT ON YOUR BEHALF AT THE MEETING. IF YOU DESIRE TO EXERCISE SUCH RIGHT, STRIKE OUT THE NAMES OF THE BOARD'S NOMINEES AND INSERT THE NAME OF SUCH OTHER PERSON IN THE BLANK SPACE PROVIDED. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and the Proxy Circular. Dated this day of , 1997. - - ---------------------------------------- Signature of Holder This form of proxy must be dated and signed exactly as your name appears herein. When signing in a fiduciary or representative capacity, please give full title as such. In the case of joint shareholders, each must sign. Proxies from a corporation must be signed under corporate seal by an officer thereof, or by an attorney thereof duly authorized in writing. If this proxy is not dated in the space above, it will be deemed to bear the date on which it is mailed by management. EX-21.1 5 SIGNIFICANT SUBSIDIARIES 1 EXHIBIT 21.1 CAMPBELL RESOURCES INC. SIGNIFICANT SUBSIDIARIES December 31, 1996 The following signficant subsidiaries are consolidated in the financial statements submitted as a part of this report: Jurisdiction of Percentage of Incorporation Voting Securities Owned Controlled by Campbell: Meston Resources Inc. Quebec 100% Sotula Gold Corp. Canada 100% Controlled by Campbell & Sotula Gold Corp. Mexico 100% Oro de Sotula, S.A. de C.V. Controlled by Meston Resources Inc. Minera Cerro Quema, S.A. Panama 100% EX-23.1 6 CONSENT OF KPMG 1 (KPMG LOGO) CHARTERED ACCOUNTANTS Securities and Exchange Commission 450 Fifth St. North West Washington, DC 20259 U.S.A. March 26, 1997 We hereby consent to the inclusion in the Annual Report on Form 10-K of Campbell Resources Inc. (the "Corporation") for the year ended December 31, 1996 of our report dated February 21, 1997 which appears under Item 14 of the aforementioned Annual Report on Form 10-K, as amended. KPMG EX-27.1 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted rom the consolidated balance sheets, consolidated statements of income and consol- dated statements of cash flows and is qualified in its entirety by reference to such financial staements. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 55,302 0 8,270 0 9,143 73,455 149,879 59,307 165,298 7,935 7,657 0 0 118,605 0 165,298 67,180 67,180 44,501 60,514 92 0 661 9,600 588 9,012 0 0 0 9,012 0.062 0.062
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