-----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, DgivNzO2Pvtws13tUFR7TvDlEERENITc38IGp3MlNl4k0RJv0xHwgH10nMtnABlS oXqtEzploavW6T3Jo2s7qw== 0000950123-98-003116.txt : 19980331 0000950123-98-003116.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950123-98-003116 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMPBELL RESOURCES INC /NEW/ CENTRAL INDEX KEY: 0000718053 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 980098690 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08488 FILM NUMBER: 98579136 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, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-8488 CAMPBELL RESOURCES INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Canada Not Applicable (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 120 Adelaide Street West, Suite 1910, Toronto, Ontario M5H 1T1 Not Applicable - -------------------------------------------------------------- -------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (416) 366-5201 Securities registered pursuant to Section 12(b) of the Act:
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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] At March 27, 1998, the registrant had outstanding 152,462,861 common shares, without nominal or par value, the only class of registrant's stock outstanding. The aggregate market value of the voting and non-voting common equity held by non-affiliates at such date was US$66,511,311 (based on the closing price of such common share of US$0.4375 on such date as reported on the New York Stock Exchange, Inc. composite listings.) 2 DOCUMENTS INCORPORATED BY REFERENCE Certain portions of registrant's Proxy Circular relating to an Annual Meeting of Shareholders scheduled to be held on May 19, 1998 are incorporated by reference into Part III of this report and certain portions of the 1997 Annual Report to shareholders are incorporated herein by reference into Parts I, II, and IV of this report. These portions of such Proxy Circular and Annual Report are filed as exhibits to this Form 10-K. 3 CAMPBELL RESOURCES INC. Index Annual Report on Form 10-K for Year Ended December 31, 1997
Page ---- PART I Items 1. and 2. Business and Properties.................................................. 2 Item 3. Legal Proceedings........................................................ 23 Item 4. Submission of Matters to a Vote of Security Holders......................................................... 23 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................... 23 Item 6. Selected Financial Data.................................................. 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 24 Item 7A. Quantitative and Qualitative Disclosures about Market Risk............... 24 Item 8. Financial Statements and Supplementary Data..................................................................... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................... 24 PART III Item 10. Directors and Executive Officers of the Registrant........................................................ 25 Item 11. Executive Compensation................................................... 26 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................... 26 Item 13. Certain Relationships and Related Transactions........................... 26 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................. 27
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 ----------- ---- ---- --- 1993 0.7544 0.7751 0.7954 0.7478 1994 0.7129 0.7301 0.7632 0.7105 1995 0.7323 0.7286 0.7431 0.7076 1996 0.7301 0.7332 0.7513 0.7235 1997 0.6999 0.7198 0.7487 0.6961
(1) The average rate means the average of the exchange rates on the last day of each month during the year. On March 27, 1998, the noon buying rate for Cdn. $1.00 was US $0.7069. TONNAGES referred to in this report are to either short tons equal to 2,000 pounds, referred to herein as tons, or to metric tonnes, equal to 2,204.6 pounds and referred to herein as tonnes or metric tonnes. A reference herein to OUNCES means a troy ounce which is equal to 31.103 grams. To convert grams per tonne to ounces per ton, multiply grams per tonne by 0.029. DISTANCES are referred to either as miles, equal to 1.6093 kilometres; feet, equal to 0.305 metres; kilometres, equal to 0.621 miles; or metres, equal to 3.28 feet. ACREAGE is referred to as acres, which represents 0.4046 hectares; hectares, equal to 2.471 acres; or square miles equal to 640 acres or 258.99 hectares. As used throughout this report, the term "PROVEN (MEASURED) RESERVES" means reserves for which (a) quantities are computed from dimensions revealed in outcrops, trenches, workings or drill holes; (b) grade and/or quality are computed from the results of detailed sampling and (c) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well-established. The term "PROBABLE (INDICATED) RESERVES" means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. Cautionary "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995. This report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe-harbor created by such section. Such forward-looking statements concern the Corporation's operations, economic performance and financial condition. Such statements involve known and unknown risks, uncertainties and other factors, including those identified under the "Risk Factors" section in Items 1 and 2 and elsewhere in this report, that may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: differences between estimated and actual ore reserves and recovery rates; failure of plant, equipment or processes to operate in accordance with expectations and specifications; changes to exploration, development and mining plans due to prudent reaction of management to ongoing exploration results, engineering and financial concerns; environmental costs; and fluctuations in gold price which affect the profitability and ore reserves of the Corporation. These risks and uncertainties are the normal risks involved in mining. Readers are cautioned not to put undue reliance on forward-looking statements. See "Risk Factors", and elsewhere in Items 1 and 2, and "Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7". The forward-looking statements are made as of the date of this report, and the Corporation assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. 5 PART I ITEMS 1 AND 2 - BUSINESS AND PROPERTIES GENERAL Campbell Resources Inc. ("Campbell" or the "Corporation") was incorporated in June 1950 under the laws of British Columbia. On September 8, 1982, the Corporation was continued under the Canada Business Corporations Act and on June 8, 1983, in connection with an amalgamation of three other companies, the name of the Corporation was changed from GM Resources Limited to Campbell Resources Inc. The Corporation is a gold mining and natural resource company whose principal assets are the Joe Mann gold mine (the "Joe Mann Mine") located in the Chibougamau area of northwestern Quebec, the Santa Gertrudis gold mine (the "Santa Gertrudis Mine") located in the State of Sonora, Mexico and the Cerro Quema gold property (the "Cerro Quema Property") located in the southern Azuero Peninsula in the Los Santos province of Panama. Segmented financial information with respect to the Corporation's domestic and foreign operations is set out in Note 11 to the Corporation's consolidated financial statements for the year ended December 31, 1997. Such financial statements are filed as a part of Item 14 of this report. The Joe Mann Mine, an underground gold mine owned by Meston Resources Inc., a wholly-owned subsidiary of the Corporation, is located near the town of Chibougamau which is approximately 350 miles north of Montreal, Quebec. The Joe Mann Mine was brought into production by Campbell in 1987. In July 1994, the Corporation directly and through its subsidiary, Sotula Gold Corp., acquired all of the shares of three Mexican companies which held the Santa Gertrudis Mine from Phelps Dodge Corporation. The Corporation holds its interests in Mexico through its wholly-owned subsidiary, Oro de Sotula, S.A. de C.V. ("Sotula"). Sotula was formed in September 1994 through the merger of the Corporation's four wholly-owned Mexican subsidiaries. The Santa Gertrudis Mine is an open pit heap leach gold mine located near the town of Magdalena, Mexico, approximately 150 miles south of Tucson, Arizona. The Santa Gertrudis Mine was brought into production in 1991 by its previous owner. In December 1997, mining, operations were suspended due to low gold prices and insufficient developed ore reserves. Leaching operations will continue until the level of gold production is uneconomic, currently estimated to be into the second half of 1998. The Corporation continues to conduct an active gold exploration programme on the Santa Gertrudis property focussed on identifying additional ore reserves sufficient to permit mining operations to resume at a rate that is economic at the then prevailing gold price. There can be no assurance that gold prices will rise to a level or that sufficient ore reserves will be discovered and developed that will make it economic to resume mining operations. 2 6 On March 4, 1996, the Corporation acquired all of the shares of Minera Cerro Quema, S.A., a Panamanian corporation ("Minera"), whose primary asset is the Cerro Quema Property. Such shares were purchased from Cyprus Exploration and Development Corporation, a Delaware corporation ("Cyprus"), of Englewood, Colorado, for a price of US$8,372,000 cash, pursuant to the exercise by the Corporation of a right of first refusal which the Corporation had acquired from Compania de Exploracion Mineral, S.A.("CEMSA"), a private Panamanian corporation. At the time of such acquisition, Minera was a wholly-owned subsidiary of Cyprus. Cyprus held a 100% interest in the Cerro Quema Property with CEMSA retaining a 3.5% net smelter return royalty (the "Royalty") and a right of first refusal on the sale of the Cerro Quema Property by Cyprus. In December 1995, Cyprus notified CEMSA that it had received an offer, which it considered acceptable, which offer triggered the right of first refusal. The Corporation acquired CEMSA's right of first refusal for aggregate consideration of US$500,000 cash and 1,460,000 Common Shares of the Corporation (the "Common Shares") payable as set forth below. CEMSA also agreed to reduce its Royalty from 3.5% to 2% of net smelter returns with respect to that portion of its Royalty relating to precious metals produced from the Cerro Quema Property. In consideration for this reduction, the Corporation issued a further 1,040,000 Common Shares to CEMSA as described below. On March 4, 1996, the Corporation completed its acquisition of Minera from Cyprus. On completion of this acquisition, the Corporation paid US$250,000 cash and issued 730,000 Common Shares to CEMSA. In November 1996, a positive feasibility study, at an assumed gold price of US$400 per ounce, was completed and presented to the Board of Directors on the basis of which approval was given to proceed with pre-production development including road construction and preparation of construction tender documents. Following completion of some additional test work and receipt of required permitting and exploitation concessions, final approval for the project was given on February 21, 1997. At the time of this approval, the Corporation also paid to CEMSA the remaining US$250,000 cash and, issued to CEMSA the 730,000 Common Shares for the right of first refusal and 1,040,000 Common Shares in consideration of the royalty reduction. In December 1997, as a consequence of sustained lower gold prices, the Corporation decided to defer further development of Cerro Quema until the gold price reaches a level that will ensure economic viability of the project. There can be no assurance that such gold prices will be attained. The Corporation continues to have, as one of its primary business objectives, the acquisition of additional sources of gold production through the acquisition of producing mines or developed properties. It is evaluating a number of such investment opportunities in North and South America. The Corporation sells metals on international markets at prices which fluctuate daily based on world market supply and demand and is in competition with other mining companies, insofar 3 7 as they produce the same product, in a market where price and quality advantages can not be claimed by any of the market participants. Factors which allow producers to remain competitive in the market over the long-term are the quality (grade) and size of the orebody, cost of production and the proximity to market. In all these factors the Corporation is competitive to greater or lesser degrees; but because of the number of companies and variables involved, no individual or group of producers can be pointed to as being in direct competition with Campbell. Except as otherwise noted herein, there have been no recent changes with respect to properties which the Corporation owns, or in which it has significant interests, which have materially affected operating profits. Except as herein noted, to the knowledge of the Corporation, it and its subsidiaries are in compliance with all environmental laws and regulations in effect in all jurisdictions in which operations are being conducted. Campbell and its wholly-owned subsidiaries employed approximately 354 persons as of December 31, 1997, of which 228 were covered by collective bargaining agreements. The relationship of Campbell and its subsidiaries with their employees and contractors is considered by Campbell to be satisfactory. See "Employees" on pages 10 and 15. During 1997 and 1996, there were no material strikes or walkouts at the Joe Mann Mine. On September 14, 1996, the collective bargaining unit at the Joe Mann Mine, represented by Le Syndicat des Travailleurs-euses de la Mine Meston ("CSN"), consisting of 184 employees, approved a collective bargaining agreement covering a three year period with wage increases of 0.73% in the first year and 1.22% and in the second and third years. On February 8, 1996, a three year contract was approved by the Metallurgistes Unis d'Amerique covering 29 workers at the Camchib Mill (described below), under which the salary was maintained at current levels for the first year with levels for the second and third years to be increased at the same rate as was agreed to with CSN. In December 1997, the Corporation concluded an agreement with the National Union of Miners, Metallurgists and Similar Workers of the Mexican Republic, which represented the 143 hourly employees at the Santa Gertrudis Mine, with respect to the cessation of mining operations and termination of all employees covered by the agreement. 4 8 INTERCORPORATE RELATIONSHIPS The following chart illustrates the principal subsidiaries of the Corporation, together with the jurisdiction of incorporation of each company and the significant properties held by each company: CAMPBELL RESOURCES INC. (Canada) SOTULA GOLD CORP. 100% 100% MESTON RESOURCES INC. (Canada) (Quebec) Joe Mann Mine Chibougamau Exploration Properties Camchib Mill 100% 100% ORO DE SOTULA, S.A. de C.V. MINERA CERRO QUEMA, S.A. (Mexico) (Panama) Santa Gertrudis Mine Cerro Quema Property Exploration Properties [ FLOW CHART ] THE JOE MANN MINE HISTORY The Joe Mann property was acquired in July 1980 by Meston Lake Resources Inc. ("Meston Lake"), a predecessor of Meston Resources Inc. ("Meston") (a wholly-owned subsidiary of the Corporation). 5 9 The original deposit was discovered in 1950. A three compartment exploration shaft was sunk and some 859,000 tons of ore grading 0.176 oz/ton of gold had been mined and milled until June 1975 when rising costs coupled with poor recoveries prohibited further mining. Subsequently, Meston Lake acquired the mine and the shaft was dewatered in 1980 before financial problems put a halt to the operation. Campbell became involved in the Joe Mann property in 1983 when it acquired a minority position in Meston Lake and entered into a management agreement under which it designed and implemented an exploration programme and aided in the financing of this programme with the objective of determining the commercial viability of the project. The mine was dewatered in early 1985 and in June of that year, an underground exploration programme began. The exploration programme resulted in the discovery of 800,000 tons of ore reserves and prompted the decision to re-start production. Commercial production began on April 2, 1987 with proven and probable mineable reserves of 910,000 tons grading 0.22 ounces of gold per ton at December 31, 1986. During 1987, Campbell also increased its ownership in the mine to 100%. The mine has been in continuous production since 1987. During 1992, the No. 2 shaft was deepened to a depth of 2,676 feet. This deepening project opened up four new levels between the 1825 and 2350 foot levels. To date, the deposit has been mined along a 3,000 foot strike length to a depth of 2,350 feet and remains open at depth. During 1997 and 1998, the shaft is being deepened by 1,081 feet to a depth of 3,757 feet to permit six new levels to be mined. This project is under budget and on schedule to be completed by approximately June 1, 1998. (See "Mine Exploration and Development" on page 8). At the Joe Mann Mine, the Corporation's subsidiary Meston holds a number of mining concessions and a mining lease along with 25 mining claims surrounding the concessions. Under Quebec mining law, the Corporation's interest in the mining concessions and lease is maintained in good standing by payment of an annual rental fee of $25.00 per hectare or by the completion of $25.00 of exploration and development work annually per hectare. As to mining claims, a fee of $22.00 per claim must be paid and $500 of exploration work incurred every two years. Exploration expenses may be carried forward to future years and may be applied to claims within a 3.2 square kilometre block distance. Current work credits will entitle the Corporation to retain currently held mining claims for in excess of twenty years. Under the exploration agreements with SOQUEM described under "Mineral Exploration Properties--Chibougamau Exploration Properties" on pages 17 and 18, SOQUEM pays the annual fees and incurs the expenditures necessary to keep the applicable mining claims in good standing. LOCATION AND ACCESS The Joe Mann Mine is located approximately 40 miles south of Chibougamau, Quebec which is approximately 350 miles north of Montreal. The property consists of mining concessions covering 90 hectares, a mining lease covering 14.8 hectares and 25 mining claims covering approximately 400 hectares. In addition, Meston holds 197 mining claims covering approximately 3,150 hectares outside of the Joe Mann Mine area. 6 10 The property is accessed from Chibougamau by road. Highway 167 leads to the gravel mine access road, which is approximately 12 miles in length and is serviced by Meston. GEOLOGY The deposit represents a classic Archean vein-type deposit with gold-copper mineralization hosted by quartz veining within three laterally continuous shear systems. In the mine area, the rocks consist predominantly of mafic lavas intruded by gabbro sills and feldspar porphyry dykes. The intrusives appear to have been introduced along a prominent east-west break structure. The gabbro sills which are moderately magnetic are traceable over widths of 400 to 600 feet and for at least thirty miles along strike. Many late diabase dykes of varying thicknesses crosscut the sequence and strike northeast. Two principal veins account for approximately 70% of the known reserves and 100% of the current production. The Main Vein is located north of the No. 1 shaft and has an east-west strike length of approximately 3,000 feet with an 80 degree dip to the north. The Main Vein contains about 41% of the reserves. The South Vein accounts for 29% of reserves and is located about 350 feet south of the Main Vein between the No. 1 shaft and the No. 2 production shaft. The South Vein has a strike length of about 3,000 feet in an east-west direction and a north dip. Exploration results indicate that the ore zones continue and are open at depth. MINEABLE RESERVES Mineable reserves at the Joe Mann Mine are continually updated by management to reflect operations and exploration activity and are periodically reviewed by independent consultants. The following table summarizes diluted mineable reserves estimated by management and calculated as at December 31, 1997 on the basis of gold prices of US$300 per ounce in 1998, US$325 in 1999 and US$375 thereafter and as at December 31, 1996 and 1995, on the basis of gold prices of US$375: PROVEN AND PROBABLE MINEABLE RESERVES
December 31, 1997 December 31, 1996 December 31, 1995 Grade Grade Grade Tons (oz/ton) Tons (oz/ton) Tons (oz/ton) Proven 489,931 0.239 515,522 0.277 664,000 0.264 Probable 63,486 0.232 211,869 0.245 210,840 0.295 ------- ----- ------- ----- ------- ----- Total 553,417 0.238 727,391 0.268 874,840 0.272 ======= ===== ======= ===== ========= =====
The total diluted proven and probable mineable reserves at the Joe Mann Mine decreased by 173,974 tons from 727,391 tons at December 31, 1996 to 553,417 tons at December 31, 1997. After taking into account production during 1997 of 266,439 tons grading 0.299 ounces per ton, the total diluted proven and probable mineable reserves increased on a net basis during this period 7 11 by 92,465 tons. The decrease from December 31, 1996 to 1997 reflects the development of remaining known reserves above the 2350 foot level, the deepest level currently accessible from the No. 2 production shaft. Access to the mineralization below the 2350 foot level will be achieved on completion of the deepening of the No. 2 production shaft which is expected to be completed by mid 1998. MINE EXPLORATION AND DEVELOPMENT Extensive lateral mine development and underground diamond drilling were carried out during the last two years. In 1997, 18,513 feet of lateral development and 103,670 feet of diamond drilling were completed at a cost of approximately $4,871,000 net of deferred revenue from development ore. This compares to 19,300 feet of lateral development and 192,300 feet of diamond drilling completed during 1996 at a cost of $5,750,000. As a consequence of this programme, continuity of gold mineralization has been confirmed to a depth of 3,700 feet, 1,350 feet below the current deepest production level of the mine and mineralization remains open at depth. To date, widths are consistent with and grades are somewhat higher than those encountered in the currently mined areas. Total development and diamond drilling expenditures in 1998 are currently projected at $4,733,000 which will fund 24,915 feet of lateral development and 72,000 feet of diamond drilling; however these capital expenditures are currently being analysed, in light of sustained lower gold prices, to determine whether any expenditures can be postponed without negatively impacting future production. These activities will concentrate on exploration of the West Zone and the main orebody above the 2350 foot level of the mine. The 1,081 foot deepening of the No. 2 production shaft to facilitate the opening of six new production levels to a depth of 3,757 feet, was commenced in December, 1996. The capital costs of the shaft deepening will be approximately $13.5 million of which approximately $8.2 million had been incurred up to December 31, 1997. The shaft deepening is expected to be completed by mid 1998. The No. 2 production shaft is constructed to permit future deepening without interruption of production. WEST ZONE EXPLORATION POTENTIAL Currently, most of the mining at the Joe Mann Mine is carried out to the east of the No. 2 production shaft. Exploration drilling from surface in 1994, testing the area west of the shaft, discovered significant gold mineralization. The proximity of this zone to the existing shaft, combined with the excess hoisting and milling capacity of the operation, make this an attractive target that could favourably impact both production levels and unit cost at the Joe Mann Mine. In April 1995, a $1.35 million underground exploration programme was approved to investigate the West Zone. The programme commenced in June, 1995. An exploration drift along the 1650 foot level encountered gold mineralization 1,820 feet west of the No. 2 production shaft. A 455 foot interval along the drift averaged 0.27 ounces of gold per ton across a 6.0 foot width. The zone was tested both above and below the drift by 197 short drill holes totalling 43,000 feet. To test the depth potential of the West Zone, 18 deep holes were drilled from the 8 12 1650 foot level exploration drift. These holes encountered ore grade gold mineralization down to depths of 3,600 feet and also confirmed that the West Zone approaches the shaft at depth. During 1997, three additional exploration drifts were commenced, along the 1825, 2000 and 2175 foot levels, west of the No. 2 production shaft from which approximately 30,000 feet of drilling was completed. The drill results to date confirm the presence of ore-grade intersections. In order to confirm ore continuity and conserve cash in view of lower gold prices, a decision was made to suspend further development on the 2175 foot level for the time being. A raise is being driven from the 1825 to the 1650 foot level in the centre of the mineralization to enable further sampling and analysis of the continuity of the West Zone. If the continuity is confirmed, similar raises will be completed between the 2175, 2000 and 1825 foot levels to further examine the continuity of the West Zone at depth. Based on the geology and results to date, management continues to consider the potential of the West Zone to be good and is optimistic that an economic orebody will be defined in this area. MINING Mining is predominantly carried out using the shrinkage stope mining method and currently all stope production comes from above the 2350 foot level. In 1997, 68% of the ore came from the shrinkage stopes, 14% from longhole stoping and 18% from development. The production capacity of the No. 2 shaft system is estimated to be 2,000 tons per day assuming 12 hours of hoisting per day. The No. 1 shaft is now inactive, but is maintained to provide standby support for the operation. Mining operations in the stopes utilize jackleg drills and high explosives to break the rock. Ore is loaded into five-ton ore cars at stope draw-points and trammed by electric locomotives to an ore pass. Mucked ore is passed through a rock breaker then hoisted to the surface. All production and development ore is hoisted from the No. 2 production shaft to the surface. The equipment used in the mining operations is regularly maintained and is in good working order. The following table sets out production from the Joe Mann Mine for the past three years: JOE MANN MINE PRODUCTION SUMMARY
Year ended December 31 1997 1996 1995 -------- -------- -------- Tons Milled 266,000 266,000 282,000 Gold Grade (oz./ton) 0.299 0.290 0.252 Copper Grade (%) 0.280 0.302 0.291 Gold Produced (ounces) 73,500 70,400 64,500 Copper Produced (000's lbs) 1,367 1,473 1,494 Cash Operating Costs (1) (US$ per oz of gold) $ 264 $ 272 $ 284
(1) Operating costs include smelting and refining charges, net of copper and silver by-product credits. 9 13 MILLING Ore from the Joe Mann Mine is transported approximately 40 miles by truck to the Corporation's Camchib Mill for processing. The Camchib Mill was commissioned in 1955 and is regularly maintained. During 1997, the gold recovery rate at the Camchib Mill which processed ore from the Joe Mann Mine was 93.9% and the copper recovery rate was 96.3% compared to 93.2% and 96.3% respectively in 1996. The higher gold recovery rate reflects the higher millhead grade and the mill circuit improvements made in late 1994 and the continued subsequent refinements to the process. The mill process includes three separate circuits; a gravity circuit, a flotation circuit and a cyanide circuit. Original design capacity at the Camchib Mill was 3,500 tons per day as a flotation mill. The Camchib Mill was modified to include a cyanide circuit. Gold recovered from the gravity and cyanide circuits is formed into dore bars on site and is shipped to the Royal Canadian Mint for refining. The flotation circuit uses standard technology to produce a copper-gold concentrate. The copper-gold concentrate is shipped by rail to Noranda Inc.'s Horne Smelter in Rouyn/Noranda, Quebec for smelting and refining. EMPLOYEES At the Joe Mann Mine, 256 persons were employed as of December 31, 1997 of whom 174 were covered by a collective bargaining agreement with Le Syndicat des Travailleurs-euses de la Mine Meston (CSN) with respect to the mine workers and 27 were covered by a collective bargaining agreement with Les Metallurgistes Unis d'Amerique (the United Steelworkers of America) with respect to mill workers. During 1997 and 1996, there were no material strikes or walkouts at the Joe Mann Mine. On September 14, 1996, the collective bargaining unit at the Joe Mann Mine, represented by CSN, approved a collective bargaining agreement covering a three year period with wage increases of 0.73% in the first year and 1.22% and in the second and third years. On February 8, 1996, a three year contract was approved by the Metallurgistes Unis d'Amerique, under which the wage structure was maintained at current levels for the first year with levels for the second and third years to be increased at the same rate as was agreed to with CSN. NET SMELTER ROYALTY In May 1993, Meston sold a graduated net smelter return royalty to Repadre Capital Corporation, a subsidiary of Dundee Bancorp Inc., for $3 million cash. The royalty, based on production from the Joe Mann Mine, is 1.8% at gold prices up to Cdn$500 per ounce increasing to 3.6% at gold prices of Cdn$625 per ounce and greater. A 2% royalty is also payable on copper production in excess of 5 million pounds per year and silver production in excess of 1 million ounces per year. For the year ended December 31, 1997, $593,000 was paid to Repadre under this agreement compared to $781,000 paid for the year ended December 31, 1996. 10 14 THE SANTA GERTRUDIS MINE HISTORY The previous owner of the Santa Gertrudis Mine, Phelps Dodge Corporation, through its Mexican exploration subsidiary, began to explore the Santa Gertrudis district in 1984. The district was recognized to have potential for sediment-hosted gold in fine-grained chemiclastic rocks similar to the gold deposits of the Carlin trend in Nevada. By April 1986, the first deposit was discovered and as exploration continued, an additional eight deposits were discovered soon thereafter. A preliminary feasibility study was completed in 1987 and the final feasibility study completed in October 1988. In 1989, Compania Minera Santa Gertrudis was formed for the purpose of holding the concessions where deposits had been identified and for the eventual mining of the deposits. The decision to begin production was made in 1989 and facility construction started in May 1990. See also page 2 for history of Santa Gertrudis. The first shipment of gold precipitate from the initial 2,000 metric tonne of ore per day heap leach facility was made in June 1991. The initial capital investment was US$28.4 million including pre-operating costs of US$5.9 million. In 1992, an expansion was completed increasing mine production to 3,000 metric tonnes of ore per day. LOCATION, ACCESS AND INFRASTRUCTURE The Santa Gertrudis Mine is located mid-way between Tucson, Arizona and Hermosillo, Sonora, Mexico, 80 miles south of the United States-Mexico border. The property is accessible by road which is paved except for the last 20 miles. The town of Magdalena is located about an hour drive from the site. The Santa Gertrudis Mine consists of a series of open pits, a heap leach facility, a processing plant and associated facilities. In September 1995 the Santa Gertrudis Mine property was expanded by 28.2 square miles. Approximately half of the new property was acquired through staking with the other half acquired through option agreements that allow the Corporation to earn 100% interest through staged payments aggregating a maximum of US$1,000,000 over a five year period. During 1996, 6 square miles were added to the property through staking. During 1997, one of the five option agreements entered into in 1995 was exercised with total payments, including previous option payments, of US$200,000. The claims acquired include the recently developed La Trinidad deposit. Also during 1997, an additional 22.87 square miles were acquired through staking and a lottery process. One claim acquired in 1995 was reduced in size by 11.6 square miles after initial work had defined the ground with most prospective interest. The present property consists of 45 claims comprising 23,678 hectares or 91.42 square miles. The Corporation's subsidiary, Sotula holds both exploration and exploitation concessions. To maintain these concessions, Sotula was required either to incur exploration or development work or to have production revenues in 1997 amounting to approximately US$1.1 million or US$47 per hectare. Exploration and development expenditures and production revenues for 1997 were considerably in excess of this requirement. The excess from 1997 and prior years can be carried-forward and should be sufficient to cover requirements for the foreseeable future on all of the strategic claims. Some claims may be dropped or reduced in size in the future if additional 11 15 work fails to indicate potential for economic mineralization. However, prior years' work plus planned exploration expenditures exceed estimated work requirements for the foreseeable future on all claims. In addition, an aggregate of US$74,000 was paid for property taxes during 1997. The mine site includes a diesel power plant, four-bay maintenance shop, warehouse, modern office and telecommunications network, medical building, recovery plant, kitchen, recreational building and residential quarters for employees. GEOLOGY The gold deposits are generally located within a nine mile by two mile belt of sedimentary rocks that trends northwesterly along the southern range front of Cerro Azul. Mineralization occurs throughout the stratigraphic section; however, economically significant deposits are preferentially hosted by limey siltstone and carbonate rocks. The Santa Gertrudis deposits have strong geological similarities to the deposits in the Carlin trend in Nevada. Mineralized zones are usually completely oxidized and other Carlin features such as siliceous alteration, jasperoid zones, carbonaceous material and low angle thrusting are also present at Santa Gertrudis. Thirty-eight gold deposits and occurrences, including the recent discoveries of La Trinidad and Greta, have been identified in the District. Additional prospects are in the early stages of exploration. MINEABLE RESERVES The following table summarizes mineable reserves estimated by management: PROVEN AND PROBABLE MINEABLE RESERVES
December 31, 1997 December 31, 1996 December 31, 1995 Grade Grade Grade Tonnes g/tonne Tonnes g/tonne Tonnes g/tonnes ------ ------- --------- ------- ---------- -------- Proven Nil - 1,287,000 1.87 1,008,000 2.28 Probable Nil - 291,000 1.46 297,000 1.85 --------- ---- ---------- ---- Total Nil - 1,578,000 1.79 1,305,000 2.18 ========= ==== ========== ====
Production during 1997 was approximately 1,021,380 tonnes grading 1.71 grams per tonne. Approximately 175,891 tonnes of additional proven and probable reserves grading approximately 0.93 grams per tonne were added to reserves during 1997. This resulted in an overall decrease in proven and probable material to 732,862 tonnes grading approximately 1.69 grams per tonne net of production during the period. Due to lower gold prices and because the quantity of material is insufficient to support costs, this material no longer meets the definition of reserves and has been reclassified as possible mineralized material. Since the acquisition of the Santa Gertrudis Mine in July, 1994, based on the ore placed on the leach pads and the gold recovered, a recovery rate of approximately 72% has been experienced. Leaching operations will continue until the level of gold production is uneconomic, currently estimated to be into the second half of 1998. 12 16 OPERATIONS Current low gold prices and insufficient developed ore resulted in mining operations being suspended on December 7, 1997 to permit focus to be placed on building ore reserves through exploration. Mining operations will resume when sufficient reserves have been discovered and developed to enable mining to be carried out at a rate that is economic at the then prevailing gold price. There can be no assurance that gold prices will rise to a level or that sufficient ore reserves will be discovered and developed that will make it economic to resume mining operations. Until December, 1997, mining had been carried out on a continuous, round-the-clock basis with hydraulic shovels, front-end loaders, drills and a fleet of twelve 50-tonne haulage trucks. Two 85-tonne haulage trucks were acquired in 1996 to allow more efficient and lower cost stripping of new deposits. The average mining rate during 1997 was approximately 22,000 tonnes per day of which approximately 3,000 tonnes was ore representing a strip ratio of 6.3. The ore is oxidized and processing utilizes conventional heap leach technology. Approximately 70% of the ore was crushed to minus three inches before delivery to the leach pads and the remaining 30%, representing fines, was amenable to direct delivery to the leach pads. Sodium cyanide solutions are dripped over the ore piles on the leach pads and the gold-enriched solutions are collected in solution ponds. Extraction of the gold from the gold-enriched leach solutions is accomplished by pumping the solutions through a series of carbon columns. The gold is adsorbed onto the carbon that is subsequently transported to the plant for stripping using a hot caustic solution. Zinc dust is added to the gold-laden strip solution to facilitate precipitation of the gold. A filter system collects the gold-rich zinc precipitate which is then dried. The zinc precipitate containing 75 to 90% gold and approximately 5% silver is shipped to the United States for final refining. A Phase IV leach pad was completed in mid 1997 to the east of the existing Phase I pad at a cost of approximately US$400,000. The Phase IV leach pad provides an additional 2.0 million tonne capacity. The following table sets out production from the Santa Gertrudis Mine for the past three years: SANTA GERTRUDIS MINE PRODUCTION SUMMARY
Year ended December 31 ------------------------------------------ 1997 1996 1995 ---------- -------- ---------- Tonnes ore mined 1,021,000 965,000 1,135,000 Gold Grade (g/tonne) 1.71 2.06 2.17 Gold Recovery (%) 69.5 84.6 66.4 Gold Produced (ounces) 39,200 54,400 55,600 Cash Operating Costs (1) $ 333 $ 227 $ 205 (US$ per ounce of gold)
(1) Operating costs include mining, plant, administration and transportation costs. 13 17 Cash operating costs per ounce of gold for 1997 were US$333 compared to US$227 for 1996. This higher unit cost is primarily attributable to the reduced gold production. EXPLORATION Exploration expenditures for 1997 were $3.7 million compared to $4.9 million in 1996. Exploration initiated at the beginning of the year at Santa Gertrudis was primarily designed to delineate easily accessible deposits that would provide near-term production. While efforts to find mineralization within the mine area were successful, finding easily accessible, near-surface economic deposits around the mine was difficult. At mid-year, exploration was re-focused to begin evaluating large portions of the property that, in the past, had received little, if any, exploration. More than 250 holes totalling in excess of 26,800 metres were drilled to explore and develop reserves at Santa Gertrudis in 1997. Three major structures with significant gold-bearing potential were identified southeast of the mine following completion of a comprehensive compilation program. These major structures were the focus of exploration during the remaining portion of 1997 and will continue to be the focus of exploration in 1998. The La Gloria shear zone is a structure that is associated with three exploration targets known as the El Tigre, Nadia and Tracy zones. These three zones extend over a 1.1 kilometre section of the La Gloria shear zone, leaving approximately 4.4 kilometres of the structure as yet unexplored. The Tracy zone was discovered during exploration along a resistivity low anomaly interpreted to represent a fault structure detected by airborne geophysical surveying. Subsequent trenching and drilling has confirmed the presence of mineralization at depth. The Tracy zone has a known strike length of 125 metres and ranges in width up to 38 metres and remains open along strike to the south and at depth. Further south along the La Gloria shear zone are the Nadia and El Tigre zones. Many of the drill holes testing the El Tigre zone intersected economic grades of oxidized mineralization. The Nadia zone, located between the Tracy and El Tigre has undergone initial exploration including sampling, mapping and trenching with encouraging results. A second structure known as the Ontario shear zone occurs as a splay branching off of the La Gloria shear zone. Trenching, channel sampling and drilling have delineated a 450 metre-long target area associated with the Ontario shear that hosts the Greta Northeast, Greta Hill, Greta Ontario and Greta Sur zones. To date more than half of the holes returned multi-gram intersections over widths of up to 4.5 metres. The 500 metre-long interval between the junction of the Ontario and La Gloria shear zones and the southwestern most drilling on the Greta Shear also appears promising with two surface samples assaying 23.09 and 13.91 grams gold per tonne. A program of soil sampling, trenching and preliminary drilling is continuing to evaluate the Esperanza, Lupita and Lupita South zones which are associated with the 5 kilometre-long Esperanza-Lupita fault zone, situated southeast of the Ontario shear zone. Sampling has returned high gold values of up to 267 grams per tonne over 0.5 metres. Additional focused exploration is planned for targets on all three structures in order to establish new oxide reserves which may permit mining to re-commence. In addition, Campbell has started to investigate the potential for deeper gold-bearing sulphide mineralization. A report by independent mineral consultants concluded that the property has potential for a deep Carlin-type target and that the geology, structure, geochemistry, geophysics and mineralization are similar to the Post-Betze deposit located in Nevada's Carlin Trend. Results of Campbell's 14 18 exploration efforts and the independent report supporting the similarities between Santa Gertrudis and the Carlin Trend prompted management to seek a joint venture partner in order to undertake a systematic exploration program to evaluate the deep sulphide potential. Several senior mining companies with experience in exploring for and mining Carlin-type orebodies have visited the property and concurred that there appears to be excellent potential for the property hosting Carlin-type orebodies; however the current prevailing low gold prices have resulted in exploration budgets being drastically cut within the gold mining industry making it difficult to consummate a joint venture exploration program at this time. EMPLOYEES During 1997, the Santa Gertrudis Mine employed approximately 230 persons of whom approximately 150 were covered by a collective bargaining agreement. In December, 1997, the Corporation concluded an agreement with the National Union of Miners, Metallurgists and Similar Workers of the Mexican Republic ("Union") pursuant to which mining operations were suspended and 143 employees covered by the collective bargaining agreement were terminated. An additional 55 employees not covered by the collective agreement were also terminated. The aggregate cost of these terminations was approximately US$637,000. It is expected that approximately 48 employees will continue to be employed while leaching continues. See "Operations" above. THE CERRO QUEMA PROPERTY HISTORY The Cerro Quema Property was acquired on March 4, 1996. The history of the Property is described above in Items 1 and 2 "Business and Properties" under the caption "General". LOCATION, ACCESS AND INFRASTRUCTURE The Cerro Quema Property is located approximately 250 km southwest of Panama City, on the southern Azuero Peninsula of Panama. The property is accessible by road and close to hydroelectric power. The regional city of Chitre is approximately 50 km north of the property. Chitre has a population of 35,000 and is served by an airport which has two regular daily flights from Panama City. At the Cerro Quema Property, the Corporation's subsidiary, Minera Cerro Quema, S.A. held exploration concessions covering approximately 20,000 hectares which comprise the Cerro Quema Property. These exploration concessions were converted to three extraction concessions totalling 15,000 hectares in February, 1997. Pre-extraction activities, which must commence within one year of the date of the extraction concession, commenced in December, 1996. The mining law permits a reduction or cessation of activities if prevailing economic conditions hinder continuing activities. Under Panamanian mining law, a 2% net smelter return royalty is payable on production. In addition, an annual surface tax of approximately US$1.00 per hectare is also payable. 15 19 GEOLOGY The geology at the Cerro Quema Property consists of host volcanic rocks which originally contained pyrite and very low-grade gold. These rocks have been highly weathered to result in a concentration of gold near the surface. The highest grade ore is at the surface, with the grade gradually declining with depth down to the lower limit of the oxidation boundary. Three near-surface oxide deposits, the La Pava, Quema West and Quemita, currently comprise the project, of which the La Pava deposit is the largest. The Quema West and Quemita deposits are adjacent to each other and approximately 2.5 to 3.0 kilometres from the La Pava deposit. The local topography consists of steep canyons and narrow ridges with little or no extended flat or gently sloping areas. Below the steeper ridge crests and canyons that form the core of the project area, the topography, although still mountainous, is not as extreme and some wider canyons or valleys and rolling hills are present. MINEABLE RESERVES In preparing a positive feasibility, the Corporation has carried out a detailed review of the data produced by Cyprus on the property and has completed some confirmation drilling and test work. It is believed that Cyprus spent approximately US$8.5 million on work on the property, including 17,000 metres of reverse circulation drilling and 4,500 metres of diamond drilling. The following table sets out the probable mineable reserves as estimated by the Corporation in the feasibility study based on a gold price of US$400 per ounce.
Tonnes Grade 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 21, 1997. The positive feasibility study estimates the capital costs to develop an open pit heap leach mine capable of producing 50,000 ounces of gold annually at US$32.8 million which includes provisions for contingencies. The capital costs will be funded from available cash and through debt financing, if necessary. Based on existing reserves the feasibility study indicates an estimated minimum mine life of six years. At such time as production may commence, the Cerro Quema Mine is expected to have approximately 170 employees. 16 20 Construction and upgrading of the access road commenced in mid-November and was completed in late February, 1997. During the 1997 dry season, from December 1996 to April 1997, main construction activities included the start of the La Pava haul road, earthmoving and levelling of the general plant site area, and initial construction of leach pad pond stability dams and the camp infrastructure. Total construction and equipment cost incurred to December 31, 1997 was US$13.4 million. In June, 1997 construction at the Cerro Quema gold project was temporarily suspended by government order following heavy rainfalls which created high levels of sedimentation in the local rivers. The Company, working in conjunction with the Panamanian authorities, resolved the problem by completing a program of sedimentation control and revegetation. As a result of these environmental efforts, a resolution was passed lifting restrictions on the project's development. In December 1997, as a consequence of sustained lower gold prices, the Corporation decided to defer further development of Cerro Quema until the gold price reaches a level that will ensure economic viability of the project. The project has been placed on a care and maintenance basis for 1998. EXPLORATION POTENTIAL A large portion of the 75 square mile property has only been covered by reconnaissance exploration, usually including stream sediment sampling and rock sampling on exposed ridges. More extensive road access that has been built within the past year will allow for exploration of a number of existing prospective exploration targets. An exploration program will be initiated when economics permit the project to proceed and once access and infrastructure are in place. MINERAL EXPLORATION PROPERTIES The Corporation has interests in precious and base metal properties in the Chibougamau region of northwestern Quebec, in the State of Sonora, Mexico and in the State of Nevada. CHIBOUGAMAU EXPLORATION PROPERTIES Meston owns extensive exploration properties in the Chibougamau area, including mining claims and several former producing mines. These former producing mines include the S-3, Lac Chib, Kokko Creek, Quebec Chibougamau and the Main Mine. In June 1992, Meston entered into two agreements with the Societe quebecoise d'exploration miniere ("SOQUEM") under which SOQUEM could expend up to $7 million towards exploration programmes on the Meston and Chibougamau properties. During 1995, these agreements were amended to extend their term and increase the expenditures. In July 1997, these agreements were further amended to provide that, SOQUEM can earn a 50% interest in the Meston property which comprises 148 claims and one mining concession (and excludes the Joe Mann Mine), in exchange for spending $1.6 million in the five year period ending June 1, 2002 and a 50% interest in the Chibougamau properties, which comprises 198 claims and three mining concessions, by spending $750,000 in the five year period ending June 1, 2002. During 1997, 4 claims located northwest of the Joe Mann Mine were added to the Meston property agreement, excluding the lateral and at depth extension of the Main Zone of the Joe Mann Mine protected by a 500 foot wide corridor north of the Main Zone. A separate third agreement was also entered into with SOQUEM covering 4 claims and one mining concession located northeast of the Joe Mann Mine, excluding 17 21 the lateral and at depth extension of the Main Zone of the Joe Mann Mine protected by a 500 foot wide corridor north of the Main Zone, pursuant to which SOQUEM can earn a 3.5% net smelter return by expending $400,000 over the five year period ending June 1, 2002. Meston has the right to repurchase the net smelter return, if earned, for $600,000 on or before June 1, 2002 or $1,000,000 on or before June 1, 2007. Amounts expended under this agreement shall also be credited against the spending requirements under the Meston property agreement. As additional consideration for the 1997 amendments, SOQUEM agreed to fund $100,000 of underground drilling on the North Zone of the Joe Mann Mine. This amount was credited to the $1.6 million of required expenditures on the Meston property Should SOQUEM not spend the amounts set out above, SOQUEM will earn no interest in the properties. Meston has retained the right of first refusal to treat any ore produced from these properties at its Camchib Mill. If either party fails to fund its pro rata share of expenditures once SOQUEM has earned its 50% interest, the defaulting party will have its interest diluted. If either party's interest is diluted to 15% or lower, such party's interest will automatically revert to a 3% net smelter return. From the inception of the programme in 1992 to December 31, 1997, SOQUEM has spent approximately $2,620,000 on the Meston property and $2,450,000 on the Chibougamau properties including $72,000 on the Meston properties and $19,000 on the Chibougamau properties since the effective date of the 1997 amendment. The Company is not responsible for sharing expenditures with respect to the referenced properties. During 1997, under the Meston property agreement, SOQUEM explored the Norhart structure located 2,800 feet north of the Joe Mann Mine, subparallel to the Joe Mann system. Nine diamond drill holes were completed totalling 9,820 feet and some stripping was carried out to expose the vein for 300 feet along strike. In 1998, a $320,000 drilling program is planned pending involvement of a third party. Under the Chibougamau property agreement two diamond drill holes were completed into the extension of the Henderson-Portage shear zone. Minor gold and copper values were intersected. During 1998, a $270,000 drill programme is planned on the same shear zone. MEXICAN EXPLORATION PROPERTIES In addition to the Santa Gertrudis Mine, Sotula currently holds eight exploration properties covering approximately 3,500 hectares as well as 2,000 hectares under option in Sonora State. During 1997, approximately $47,000 was expended on these gold properties and evaluation of acquisition prospects. No exploration work is budgeted for exploration outside of the Santa Gertrudis property for 1998. WILDCAT PROPERTY In January, 1995, Campbell acquired the Wildcat advanced exploration gold property located in Nevada from Lac Minerals (USA), Inc. for US$300,000. This property is located 80 miles northeast of Reno, Nevada. This area will require further drilling to determine whether the project could be economic. Near-surface higher grade oxide material would be amenable to low cost open pit heap leach mining. The Corporation's interest in the Wildcat property consists of 315 mining claims held directly and under lease agreements. Annual federal and county rental/maintenance fees amounted to US$33,000 in 1997. There are no work assessment 18 22 requirements. Advance royalty payments of US$29,000 per year are payable pursuant to lease agreements. In November, 1996, Campbell entered into an option to purchase agreement with Sagebrush Exploration Inc. pursuant to which Sagebrush may acquire the Wildcat property until November, 1997 for US$650,000. An initial payment of Cdn$100,000 was received on signing of the option agreement. This agreement has been extended until May 29, 1998 in consideration for which Sagebrush has paid Campbell a further Cdn$200,000 which will be credited towards the exercise price. Campbell has been advised that the option will be exercised on or before March 31, 1998. CAMPBELL FINANCINGS On February 8, 1996, the Corporation entered into an underwriting agreement with First Marathon Securities Limited, Nesbitt Burns Inc. and CIBC Wood Gundy Securities Inc. (the "Underwriters") pursuant to which the Corporation sold 18,000,000 Units, each Unit consisting of one Common Share and one-half of a Common Share Purchase Warrant (a "Warrant"). Each whole Warrant entitles the holder to purchase one Common Share for US$1.50 on or before February 26, 1999. The Corporation received approximately US$21,150,000 from the Underwriters net of underwriting fees and before deducting other expenses of sale, from the sale of such securities. The 18,000,000 Common Shares and 9,000,000 Warrants were registered under the Securities Act of 1933 (the "Act"), on a Registration Statement on Form F-10 (Registration No. 333-770). Reference is made to the Prospectus, dated February 9, 1996, contained in said Registration Statement for a description of the details of such offering and to the Warrant Indenture, referred to in such Registration Statement for the terms of the Warrants. The Corporation has separately registered under the Act the 9,000,000 Common Shares issuable upon the exercise of the Warrants pursuant to a Registration Statement on Form F-3 (Registration No. 333-1882) which was declared effective on July 25, 1996. In July, 1994, concurrent with the acquisition of Santa Gertrudis, the Corporation entered into an underwriting agreement with First Marathon Securities Limited pursuant to which the Corporation sold US$11,005,000 aggregate principal amount of 7 1/2% Convertible Subordinated Debentures (Unsecured) (the "7 1/2% Debentures"). The 7 1/2% Debentures will mature on July 21, 2004, the tenth anniversary of their date of issue. The 7 1/2% Debentures are convertible at the option of the holder into Common Shares at any time prior to maturity at a conversion price of US$0.50 per Common Share. The 7 1/2% Debentures are redeemable for cash at any time after the fifth anniversary of the date of issue and, at the Corporation's option, may be redeemed in Common Shares on the basis of one Common Share for each US$0.50 of 7 1/2% Debenture principal being redeemed. The right of the Corporation to redeem the 7 1/2% Debentures for cash or Common Shares is conditional on the average price of the Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to notice of redemption. The Corporation may, at its option, repay the 7 1/2% Debentures at maturity by issuing Common Shares of the Corporation at the conversion price of US$0.50 per Common Share. To March 20, 1998, debenture holders had converted US$6,352,000 of debenture principal into 12,704,000 Common Shares. Debentures in the amount of US$4,653,000 remain outstanding as of March 20, 1998. MESTON DEBENTURES AND PREFERENCE SHARES During 1991, a predecessor of Meston entered into a corporate restructuring and financing arrangement (the "Financing") in which it issued to a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate Debentures and Notes (the "Guaranteed Debentures") and 19 23 $12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares (the "Preferred Shares") and renounced Canadian development expenses. The Guaranteed Debentures bear interest at varying rates and are repayable upon maturity in 2007. The Preferred Shares are retractable in 2007. In order to secure the obligations in respect of the Guaranteed Debentures and the Preferred Shares, a subsidiary of the Corporation entered into an Interest Rate and Currency Exchange Swap Agreement (the "Swap Agreement") with a major international bank and irrevocably assigned all amounts receivable under the Swap Agreement directly to the investors. The proceeds of the Swap Agreement will be used to make all interest payments, repay the Guaranteed Debentures upon maturity and retract the Preferred Shares. Accordingly, such bank is primary obligor under the Financing. The Guaranteed Debentures are subordinate to all current non-trade and future senior indebtedness of the Corporation and its subsidiary. ENVIRONMENTAL MATTERS The Corporation believes that it and its subsidiaries are currently complying in all material respects with applicable environmental legislation. During 1995, proposed amendments to the Quebec Mining Act relating particularly to rehabilitation and restoration plans came into force. This legislation required that a rehabilitation and restoration plan be submitted for approval within one year of the legislation coming into force and that a financial guarantee be furnished with respect to such plan. The Corporation filed a preliminary rehabilitation and restoration plan on March 9, 1996, and has filed additional information required thereunder within the extensions granted by Quebec mining authorities. The plan is pending approval. Annual financial guarantees are required to be filed in connection with the rehabilitation and restoration plan within 15 days of approval of the plan. The Corporation estimates that these annual amounts will range from $95,000 in the first year to $658,000 in the fourth year. The Corporation currently accrues for the estimated site restoration costs at the Joe Mann Mine over the estimated life of the mine. At the Joe Mann Mine, the total cost of completing the work contemplated under the rehabilitation plan filed on March 9, 1996 is estimated at $2,000,000. This work is to be completed over a four year period and as a consequence is not anticipated to have a material effect on the Corporation's financial condition. At the Santa Gertrudis Mine in Mexico, based on general guidelines total reclamation costs are currently estimated at US$384,000 which has been accrued in the Corporation's books. This estimated cost will be more than exceeded by the salvage value of plant and equipment. Only limited reclamation will be carried out while the exploration programme continues. On an ongoing basis, environmental compliance costs are not material at the Joe Mann Mine or the Santa Gertrudis operation. At the Cerro Quema Property in Panama, the feasibility study indicates rehabilitation costs of up to US$2,000,000 which will be covered by the salvage value of the plant and equipment. Three environmental studies were filed. A Preliminary Evaluation and an Environmental Reconnaissance study were filed by the previous owner and an Environmental Viability study was filed by the Corporation and was approved in December, 1996. Based on current legislation and the recent experience of other mining projects, the Corporation believes that environmental compliance can be achieved without material impact on the economics of the Project. See Mine feasibility development on pages 16 and 17 for a discussion of stop work orders issued by Panamanian authorities in June, 1997 as a consequence of heavy rainfall and sedimentation problems. 20 24 RISK FACTORS MINING RISKS The Corporation is subject to the risks typical in the mining business including uncertainty of success in exploration and development; operational risks including unusual and unexpected geological formations, rock bursts, particularly as mining moves into deeper levels, cave-ins, flooding and other conditions involved in the drilling and removal of material as well as environmental damage and other hazards; risks that intended production schedules or estimated costs will not be achieved; and risks of fluctuations in the price of gold and currency exchange rates. The Cerro Quema Property is a low grade open pit heap leach project located in a region of steep topography which experiences seasonally heavy rainfall. While the rainfall has been taken into account in preparing the feasibility study, and the Corporation believes that its impact on the project can be managed; given the difficulties experienced during 1997, (see "Mine Feasibility and Development" on pages 16 and 17), there can be no assurance that excessive rainfall will not have an unforeseen negative impact on the construction schedule, operating conditions, recovery rates or environmental compliance. While the feasibility study for the Cerro Quema project was carefully prepared by experienced engineers and advisors, no assurance can be given that gold prices will improve to a level that the Cerro Quema Project can proceed or that it can be completed as contemplated in the feasibility study for the estimated costs or within the estimated time schedule. Also no assurance can be given that the intended production schedule or estimated operating costs can be achieved. While appropriate testing has been carried out by the Corporation and its independent mining experts, there can be no assurance that recovery rates achieved in small scale laboratory tests will be achieved under onsite conditions or in production scale leaching. Gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, all of which are beyond the Corporation's control, including expectations for inflation, levels of interest rates, sales of gold by central banks, the demand for gold, global or regional political, economic and banking crises and production rates in major gold producing regions. The aggregate effect of these factors is impossible to predict with any degree of certainty. Although the Corporation does engage in some limited hedging from time to time to protect against a portion of the volatility (as described in Management's Discussion and Analysis and the notes to the consolidated financial statements included in Exhibit 13.1 of this report), a significant portion of the price movement in gold is not protected. If the Corporation's realization on gold sales were to decrease further or remain at the current level for any substantial period, the Corporation could determine that it is not economically feasible to undertake required development at the Joe Mann Mine, (see "Mine Exploration and Development" on page 8) or to continue commercial production. The cash operating costs per ounce of gold produced from the Corporation's operations are set forth under "Business and Properties" on pages 9 and 13 herein. With sustained lower gold prices, mining operations at Santa Gertrudis have been suspended and the Cerro Quema project has been placed on care and maintenance. As a consequence, the Corporation is primarily dependant on production from one operation, the Joe Mann Mine. 21 25 The figures for ore reserves presented herein are estimates and no assurance can be given that the anticipated tonnages and grades will be achieved or the indicated level of recovery realized. In addition, no assurance can be given that the gold price estimates on which the reserve calculations are based can be achieved. See "Mineable Reserves" on pages 7, 12 and 16. As well, lead times required for underground stope and open pit preparation and development in mining operations can affect production decisions and schedules. Gold price fluctuations may render ore reserves containing relatively lower grades of gold mineralization uneconomic. Moreover, short-term operating factors relating to the ore reserves, such as the need for orderly development of ore bodies or the processing of new or different ore grades, may cause the Corporation to be unprofitable in any particular accounting period. The Corporation carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not insured against include political risk, environmental pollution, mine flooding, landslides or other natural hazards relating to climate or topography as well as other hazards which cannot be insured against or which the Corporation may elect not to insure against. COMPETITION The Corporation competes with other mining companies in connection with the acquisition of mining claims and leases on gold and other precious metals prospects and in connection with the recruitment and retention of qualified employees. There is significant competition for the limited number of gold acquisition opportunities in North and South America. As a result of this competition, some of which is with companies with greater financial resources than the Corporation, the Corporation may be unable to continue to acquire attractive gold mining properties on terms it considers acceptable. Since there is a world market for gold, the Corporation believes that no single company has sufficient market power to materially affect the price or supply of gold in the world market. RISKS OF FOREIGN OPERATIONS The operations at Santa Gertrudis and Cerro Quema are subject to the federal, state and local laws of Mexico and Panama, respectively, including laws and regulations relating to mining operations, environmental protection and reclamation, labour relations and safety, land acquisition and mineral tenure, expropriation of property and taxation and repatriation of profits. Future changes in these laws or regulations or in their application are beyond the control of the Corporation and may adversely affect its operations. The Corporation believes the present attitude of the Mexican government toward foreign investment and the mining industry is favourable. However, in view of recent political and economic events in Mexico, including political assassinations, currency devaluation, inflation and domestic banking failures, investors should consider the risks associated with projects in Mexico. Over the last few years, Panama has modified its laws relating to mining and the taxation of mining operations to stimulate foreign and local investment in the mining sector. These include provisions that permit the duty-free importation of all equipment, spare parts and materials required for mining operations and the duty-free export of all minerals produced. The Corporation views these legislative changes as reflecting an increasingly supportive regulatory climate for mining investment in Panama. 22 26 ITEM 3. LEGAL PROCEEDINGS During 1996, the Corporation's Mexican subsidiary received import duty assessments claiming the subsidiary's interest in certain pieces of machinery and equipment with an approximate value of US$2,200,000 and levying taxes, penalties, interest and inflationary adjustments for a further Mexican pesos 9,200,000. The claim against the subsidiary's assets and the additional amount payable arose as a result of the subsidiary not presenting certain import documentation to tax authorities by a prescribed date in connection with their audit of imports of the claimed machinery and equipment during 1990 and 1991 when the mine was not owned by the Corporation. The Corporation, which has all of the required documentation, has not provided for these amounts in its financial statements on the basis of professional advice received indicating the basis for these assessments to be weak and accordingly appealed the assessments on March 5, 1997 before the Local Tax Legal Administration for Revenues in Nogales, Sonora. On May 26th, 1997, the Corporation was advised that it was successful in its appeal and that Mexican pesos 9,200,000 was not payable. The local tax authority has been requested by the federal tax authorities to issue a re-assessment which must take into account the basis on which the appeal was based. The charge against certain pieces of machinery and equipment will be released when the final tax assessment is issued. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the Corporation's fiscal year covered by this report, no matters were submitted to the shareholders for approval through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET PRICE RANGES FOR COMMON SHARES Information relating to the market prices for the Common Shares appears on page 32 of the 1997 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. On March 27, 1998 the closing price of the Common Shares on The Toronto Stock Exchange was $0.63 and on the New York Stock Exchange composite transactions was US $0.4375 as reported by the Globe and Mail. SHAREHOLDERS As of March 27, 1998, Campbell had 13,008 common shareholders of record. 23 27 DIVIDEND RECORD AND POLICY The Corporation has not paid a dividend on its common shares since 1984. The Corporation's present policy is to retain earnings to finance future growth. Dividends on the common shares paid to non residents of Canada will generally be subject to withholding tax under the Income Tax Act (Canada) at the rate of 25%. Such rate may be subject to reduction under the provisions of a tax treaty between Canada and the country in which the recipient is resident. The Canada-U.S. Income Tax Convention (1980) provides for a general reduction in the rate of withholding tax to 15% on dividends paid on shares of a corporation resident in Canada (such as the Corporation) to a resident of the United States, and also provides for a further reduction to 5% where the beneficial owner of the dividend is a corporation, resident in the United States, which owns at least 10% of the voting shares of the corporation paying the dividend. ITEM 6. SELECTED FINANCIAL DATA Information relating to this item appears under the caption "Five Year Comparative Summary of Selected Financial Data" on page 31 of the 1997 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information relating to this item appears on pages 15 through 19 of the 1997 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information relating to this item appears on pages 20 through 30 and under the caption "Selected Quarterly Financial Data (unaudited)" on page 31 of the 1997 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no disagreements on accounting and financial disclosure that require mention in this Form 10-K. 24 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information relating to the Directors of Campbell is set out in the Election of Directors section of the Proxy Circular in connection with the 1998 Annual Meeting of Shareholders scheduled for May 19, 1998 which information is incorporated herein by reference and is filed as Exhibit 20.1 to this report. EXECUTIVE OFFICERS OF REGISTRANT The executive officers of the Corporation, together with the offices of the Corporation held by them, their ages and their experience since January 1, 1993, is set out below:
Years in Other Position and Age Name Office Office Business Experience - ---- ------ ------ ------------------- John O. Kachmar President and 7 Certified Management 61 Chief Executive Accountant. Prior to August Officer of the 1993, President of Northgate Corporation Exploration Limited, Toronto, Ontario, mining company Lorna D. Vice President, 10 Lawyer. Vice President, 46 MacGillivray Secretary and Secretary and General Counsel General Counsel of the Corporation; prior to August 1993, Vice President and Secretary of the Corporation, Northgate Exploration Limited, and Sonora Gold Corp., Toronto, Ontario, mining companies. Paul J. Ireland Vice President, 3 Chartered Accountant. Prior 40 Finance to September 1994, Manager of Special Projects, Polaris Realty (Canada) Limited, Toronto, Ontario, real estate company.
There are no family relationships existing among any of the executive officers, directors, or nominees for same of the Corporation. As a foreign private issuer pursuant to Rule 3a12-3 under the Securities Exchange Act of 1934 ("Exchange Act"), the registrant is not subject to Section 16 of the Exchange Act. 25 29 ITEM 11. EXECUTIVE COMPENSATION Information required under this item is set out in the Proxy Circular in connection with the 1998 Annual Meeting of Shareholders which is incorporated herein by reference and is filed as Exhibit 20.1 to this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item not set out below is set out in the Proxy Circular, in connection with the 1998 Annual Meeting of Shareholders which is incorporated herein by reference and is filed as Exhibit 20.1 to this report. The following table lists the number of Common Shares beneficially owned by each executive officer listed in the table under the caption "Executive Compensation" in the Proxy Circular. The percentage ownership calculation for each owner has been made on the basis that there are outstanding 152,462,861 Common Shares.
Name Number of Shares % of Class ---- ---------------- ---------- John O. Kachmar 175,000 (1) < 1% Lorna D. MacGillivray 65,870 (2) < 1% Paul J. Ireland 16,638 (3) < 1% Gary A. Cohoon 27,093 (4) < 1% Four executive officers as a group 284,601 (5) < 1%
(1) Excludes 1,350,000 Common Shares subject to option, of which 1,175,500 are currently exercisable or exercisable within the next 60 days. (2) Excludes 400,000 Common Shares subject to option, of which 325,000 are currently exercisable or exercisable within the next 60 days. (3) Excludes 300,000 Common Shares subject to option of which 225,000 are currently exercisable or exercisable within the next 60 days. (4) Excludes 325,000 Common Shares subject to option of which 237,500 are currently exercisable or exercisable within the next 60 days. (5) Excludes 2,375,000 Common Shares subject to option of which 1,963,000 are currently exercisable or exercisable within the next 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No reportable transactions or relationships involving the registrant and any of its directors or officers existed during the last fiscal year. 26 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. FINANCIAL STATEMENTS Auditors' Report Consolidated Balance Sheets as at December 31, 1997 and 1996 Consolidated Statements of Income - Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Retained Earnings (Deficit) - Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996 and 1995 Notes to the Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES (a) None (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed in the fourth quarter of 1997. During the first quarter of 1998, the Corporation filed a Current Report on Form 8-K dated March 3, 1998. (c) EXHIBITS References to A refer to documentation previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. References to B refer to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. References to C refer to documents previously filed as an exhibit to Campbell's registration statement on Form S-8 (Registration No. 33-28296) and incorporated herein by reference. References to D refer to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. (d) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X WHICH ARE EXCLUDED FROM THE CORPORATION'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997. Not applicable 27 31 References to E refer to documents previously filed as an exhibit to Campbell's Current Report on Form 8-K dated February 28, 1996 and incorporated herein by reference. References to F refer to documents previously filed as an exhibit to Campbell's Current Report on Form 8-K dated March 28, 1996 and incorporated herein by reference. References to G refer to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1995 dated April 12, 1996 and incorporated herein by reference. References to H refer to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1996 dated March 26, 1997 and incorporated herein by reference. References in parentheses are references to the Exhibit No. of the filing indicated. 3 Articles of Incorporation and By-Laws 3.1 Articles of Continuance dated September 7, 1982 (A) (Exhibit 3.1) 3.2 Articles of Amendment dated November 1, 1982 (A) (Exhibit 3.2) 3.3 Articles of Amendment dated April 15, 1983 (A) (Exhibit 3.3) 3.4 Articles of Amendment dated June 8, 1983 (A) (Exhibit 3.4) 3.5 Articles of Amendment dated September 13, 1983 (A) (Exhibit 3.5) 3.6 Articles of Amendment dated January 31, 1984 (A) (Exhibit 3.6) 3.7 Articles of Amendment dated November 8, 1984 (A) (Exhibit 3.7) 3.8 Articles of Amendment constituted by special resolution of shareholders dated November 7, 1984 (A) (Exhibit 3.8) 3.9 Articles of Amendment dated September 11, 1985 (A) (Exhibit 3.9) 3.10 Articles of Amendment dated December 2, 1987 (A) (Exhibit 3.10) 3.11 By-Law No. 1 as amended and as in effect on the date hereof (A) (Exhibit 3.12) 3.12 Amendment of By-Law No. 1 (A) (Exhibit 3.11) 4 Instruments Defining the Rights of Security Holders Including Indentures 4.1 Trust Indenture made as of July 21, 1994 between the Corporation and Montreal Trust Company of Canada regarding the 7 1/2% Convertible Subordinated Debentures (B) (Exhibit 4.1) 4.2 Warrant Indenture made as of February 21, 1996 between the Corporation and Montreal Trust Company of Canada, as Warrant Trustee, regarding the Common Share Purchase Warrants (E) (Exhibit 4.1) 28 32 10 Management Contracts and Compensatory Plans and Arrangements 10.1 The Corporation's Employee Incentive Plan (C) (Exhibit 4(i)) 10.2 Amended Employment agreement dated December 1, 1994 between the Corporation and John O. Kachmar (B) (Exhibit 10.2) 10.3 Amended Employment agreement dated December 1, 1994 between the Corporation and Lorna D. MacGillivray (B) (Exhibit 10.3) 10.4 Amended Employment agreement dated December 10, 1996 between the Corporation and Paul J. Ireland (H) (Exhibit 10.4) 10.5 Letter agreement between the Corporation and Gary A Cohoon with respect to his resignation as an officer of the Corporation (7 pages) 10.6 Consulting agreement dated November 12, 1993 between the Corporation and Francis S. O'Kelly (D) (Exhibit 10.7) 10.7 Directors' Stock Option Plan (D) (Exhibit 10.8) Material Contracts 10.8 Royalty Agreement with Repadre Capital Corporation made as of April 23, 1993. (D) (Exhibit 10.14) 10.9 Stock Purchase Agreement dated July 6, 1994 between the Corporation, Sotula Gold Corp., Sonoran Mining Corporation and Compania Minera Zapata S. de R.L. de C.V. relating to the purchase of Santa Gertrudis (B) (Exhibit 10.11) 10.10 Bullion Dealing Master Agreement and Security Agreement between the Corporation and Citibank dated February 24, 1995 regarding forward gold sales (B) (Exhibit 10.12) 10.11 Asset Purchase Agreement dated January 27, 1995 between Campbell Gold Exploration Inc. and Lac Minerals (USA), Inc. regarding the Wildcat Property. (B) (Exhibit 10.13) 10.12 Underwriting Agreement, dated February 8, 1996, between the Corporation and First Marathon Securities Limited, Nesbitt Burns Inc. and CIBC Wood Gundy Securities Inc. regarding the public offering of common shares and common share purchase warrants. (E) (Exhibit 1.1) 10.13 Purchase and Sale Agreement dated March 4, 1996 between Cyprus Exploration and Development Corporation, Campbell Resources Inc. and Compania de Exploracion Mineral, S.A. (F) (Exhibit 1.1) 13.1 Certain portions of the Annual Report to the Shareholders for the year ended December 31, 1997 contained on pages 15 to 32 inclusive. [Note: Such Annual Report, except for those portions thereof which are expressly incorporated by reference in this Report on Form 10-K, is furnished for the information of the Securities and Exchange Commission and is not deemed ""filed'' as part of the filing of this Report on Form 10-K.] 29 33 20.1 Proxy Circular dated March 20, 1998 in connection with the 1998 Annual Meeting of Shareholders scheduled to be held on May 19, 1998. 21.1 Significant subsidiaries. 23.1 Consent of KPMG. 27.1 Financial Data Schedule 30 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAMPBELL RESOURCES INC. Dated: March 27, 1998 By:/s/JOHN O. KACHMAR ---------------------------- John O. Kachmar President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ JOHN O. KACHMAR Principal Executive Officer March 27, 1998 - -------------------------------------- John O. Kachmar, President and Chief Executive Officer and Director /s/ PAUL J. IRELAND Principal Financial and March 27, 1998 - -------------------------------------- Accounting Officer Paul J. Ireland, Vice President, Finance /s/ JAMES D. BEATTY March 27, 1998 - -------------------------------------- James D. Beatty, Director /s/ GRAHAM G. CLOW March 27, 1998 - -------------------------------------- Graham G. Clow, Director /s/ ROD P. DOUGLAS March 27, 1998 - -------------------------------------- Rod P. Douglas, Director /s/ JAMES C. McCARTNEY March 27, 1998 - -------------------------------------- James C. McCartney, Q.C. Chairman and Director /s/ DONALD R. MURPHY March 27, 1998 - -------------------------------------- Donald R. Murphy, Director /s/ FRANCIS S. O'KELLY March 27, 1998 - -------------------------------------- Francis S. O'Kelly, Director /s/ G.E."KURT" PRALLE March 27, 1998 - -------------------------------------- G.E."Kurt" Pralle, Director /s/ JAMES D. RAYMOND March 27, 1998 - -------------------------------------- James D. Raymond, Director
31 35 CAMPBELL RESOURCES INC. 1997 FORM 10-K EXHIBIT INDEX 10.5 Letter agreement between the Corporation and Gary A Cohoon with respect to his resignation as an officer of the Corporation 13.1 Annual Report to the Shareholders for the year ended December 31, 1997 [Note: Such Annual Report, except for those portions thereof which are expressly incorporated by reference in this Report on Form 10-K, is furnished for the information of the Securities and Exchange Commission and is not deemed ""filed'' as part of the filing of this Report on Form 10-K.] 20.1 Notice and Proxy Circular dated March 20, 1998 in connection with the 1997 Annual Meeting of Shareholders scheduled to be held on May 19, 1998 and Form of Proxy 21.1 Significant subsidiaries 23.1 Consent of KPMG 27.1 Financial Data Schedule EX-10.5 2 CONSULTING AGREEMENT 1 Exhibit 10.5 October 24, 1997 Mr. Gary A. Cohoon Calle de la Paz, No. 11 Valle Escondido Hermosillo, Sonora 83200 Mexico WITHOUT PREJUDICE PERSONAL & CONFIDENTIAL - ----------------- ----------------------- Dear Mr. Cohoon: The following sets out the terms and conditions of the offer of Campbell Resources Inc. and its subsidiaries (the "Company") outlined to you verbally on October 24, 1997 with respect to the termination of your employment effective November 1, 1997. As discussed, this termination is the result of the Company's need to down-size in light of sustained lower gold prices. In return for your execution and delivery of a full and complete release and indemnity of the Company of all liabilities, payments and all other obligations in respect of your employment by the Company and termination of such employment in the form attached hereto as Schedule "A", the Company is prepared to agree to the following: 1) The Company will continue paying an amount equivalent to your current salary, less required deductions, on a semi-monthly basis until August 31, 1998 less the amount required to repay amounts owed to the Company (US$2,000) less amounts owed to you for recent expenses and mileage allowances, and rent payable to you for the months of October, November and December, 1997 with respect to the Toronto apartment which the Company has use of, amortized over the ten month period; 2) The Company will continue major medical and dental coverage for you and your spouse until August 31, 1998 or until you find alternate employment. Long term disability, and accidental death and dismemberment insurance will terminate on October 31, 1997. You shall continue to be entitled to participate in the Share Purchase Plan until August 31, 1998. 3) You will continue to be entitled to participation in the Ore Reserve Incentive program for the year ended December 31, 1997. 4) In addition, as you have requested, and subject to approval of the Board of Directors, to be sought at a meeting scheduled to be held on November 19,1997, stock options to purchase 325,000 common shares exercisable at prices ranging from $0.57 to$1.48, which would otherwise expire on October 31, 1997, shall continue to be exercisable until March 31, 1998, in accordance with the terms of their grant, and shall terminate if unexercised by Tuesday March 31, 1998. 5) In addition to the payments and other continuing benefits described above, the 2 Company will enter into a consulting agreement with you pursuant to which you will provide six (6) days of services per month at a daily fee of Cdn$550 for a six month period ending on April 30, 1998 as set out in the form of agreement attached hereto as Schedule B. As set out therein, you shall covenant and agree not to solicit any Company employee and shall covenant and agree not to compete with the Company in any manner with respect to its Santa Gertrudis property within a 50 kilometre radius of its current property boundaries for a period of twelve months from the expiry of that consulting agreement. Following completion of that consulting agreement, you will immediately return to the Company, all Company property which you may have in your possession or under your control, including any copies thereof. 6) As a term and condition of your acceptance of this offer, you hereby covenant and agree to keep confidential and not to disclose the terms and conditions of this offer, except as required by law or to your counsel or your immediate family. You further agree not to make any comments, negative or otherwise, to anyone with respect to the Company, its employees, officers and directors or its properties and you shall keep all knowledge and information which you possess with respect to the Company's properties and operations confidential. This offer shall expire at 4:00 pm Toronto time on Friday, October 31st, 1997. Should you find the terms and conditions set out above acceptable, please indicate your acceptance by signing and returning the attached release and indemnity with a executed copy of this letter. Yours very truly CAMPBELL RESOURCES INC. "Lorna D. MacGillivray" Lorna D. MacGillivray "Nadia Ecclestone" Vice President, Secretary and General Counsel ------------------ Witness Agreed and accepted this day of , 1997. "Loraly Munoz" "Gary A. Cohoon" - -------------- ---------------- Witness Gary A. Cohoon 3 SCHEDULE "A" RELEASE AND INDEMNITY --------------------- WHEREAS the employment of Gary A. Cohoon (the "Employee") with Campbell Resources Inc. ("CAMPBELL ") was terminated on November 1, 1997; AND WHEREAS the Employee has agreed to accept the terms of settlement outlined in the letter attached hereto as Schedule "A" and other good and valuable consideration in settlement of all claims which The Employee may have by reason of the above-noted termination; NOW THEREFORE WITNESSETH that in consideration of the terms of settlement outlined above, the Employee releases and forever discharges CAMPBELL and any corporations associated therewith or related thereto and their respective Boards of Directors, officers, employees and agents (hereinafter collectively referred to the "RELEASEES") from any and all actions, causes of action, claims and demands arising from the employment of the Employee with the RELEASEES or the termination of that employment, including any claims pursuant to the Employment Standards Act for vacation pay, termination pay and severance pay which are included in the terms of settlement referred to above. FOR THE SAID CONSIDERATION the Employee further agrees not to make any claim or take any proceedings against any other individual, partnership, association, trust, unincorporated organization or corporation with respect to any matters which may have arisen between the Employee and the RELEASEES or any one of them for contribution or indemnity or other relief over. AND FURTHERMORE, for the aforesaid consideration, the Employee hereby agrees to indemnify and save harmless the RELEASEES from any and all claims or demands under the income tax laws of Mexico, the Income Tax Act of Canada, the Income Tax Act of the Province of Ontario, the Canada Pension Plan, the Unemployment Insurance Act of Canada, including any regulations made thereunder and any other statute or regulations, for or in respect of any amount found to be due in excess of those amounts withheld and remitted by the RELEASEES, if any, in respect of income tax, Canada Pension Plan premiums or unemployment insurance premiums or benefit overpayments or any other tax, premium, payment or levy from all or any part of the said consideration and any interest or penalties relating thereto and any costs or expenses incurred in defending such claims or demands. AND the Employee HEREBY FURTHER DECLARES that he has had the opportunity to seek independent legal advice with respect to the terms of settlement as well as this document and he fully understands them. The Employee hereby voluntarily accepts the said terms for the purpose of making full and final compromise, adjustments and settlement of all claims as aforesaid. 4 THIS RELEASE AND INDEMNITY shall be deemed to have been made in and shall be construed in accordance with the laws of the Province of Ontario. THIS RELEASE AND INDEMNITY shall enure to the benefit of and be binding upon The Employee and the RELEASEES and their respective heirs, executors, administrators and legal personal representatives, successors and assigns. IN WITNESS WHEREOF the undersigned has executed this document at Hermosillo, Sonora_______, on the 30th day of October __, 1997 and set his hand thereto. SIGNED in the presence of "Loraly Munoz" "Gary A. Cohoon" -------------- ---------------- Witness Gary A. Cohoon 5 Schedule "B" November 1, 1997 Mr. Gary A. Cohoon Calle de la Paz, No. 11 Valle Escondido Hermosillo, Sonora 83200 Mexico Dear Gary, RE: Consulting Agreement The following sets out the terms and conditions pursuant to which you have agreed to provide your services to Campbell Resources Inc. and its subsidiaries ("Campbell") on the terms and conditions set out below: 1. Commencing November 1, 1997, you will provide consulting services as requested on a part time basis until April 30, 1998 or such later date as you and Campbell may agree. You will perform the function of Consulting Geologist for Campbell taking direction from the President and Chief Executive Officer and such other Campbell personnel as he shall direct. This agreement may be extended with Campbell's and your consent in writing. 2. Campbell agrees to pay to you a consulting fee of Cdn$550.00 per day for a maximum of six (6) days per month. Should Campbell require your services in excess of the six (6) days, the terms, details and scheduling of such services will be agreed to in writing between you and the President and Chief Executive Officer prior to commencement of such service. 3. During the initial period, it is anticipated that your six (6) days per month will be spent on work relating to preparation of the monthly report, pursuit of potential joint venture partners for a deep drilling program on the Santa Gertrudis property and consultation of the Santa Gertrudis exploration program; however, this should diminish such that in the later months of this agreement, you should be available within the six (6) days to work on special projects assigned by the President and Chief Executive Officer. Should you be requested by the Exploration Project Manager, during the month of November, to provide your services, in connection with completion of the geochemistry study on the Santa Gertrudis property, in addition to the six (6) days contemplated therein, you will be paid for such service at your per diem rate of $550. Any work, in addition to that discussed above, requested and approved by the President and Chief Executive Officer will also be paid at this per diem rate. Following completion of each project, you will submit a written report summarizing your work to the President and Chief Executive Officer. 4. You agree that you will be required to travel to the Campbell's operations and to its 6 head office or elsewhere. You will use your best efforts to be available during such periods as Campbell requests. Campbell will provide a work schedule in writing for the subsequent month seven days prior to the commencement of the month. Changes may be made by mutual written agreement 5. You will submit a monthly invoice covering days worked during the prior month. This invoice will be paid out of our parent company's office in accordance with your direction. 6. It is agreed that, if travel is required, you will be reimbursed for reasonable travel expenses for which you will submit an expense account accompanied by receipts for expenses incurred. 7. All reimbursements provided for in this agreement shall be paid within 5 business days of submission of expense report forms with attached original invoices. 8. You agree that you will not discuss and will keep confidential all information relating to the Project and upon termination of this agreement, will return to Campbell all equipment, keys, documents, maps, reports, material or other data relating to the Project or belonging to Campbell which you may have in your possession. 9. You agree not to directly or indirectly acquire any interest in or do any work on any Property within a distance of fifty (50) kilometres of the Santa Gertrudis Property during the term of this agreement and for a period of six (6) months from the termination of this agreement without the written consent of Campbell. 10. For a period of one year from the date hereof, you agree not to solicit for hire, nor to hire, as an employee, agent, independent contractor, or otherwise, any then current employee of the Company or its affiliates. 11. Any notice or other communication required or permitted to be given or made hereunder shall be in writing and shall be sent, telexed, telegraphed, telecopied or sent by other means of recorded electronic communication to Campbell, addressed to the President and Chief Executive Officer, Suite 1910, Toronto, On M5H 1T1 (Fax: (416) 367-3294) and if to the you, mailed, telecopied or delivered to you at your most recent address as shown on the records of Campbell. Any notice or other communication so given or made shall be deemed to have been given or made and to have been received on the day of delivery, if delivered, and the day of sending, if sent by telex, telegraph, telecopy or other means of recorded electronic communication, provided such delivery or sending is during normal business hours on a business day or if not on the next business day thereafter. Either party hereto may change his or its address for notice by notice to the other party hereto given in the manner aforesaid. 12. Any modification or amendment of this agreement shall be in writing, signed by you and Campbell. No waiver by either party hereto or any breach by the other party hereto of any condition or provision of this agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or any prior or subsequent time. 7 13. This agreement contains all of the terms and conditions agreed by the parties hereto and supersedes all prior agreements and understandings. No agreements or representations, oral or otherwise, express or implied, have been made by to you by Campbell which are not set forth expressly in this agreement. 14. If any provision of this Agreement is held invalid or unenforceable by any court of final jurisdiction, it is the intent of the parties that all other provisions of this Agreement be construed or remain fully valid, enforceable, and binding on the parties. 15. This Agreement shall be deemed to have been made in the Province of Ontario, and it shall be construed in accordance with, and governed by, the laws of the Province of Ontario as applied to contracts that are executed and performed entirely in Ontario, without regard to principles of conflicts of law. Please confirm your agreement to the above by signing and returning this letter in duplicate. Yours very truly Campbell Resources Inc. Lorna D. MacGillivray ------------------- Vice President, Secretary and General Counsel Witness Agreed to this day of , 1997 ------------------- Gary C. Cohoon Witness EX-13.1 3 ANNUAL REPORT 1 [CAMPBELL RESOURCES INC. LOGO] 1997 ANNUAL REPORT [PHOTOS] 2 [MAP OF LOCATION OF COMPANY PROJECTS] CORPORATE PROFILE Campbell Resources Inc. is a producing gold mining company. In 1997 Campbell produced 113,000 ounces of gold from the Joe Mann Mine in Quebec, Canada, and the Santa Gertrudis Mine in Sonora, Mexico. In addition Campbell owns the Cerro Quema development stage gold project in Panama which is currently awaiting higher gold prices before development continues. The Company has a strong balance sheet with cash and short-term deposits of $41.7 million and negligible debt. To enhance shareholder value during this period of low gold prices, Campbell will continue to improve operating efficiencies so that costs can be kept to a minimum. The Company is continuing to explore and develop on its mine properties in Quebec and Mexico. In addition, Campbell, with its strong treasury, is evaluating opportunities for potential acquisition that could significantly enhance annual gold production and improve the Company's reserve base. Campbell's common shares and share purchase warrants are listed on the New York, Toronto, and Montreal stock exchanges, trading under the symbol "CCH", "CCH.ws" and "CCH.wt". 3 HIGHLIGHTS CASH OF $41.7 MILLION AND WORKING CAPITAL OF $49 MILLION GENERATED $9.7 MILLION OF CASH THROUGH THE EARLY TERMINATION OF CERTAIN GOLD HEDGING CONTRACTS. RESTRUCTURED THE BALANCE OF THE GOLD HEDGING PROGRAM TO NOW PROVIDE 45,000 OUNCES OF PROTECTION FOR 1998 AT A MINIMUM PRICE OF US$327 PER OUNCE INCREASED GOLD PRODUCTION AT THE JOE MANN MINE TO 73,500 OUNCES AT A LOWERED CASH OPERATING COST OF US$264 PER OUNCE COMPLETED THE SHAFT SINKING PHASE OF THE PROJECT TO DEEPEN THE SHAFT AT THE JOE MANN MINE ON TIME AND UNDER BUDGET
- ----------------------------------------------------------------------------------- ($ in thousands except per share amounts) 1997 1996 1995 - ----------------------------------------------------------------------------------- Metal sales $ 52,635 67,180 67,418 Net income (loss) $ (40,410) 9,012 10,461 Cash flow from operations $ 556 21,439 18,703 Exploration expenditures $ 4,659 7,220 4,457 - ----------------------------------------------------------------------------------- Working capital $ 49,008 65,520 39,960 Cash and short-term deposits $ 41,735 55,302 32,271 Total assets $ 123,882 165,298 123,703 Shareholders' equity $ 105,124 142,058 99,554 Shares outstanding (000's) 151,445 148,588 124,466 - ----------------------------------------------------------------------------------- Per share -- Earnings (loss) $ (0.27) 0.06 0.09 -- Cash flow $ -- 0.15 0.15 - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- Gold Production (ounces) Joe Mann 73,500 70,400 64,500 Santa Gertrudis 39,200 54,400 55,600 - ----------------------------------------------------------------------------------- Total gold production 112,700 124,800 120,100 - ----------------------------------------------------------------------------------- Cash operating cost per ounce (US$) $ 288 252 247 Gold revenue per ounce (US$) $ 336 396 402 Gold reserves Proven and Probable (contained ounces) 525,000 660,000 392,000 Possible (indicated ounces) 805,000 759,000 643,000 - -----------------------------------------------------------------------------------
In this report, unless otherwise indicated, all monetary amounts are stated in Canadian dollars. 1 4 REPORT TO THE SHAREHOLDERS This past year was a difficult year for Campbell Resources and the gold mining industry as a whole. Gold prices continued the downward trend that started in 1996, reaching an 18-year low of US$278 per ounce in January, 1998 as central bank selling and speculative short positions created negative sentiment toward the metal. The price has since rallied and is now trading in a narrow range between US$290 and US$305 per ounce. Most industry players anticipate that the gold price will remain relatively volatile for the next year or so, particularly until the composition of the new European Central Bank's reserve base is finalized. At current gold prices, indications are that more than half of the world's gold mine production is uneconomic. There have already been many announced mine closures and write-downs, project delays and reduced exploration budgets. These market conditions coupled with the uncertainty in the gold price have made it necessary for the Company's management to conduct a detailed examination of its operations in order to re-focus efforts in critical areas. As a consequence, Campbell wrote down the carrying value of the Joe Mann Mine by $28 million, ceased mining at the Santa Gertrudis Mine in Mexico, and suspended development of the Cerro Quema project in Panama. Exploration and development programs were also re-evaluated and adjusted accordingly. The goal of this ongoing evaluation is to minimize current cash outlays in such a way that near-term and future production will not be impacted. Campbell had operating achievements worth noting despite this year's difficulties. The Joe Mann Mine in northwestern Quebec achieved a fourth consecutive year's increase in gold production yielding 73,500 ounces of gold while cash operating costs were lowered to US$264 per ounce. It is anticipated that the Joe Mann Mine will maintain this level of production in 1998. The shaft deepening and lateral development program initiated at the Joe Mann Mine in late 1996 is progressing extremely well with the shaft sinking portion of the program now completed on time and under budget. The Company continues to review its options with respect to partially delaying the total development of the lower mine levels in order to conserve capital where such delays would not severely impact future operations. The Company has maintained a strong cash position of $41.7 million despite the lower revenues and higher unit costs incurred in 1997. The cash and short-term deposits make up the majority of year-end working capital of $49 million which will help fund necessary exploration and development at the Joe Mann Mine, advance high priority exploration targets outside the immediate mine area at Santa Gertrudis, and provide capital towards potential further gold acquisitions in 1998. FINANCIAL AND OPERATING RESULTS For the year ended December 31, 1997 Campbell recorded a loss of $40.4 million, or $0.27 per share, compared to net income of $9 million, or $0.06 per share in 1996. Excluding write-downs and closure costs of $31.7 million, there was a loss from operations of $12.2 million in 1997 compared to income from operations of $6.7 million in 1996. The loss from operations in 1997 was primarily due to lower gold prices, and a decrease in gold production and higher mining costs at the Santa Gertrudis Mine. Gold production of 113,000 ounces in 1997 decreased from the 125,000 ounces produced in 1996. The lower production was attributable to a combination of mining lower grade ore at the Santa Gertrudis Mine and the cessation of mining operations at Santa Gertrudis in early December 1997. Cash operating costs in 1997 were US$288 per ounce of gold produced compared with US$252 per ounce a year earlier. Campbell's realized gold revenue of US$336 per ounce in 1997 is US$5 above the average COMEX market price for the year of US$331 as a result of hedging activities. This compares to realized gold revenue of US$396 per ounce in 1996. During the third quarter of 1997, the Company terminated part of its gold hedging program resulting in the receipt of cash proceeds of $9.7 million. Subsequent to the year end, Campbell restructured its existing hedging program for 1998 and currently has 45,000 ounces hedged at US$327 per ounce. Exploration spending of $4.7 million in 1997 resulted in the identification of favourable targets at both the Joe Mann and Santa Gertrudis properties. Several of these targets may be upgraded to reserves over the next few years through focused exploration and development. 2 5 JOE MANN MINE, CANADA The Joe Mann Mine in Quebec experienced an excellent year in 1997 with gold production of 73,500 ounces, an increase of 4.5% over 1996. Cash operating costs were further reduced by US$8 per ounce to US$264 per ounce. In 1997, mill head grades were 0.30 ounces per ton, 3.4% higher than the 0.29 ounce per ton material milled a year earlier. The higher grade ore was the result of better than expected grades in some stopes. The mine also produced 1.4 million pounds of copper and 28,000 ounces of silver in 1997. The shaft sinking portion of the project to deepen the No. 2 mine shaft by almost 1,100 feet was completed in December on schedule and under budget. The shaft now extends to a depth of more than 3,700 feet below the surface. Lateral development to connect the ore and waste pass systems will be completed by the first half of 1998. Once this phase of development is completed, the total cost of the shaft deepening project is expected to be approximately $1 million less the budgeted cost of $14.5 million. Subsequently, lateral development will be initiated on the six new production levels to access the more than 335,000 ounces of possible reserves. Last year, more than 104,000 feet of exploration and ore definition drilling was completed at Joe Mann. As of December 31, 1997 proven, probable and possible geological reserves at the Joe Mann Mine were 848,000 ounces. SANTA GERTRUDIS MINE, MEXICO Gold production at the Santa Gertrudis Mine of 39,200 ounces was less than projected for 1997 and costs increased to US$333 per ounce. A decision was made to cease mining operations at Santa Gertrudis in December 1997 after attempts to find a sufficient supply of easily mineable, high-grade ore were unsuccessful. Despite the cessation of mining activity, Santa Gertrudis will continue to produce gold in 1998 as ore presently on the pads continues to be leached. In 1998 Campbell expects Santa Gertrudis will produce between 12,000 and 15,000 ounces of gold at a significantly lower cash operating cost. Since mining was initiated at Santa Gertrudis, the property has yielded approximately 300,000 ounces of gold and the potential to find additional oxide mineralization within the 92 square-mile property is considered to be excellent. The 1998 exploration program will follow-up on exploration targets identified so far. Campbell remains committed to Santa Gertrudis and is presently concentrating its efforts on exploring outside the immediate mine area in order to define new reserves so that we may recommence mining and increase production as soon as possible. In addition to near-surface oxide reserves, Campbell has started to investigate the potential for deeper gold-bearing sulphide mineralization. Results of Campbell's exploration efforts and an independent mineral industry consultant's report supporting the similarities between Santa Gertrudis and the Carlin Trend prompted management to seek a joint venture partner to evaluate the potential for deep sulphide mineralization. Campbell received significant expressions of interest, however, the current gold price environment and reduced exploration budgets resulted in no firm offers. Campbell still believes in the deep sulphide potential of the property but will continue to focus on exploration of near-surface oxide mineralization until gold prices and exploration budgets recover. CERRO QUEMA PROJECT, PANAMA During the first half of 1997 construction of the mine access road and the haulage roads to the main La Pava pit was initiated. In addition, construction of the camp site infrastructure and initial earthworks on the valley leach pad was started. In June, construction at the Cerro Quema gold project was temporarily suspended by order of the Office of Mineral Resources, Ministry of Commerce and Industry in Panama following heavy rainfalls which created high levels of sedimentation in the local rivers. The Company, working in conjunction with the Panamanian authorities, resolved the problem by completing a program of sedimentation control and revegetation. As a result of these environmental efforts, a resolution was passed lifting restrictions on the project's development. Unfortunately, low gold prices have made it necessary to put the project on a care and maintenance basis until the price of gold improves. 3 6 PERSONNEL AND ACKNOWLEDGEMENTS One of Campbell's key strengths lies in its highly effective technical and management teams which have a proven record for improving the profitability at its mining operations. We will continue to apply these skills to add value to current and future mining projects. The Company provides employment for approximately 350 employees in Canada, Mexico and Panama. We are proud of our employees, whose skills, dedication and enthusiasm not only provide the foundation for the Company but also determine the direction and growth of the Company in the future. It is the Company's policy to conduct business responsibly in a manner designed to protect its employees and the natural environment. OUTLOOK AND STRATEGY In 1997 the gold mining industry suffered a setback resulting from a significant drop in the price of gold. This set back has made Campbell's management re-assess every aspect of its business from exploration through to development and production at its mine properties, in addition to administrative costs at its corporate office. In order to minimize losses and preserve its cash position and strong balance sheet, Campbell has suspended mining at Santa Gertrudis and development of Cerro Quema and has re-evaluated capital and exploration expenditures. As a result, Campbell is a more efficient mining company well positioned for growth in the coming year. Management remains confident about the long-term prospects for growth in the Company and for an increase in the price of gold. We are committed to enhancing shareholder value by striving to increase gold production and reserves through exploration on our mine properties and through the acquisition of compatible assets. We will also improve shareholder value by continuing to improve efficiencies at our existing operations. With its strong working capital position and negligible debt, Campbell is well-positioned to investigate possible acquisitions that will provide the Company with additional low-cost gold production. In 1997, Campbell engaged outside consultants to assist in identifying suitable acquisition and/or merger targets. As a result of these efforts, Campbell conducted due diligence on several candidates and is pursuing a number of opportunities. To date, our efforts have not yet resulted in a transaction and Campbell is naturally disappointed with this outcome. However, in order to ensure that shareholders obtain the maximum accretion from any acquisition, the Company has been selective in the assets it has reviewed. We have established specific criteria for an acquisition including that the property should be at or nearing commercial production; the property should be capable of sustaining annual gold production of approximately 60,000 ounces at a projected cash cost in the lower to middle quartile of North American gold producers of between US$175 and US$250 per ounce for a minimum five year period and the property should have significant exploration potential. We are confident that a program of focused exploration, prudent capital and exploration expenditures and the ultimate acquisition of a compatible, high-quality asset will see Campbell through this period of depressed gold prices. /s/ James C. McCartney - ---------------------- James C. McCartney Chairman of the Board /s/ John O. Kachmar - -------------------- John O. Kachmar President & Chief Executive Officer Toronto, Ontario March 12, 1998 4 7 JOE MANN MINE Quebec, Canada [PHOTO] OVERVIEW The Joe Mann Mine is a high-grade underground gold mine located approximately 350 miles north of Montreal in the Province of Quebec. The mine has been in continuous production for more than 10 years. It has produced over 810,000 ounces of gold and currently has geological reserves of 848,000 ounces and mineable reserves of 510,000 ounces. These existing reserves project a further 8 year mine life and the deposit remains open at depth and along strike. In addition, the gold zone west of the shaft is being explored and developed. The Joe Mann Mine is located within the Abitibi Greenstone belt, which is one of the world's most prolific gold producing regions, hosting over 250 mines. The Joe Mann Mine is a vein-type deposit with gold-copper mineralization hosted by quartz veining within three laterally continuous shear systems. To date the deposit has been mined along a 3,000 foot strike length, to depths of 2,350 feet. [MAP OF LOCATION OF JOE MANN MINE] 5 8 Mining is predominantly carried out using the shrinkage stope mining method. Ore is then processed at the Company's mill facilities, where gold is recovered through gravity and cyanidation circuits; and gold and copper concentrate is produced from a flotation circuit. The Joe Mann Mine currently has mineable reserves and geological reserves as stated in the table below.
PRODUCTION STATISTICS 1997 1996 1995 - ---------------------------------------------------------------- Tons Milled 266,000 266,000 282,000 Gold Grade (oz./ton) 0.299 0.290 0.252 Copper Grade (%) 0.280 0.302 0.291 Gold Recovery (%) 93.9 93.2 92.7 Copper Recovery (%) 96.3 96.3 95.7 Gold Production (oz.) 73,500 70,400 64,500 Copper Production (000's lbs) 1,367 1,473 1,494 Cash Operating Cost per Ounce Gold (US$) 264 272 284 RESERVES - ---------------------------------------------------------------- MINEABLE ORE RESERVES (1) - ---------------------------------------------------------------- Proven and Probable - tonnage 553,000 727,000 875,000 - gold grade(oz./ton) 0.238 0.268 0.272 - copper grade (%) 0.270 0.260 0.260 - contained oz. gold (2) 131,700 194,900 237,900 Possible (3) - tonnage 1,417,000 1,546,000 217,000 - gold grade(oz./ton) 0.267 0.273 0.302 - copper grade (%) 0.260 0.259 0.250 - contained oz. gold (2) 378,200 422,500 65,600 DILUTED GEOLOGICAL RESERVES - ---------------------------------------------------------------- Proven and Probable - tonnage 879,000 969,000 1,159,000 - gold grade(oz./ton) 0.225 0.249 0.260 - copper grade (%) 0.240 0.250 0.280 - contained oz. gold (2) 197,900 241,300 300,800 Possible 3 - tonnage 2,461,000 2,647,000 2,378,000 - gold grade(oz./ton) 0.264 0.259 0.259 - copper grade (%) 0.250 0.240 0.270 - contained oz. gold (2) 649,600 685,600 615,900
(1) - MINEABLE RESERVES AT DECEMBER 31, 1997 HAVE BEEN CALCULATED BASED ON A GOLD PRICE OF US$300 PER OUNCE FOR 1998, US$325 PER OUNCE FOR 1999, AND US$375 THEREAFTER. MINEABLE RESERVES AT DECEMBER 31, 1996 AND 1995 WERE BASED ON A GOLD PRICE OF US$375 PER OUNCE. (2) - ACTUAL RECOVERED OUNCES WILL DEPEND ON METALLURGICAL RECOVERY RATES. (3) - THE POSSIBLE CATEGORY INCLUDES MATERIAL BASED LARGELY ON ASSUMED CONTINUITY OR REPETITION FOR WHICH THERE ARE REASONABLE GEOLOGICAL INDICATIONS BUT FOR WHICH THERE ARE LIMITED SAMPLES AND MEASUREMENTS. OPERATING RESULTS The past year saw continued improvement at the Joe Mann Mine. Gold production increased by 4.5% from 70,400 ounces in 1996 to 73,500 ounces in 1997 while cash operating costs fell 2.9% from US$272 per ounce in 1996 to US$264 per ounce in 1997. The primary reasons for the improved performance were improved mill head grades and improved mill recoveries. Mill head grades rose from 0.29 ounces of gold per ton in 1996 to 0.30 ounces of gold per ton in 1997. Mill recoveries rose from 93.2% in 1996 to 93.9% in 1997 in part due to continuing mill circuit improvements. The Joe Mann Mine also has by-product production of copper and silver. Production of copper in 1997 was 1.4 million pounds, slightly lower than the 1.5 million pounds produced in 1996. Silver production increased to 28,000 ounces in 1997 compared to 26,000 a year earlier. Following the drop in gold prices in 1997, the Company prepared a new life-of-mine plan for the Joe Mann Mine, calculating mineable reserves based on a gold price of US$300 per ounce in 1998, US$325 per ounce in 1999 and US$375 thereafter. As a result of this new plan the Company has concluded that the carrying value of the Joe Mann Mine is impaired and recorded a write down of $28 million before taxes, or $25.7 million net of the drawdown of related deferred mining taxes. [BAR GRAPH] 6 9 DEVELOPMENT OF THE MAIN OREBODY AT DEPTH In the third quarter of 1996, a mine feasibility study was completed and approved to commence the deepening of the No. 2 production shaft. The shaft sinking portion of the project was completed on time and under budget and the shaft now extends to a depth of more than 3,700 feet below surface. Lateral development to connect the ore and waste pass systems will be completed by the first half of 1998. Current forecasts indicate the project will be approximately $1 million under the budgeted costs of $14.5 million. With the handover of the project from the contractor to management at the end of the first half of 1998, the Company will review its options with respect to possibly delaying the total development of the lower mine levels in order to conserve capital. Any delays in development will not impact near-term production and will be carried out, to the extent possible, in a manner that will minimize the impact on future production. Development completed in 1997 was targeted towards near-term production from the Main Zone while at the same time facilitating development of deeper levels for production in the future. Development for 1997 totalled approximately 19,000 feet and was completed above the 2350 foot level. Exploration and production definition drilling at the Joe Mann Mine totalled approximately 104,000 feet. Joe Mann Mine Longitudinal section looking North [Illustration of Joe Mann Mine] 7 10 UNDERGROUND EXPLORATION OF THE WEST ZONE Significant gold mineralization was discovered in an area west of the No. 2 shaft during a surface exploration drill program in 1994. An exploration drift was advanced on the 1650 foot level and an interval of 455 feet averaging 0.27 ounces of gold was cut beginning 1,820 feet west of the No. 2 shaft. The exploration potential of the West Zone was subsequently tested above and below the 1650 foot level with a number of drill holes. In 1997, three additional exploration drifts were commenced along the 1825, 2000 and 2175 foot levels, west of the No. 2 shaft. In addition, almost 30,000 feet of exploration drilling was completed. The results of the drilling to date confirm the presence of ore-grade intersections. In order to confirm ore continuity and conserve capital in view of lower gold prices, a decision was made to suspend further development on the 2175 foot level, for the time being. A raise is being driven from the 1825 foot level to the 1650 foot level in the centre of the mineralization to enable further sampling and analysis of the continuity of the West Zone. If the continuity is confirmed, similar raises will be completed between the 2175, 2000 and 1825 foot levels to further examine the continuity of the West Zone at depth. The Company continues to consider the potential of the West Zone to be good and is optimistic that an economic orebody will be defined in this area. GOLD PRODUCTION AT THE JOE MANN MINE IS EXPECTED TO BE 73,000 OUNCES IN 1998 AT AN ESTIMATED CASH OPERATING COST OF US$275 PER OUNCE. Daniel Petit operates a remote control mucking machine to recover broken ore from the 16-A-5 stope. [PHOTO] 8 11 SANTA GERTRUDIS MINE Sonora, Mexico [PHOTO] OVERVIEW The Santa Gertrudis Mine is an open pit heap leach operation situated approximately 150 miles south of Tucson, Arizona in northwestern Mexico. Gold production in 1997 amounted to 39,200 ounces at a cash operating cost of US$333 per ounce. As a result of a lack of higher grade deposits to supplement the lower grade production, Campbell decided to cease mining operations in late 1997, but will continue to heap leach ore presently on the leach pads. Ore deposits mined at Santa Gertrudis have strong geological similarities to the prolific gold mines found within the Carlin Trend in Nevada. The Santa Gertrudis orebodies are preferentially hosted by silty carbonate rocks, but have a strong element of structural control. The gold mineralization is finely disseminated with ore grades typically averaging 2.0 grams of gold per tonne (gpt gold). The ore is completely oxidized and amenable to the low cost heap leach gold extraction method. [MAP OF LOCATION OF SANTA GERTRUDIS MINE] 9 12 The Santa Gertrudis Mine has been in continuous production since 1991 and has produced approximately 300,000 ounces of gold during this time period. Since Campbell's acquisition of the property in mid-1994, it has produced more than 165,000 ounces at an average cash operating cost of US$250 per ounce. During this period the Company's exploration team has discovered and delineated additional reserves replacing those that have been mined. Campbell remains committed to the property and has embarked on an exploration program to define additional oxide reserves outside the old mining area in 1998. OPERATING RESULTS The decrease in production to 39,200 ounces of gold in 1997 from 54,400 ounces in 1996 was largely attributable to the low grade of the ore mined from the Dora, Katman and El Toro pits, all of which are now mined out, and the La Trinidad pit which has some remaining ore, should operations resume. As a result, the average grade mined in 1997 fell to 1.71 gpt gold from 2.06 gpt gold in 1997. High rainfall resulting from the El Nino weather effect was also, to varying degrees, responsible for lower production. As a result, the average cash operating cost rose to US$333 per ounce from US$227 per ounce in 1996. A decision was made to cease mining operations in December 1997 until sufficient ore reserves have been delineated to ensure resumption of operations.
PRODUCTION STATISTICS 1997 1996 - ------------------------------------------------------------------------ Tonnes mined (ore+waste) 7,432,000 10,397,000 Tonnes ore mined 1,021,000 965,000 Strip Ratio 6.28 9.8 Gold Grade (grams/metric tonne) 1.71 2.06 (oz./ton) 0.05 0.060 Gold Recovery (%) 69.5 84.6 Gold Production (oz.) 39,200 54,400 Cash Operating Cost per Ounce Gold (US$) 333 227 ORE RESERVES & MINERAL RESOURCES - ------------------------------------------------------------------------ Proven and Probable(1) - ------------------------------------------------------------------------ - tonnage (metric tonnes) NIL 1,578,000 - gold grade (grams/metric tonne) 1.79 (oz./ton) 0.052 - indicated gold (oz.) 90,900 Possible (2) - ------------------------------------------------------------------------ - tonnage (metric tonnes) 2,422,000 1,141,000 - gold grade (grams/metric tonne) 2.00 1.99 (oz./ton) 0.058 0.058 - indicated gold (oz.) 155,700 73,100
(1) - MINEABLE RESERVES. (2) - DILUTED GEOLOGICAL RESOURCES - THE POSSIBLE CATEGORY INCLUDES MATERIAL BASED LARGELY ON ASSUMED CONTINUITY OR REPETITION FOR WHICH THERE ARE REASONABLE GEOLOGICAL INDICATIONS BUT FOR WHICH THERE ARE LIMITED SAMPLES AND MEASUREMENTS. EXPLORATION AND RESERVE DEVELOPMENT Exploration initiated at the beginning of the year was primarily designed to delineate easily accessible deposits that would provide near-term production. While efforts to find mineralization within the mine area were successful, finding easily accessible, near-surface economic deposits in this area was difficult. At mid-year, exploration efforts were re-focused to begin evaluating large portions of the property that, in the past, had received little, if any, exploration. Almost 250 holes totalling more than 26,000 metres were drilled to explore for and develop reserves at Santa Gertrudis in 1997. Most of the exploration outside the immediate mine area was focused on a portion of the property southeast of the mine where the compilation of geochemical, geophysical and geological data combined with radar and satellite imagery and airborne geophysical surveys defined major structures with significant gold-bearing potential. The compilation has identified 5 major parallel structures each in excess of 5 kilometres long that could have acted as traps for upward migrating gold-bearing solutions. The main mineralized targets occur where these trap structures intersect younger faults which may have acted as conduits or feeder systems for gold-bearing fluids. Other possible mineralized targets may occur above the trap fault where mineralizing solutions may have breached the impermeable barrier. Work in 1997 was focused on the La Gloria Norte and Esperanza trap structures and their associated feeders structures. The La Gloria shear zone is a 5 kilometre-long northerly trending feeder structure which intersects the La Gloria Norte trap structure. In this area there are highly prospective exploration targets known as the El Tigre, Nadia and Tracy zones. It is also appears that the northern extension of the La Gloria shear extends into previously delineated mineralized bodies known as the La Gloria Jasperoid and La Gloria Deep zone. A total of 27 holes encompassing 3,260 metres were drilled to explore Tracy, Nadia and El Tigre. These three zones extend over a 1.1 kilometre section of the La Gloria shear zone, leaving approximately 3.9 kilometres of the structure as yet unexplored. The Tracy zone was discovered after following up a geophysical anomaly. Grab samples taken from the area returned values of 12.4 and 32.6 gpt gold. This initial program was followed up with detailed mapping, trenching, channel sampling and 10 13 [GEOLOGICAL COMPILATION OF THE GRETA AREA] reverse circulation drilling with the first trench returning an assay from channel samples of 3.3 gpt gold across 46.55 metres. Gold mineralization is associated with highly altered and sheared sedimentary rocks intruded by lamprophyre dykes. The lamprophyre dykes originate deep within the earth's crust indicating the mineralizing fluids are derived from a much deeper source. Another trench south of the first trench returned a value of 7.6 gpt gold over 3.2 metres indicating the presence of high-grade mineralization over a 50-metre strike length. Subsequent drilling confirmed the presence of mineralization at depth with values of 1.034 gpt gold over 6.0 metres from hole TY-101 and 3.739 gpt gold over 4.5 metres from hole TY-103. Hole TY-101 was drilled below the high-grade channel sample and TY-103 was drilled 80 metres south of TY-101. Other drill results included TY-105 with 4.08 gpt gold over 4 metres and TY-106 returned 4.975 gpt gold over 1.5 metres. The Tracy zone has a known strike length of 125 metres and ranges in width up to 38 metres. 11 14 Further south along the La Gloria shear, a total of 21 holes were drilled to test the El Tigre zone. Some of the better intersections from these holes include 2.56 gpt gold over 7.5 metres in TIG-107, 1.4 gpt gold over 1.5 metres in TIG-108, 3.35 gpt gold over 1.5 metres in TIG-110, 7.048 gpt gold over 6.0 metres in TIG-111, 1.75 gpt gold over 3.0 metres in TIG-114, 0.85 gpt gold in TIG-115, and 1.352 gpt gold over 7.5 metres in TIG-117. The Nadia zone, located between the Tracy and El Tigre zones, has undergone initial exploration including soil geochemical sampling, mapping and trenching with encouraging results. The initial soil sample taken from the zone returned a value of 5.6 gpt gold and subsequent trenching returned an assay of 1.616 gpt gold over 1.6 metres. Additional focused exploration is planned for the Tracy, Nadia and El Tigre zones for 1998 in order to establish new economic oxide reserves so that the resumption of mining can be considered in the near future. The Ontario shear zone also acts as a feeder structure which occurs as a splay branching off of the La Gloria shear zone in a northeasterly direction, Geochemical soil sampling, trenching, channel sampling and drilling have delineated a 450 metre-long target area associated with the Ontario shear that hosts the Greta Northeast, Greta Hill, Greta Ontario and Greta Sur zones. A total of 35 holes comprising 3,620 metres were drilled with more than half of the holes reporting multi-gram intersections over widths of up to 4.5 metres. The 500-metre-long interval between the junction of the Ontario and La Gloria shear zones and the southwestern most drilling on the Greta shear also appears promising with two surface samples assaying 23.09 gpt gold and 13.91 gpt gold. Additional exploration will be completed in this region in 1998. The second possible trap structure which received significant effort in 1997 was the Esperanza structure. A program of soil sampling, trenching and preliminary drilling is continuing to evaluate the Esperanza splay fault, Lupita and Lupita Sur zones as well as a zone of high-grade mineralization. Three areas of sampling and trenching have identified a breach of the Esperanza structure that has a strike length of 60 metres above the Esperanza fault over a true width of 1.8 metres. Values from trenches include 43.1 gpt gold over 3.8 metres, 23.9 gpt gold over 4 metres, 2.84 gpt gold over 1.5 metres and 267 gpt gold over 0.5 metres. Additional work is planned both above and below the Esperanza trap fault. More than 15 high priority oxide targets have been identified by soil geochemistry along three of the five major trap structures at Santa Gertrudis. Along with the potential to find additional oxide deposits, there is significant potential to find larger volumes of deeper gold-bearing sulphide mineralization at Santa Gertrudis. Results of Campbell's exploration efforts and an independent mineral industry consultant's report supporting the similarities between Santa Gertrudis and the Carlin Trend prompted management to seek a joint venture partner to evaluate the potential for deep sulphide mineralization. The Company received significant interest in the deep sulphide potential of the property from major gold mining companies who visited the property with a view to participating in a joint venture exploration program. The level of interest was high, however, the current gold price environment and reduced exploration budgets resulted in no firm offers to participate at this time. Campbell still believes in the deep sulphide potential of the property but in the short-term, will continue to focus on exploration of near-surface, oxide mineralization until gold prices and exploration budgets recover. GOLD PRODUCTION OF UP TO 15,000 OUNCES FROM CONTINUED LEACHING IS PROJECTED FOR 1998 AT A LOW CASH OPERATING COST. FOCUSED EXPLORATION WILL BE COMPLETED IN ORDER TO DEFINE ADDITIONAL RESERVES AND RESUME PRODUCTION IN THE YEARS TO COME. [PHOTO: Structural geologist, Scott Anderson examines high-grade mineralization from a trench near the Esperanza Fault.] 12 15 CERRO QUEMA PROJECT Los Santos, Panama During the first half of 1997 construction of the mine access roads and haulage roads to the main La Pava pit were initiated. In addition construction of the camp site and earthworks on the valley leach pads was also started. In June of 1997, construction at the project was temporarily suspended by order of the Office of Mineral Resources, Ministry of Commerce and Industry in Panama following early heavy rainfall which created high levels of sedimentation in the local rivers. The Company, working in conjunction with the Panamanian authorities, resolved the problem by completing a program of sedimentation control and revegetation. More than 25,000 seedlings were planted in areas of slope instability. As a result of these environmental efforts, a resolution was passed lifting restrictions on the project's development. ORE RESERVES
Proven and Probable (1) - tonnage (metric tonnes) 8,772,000 - gold grade (grams/metric tonne) 1.16 (oz./ton) 0.034 - contained gold (2) (oz.) 327,200
1 - MINEABLE RESERVES BASED ON A GOLD PRICE OF US$400 PER OUNCE. BASED ON A GOLD PRICE OF US$375 PER OUNCE, THE MINEABLE OUNCES OF CONTAINED GOLD WOULD DECREASE BY APPROXIMATELY 2,200 OUNCES. 2 - ACTUAL RECOVERED OUNCES WILL DEPEND ON METALLURGICAL RECOVERY RATES. The feasibility study completed last year indicates Cerro Quema has mineable reserves of 8,772,000 tonnes averaging 1.16 gpt gold and projected cash operating costs of approximately US$180 per ounce. Remaining capital costs associated with the project are in the order of US$100 to US$110 per ounce. Gold prices have remained in the US$280 to US$305 range for the last three months and appear unlikely to materially increase during 1998. Campbell has therefore put the project on a care and maintenance basis pending an improvement in the price of gold. Should gold prices improve significantly, construction at Cerro Quema will recommence and once finished the project will produce approximately 50,000 ounces of gold annually. The Company believes that there is excellent exploration potential beyond the existing reserves on the property. [MAP OF CERRO QUEMA PROJECT LOCATION] 13 16 [ILLUSTRATION OF GOLD BRICKS] Management's Discussion and Analysis Pages 15 to 19 - -------------------------------------------------------------------------------- Management's Responsibility Auditors' Report Page 20 - -------------------------------------------------------------------------------- Consolidated Balance Sheets Page 21 - -------------------------------------------------------------------------------- Consolidated Statements of Income Consolidated Statements of Retained Earnings (Deficit) Page 22 - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows Page 23 - -------------------------------------------------------------------------------- Notes to the Consolidated Financial Statements Pages 24 to 30 - -------------------------------------------------------------------------------- Five Year Comparative Summary Selected Quarterly Financial Data Page 31 - -------------------------------------------------------------------------------- Shareholder Information Page 32 - -------------------------------------------------------------------------------- Corporate Information Inside Back Cover - -------------------------------------------------------------------------------- 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1997 - A YEAR OF FALLING GOLD PRICES The past year has been extremely difficult for the gold industry. Gold prices continued the downward trend that started in 1996 through 1997 and into early 1998 reaching an 18 year low of US$278 per ounce in January, 1998 as central bank selling and speculative short positions created negative sentiment towards the metal. The price has since rallied slightly from these lows and has settled in a narrow band between US$290 - US$305 per ounce. Most industry players anticipate that gold will remain relatively volatile for the next year or so, particularly until the composition of the new European Central Bank's reserve base is finalized. At current gold prices, indications are that more than half of the world's gold mine production is uneconomic. There have already been many announced mine closures and writedowns, project delays and reduced exploration budgets. Campbell has not been immune to these same influences. As gold prices persisted at current levels, Campbell conducted a review of the circumstances at each of the Company's three operations. JOE MANN MINE: The Company has prepared a new life-of-mine plan for the Joe Mann Mine calculating mineable reserves based on a gold price of US$300 in 1998, US$325 in 1999 and US$375 thereafter. As a result of this new plan, the Company has concluded that the carrying value of the Joe Mann Mine is overstated. Accordingly, a writedown of $28 million before taxes, or $25.7 million net of the drawdown of related deferred mining taxes, has been provided in the financial statements. In other developments, the shaft sinking project continued on schedule during 1997. Current forecasts indicate that the project will be approximately $1 million under the originally budgeted $14.5 million on completion and handover to mine personnel in late Spring, 1998. The Company continues to review its options with respect to possibly delaying the total development of the lower mine levels in order to conserve capital where such delays would not severely impact future operations. The mine operations had an excellent year producing 73,500 ounces of gold at a cash cost of US$264 per ounce. SANTA GERTRUDIS MINE: As previously announced, the Santa Gertrudis Mine ceased mining in early December of 1997. The grade of the remaining developed deposits was insufficient to enable them to be mined economically on their own without additional sources of higher grade production. It was also evident that the exploration efforts, which had managed to replace ore mined on an ongoing basis in each of the last three years, were unable to locate the required higher grade ore in the time frame available. The estimated severance and other closure costs of $1.9 million have been included in writedown and closure costs in the statements of income. The focus at Santa Gertrudis for 1998 will be an exploration program following up on the numerous priority targets approximately 7 kilometres south-east of the mine area. Preliminary indications are encouraging and the Company hopes that sufficient oxidized resources can be located to enable mining to resume in the future. Any such resumption in operations will be dependant on the gold price and the cost of the limited development that would be required. There can be no assurance that gold prices will rise to a level or that sufficient ore reserves will be discovered and developed that will make it economic to resume mining operations. The Company received significant interest in the deep sulphide potential of the property from larger gold mining companies who were invited to visit the property with a view to participating in a joint venture exploration program. However, while their level of interest was high, the current gold price environment, and reduced exploration budgets resulted in no firm offers to participate at this time. Campbell still believes in the deep sulphide potential of the property but in the short-term will continue to focus on exploration of near surface oxide mineralization until gold prices and exploration budgets recover. At December 31, 1997, the net book value of the Santa Gertrudis Mine included in natural resource properties was $12.2 million comprising $3.6 million of plant and equipment, $5.7 million for property cost and $2.9 million for deferred exploration. The Company has concluded that no provision is required to reduce the carrying value of these amounts at this time on the basis that the estimated value of the plant and equipment exceeds their carrying amount and on the basis of the positive indications from the ongoing exploration program. 15 18 CERRO QUEMA PROJECT: The Cerro Quema gold project has effectively been placed on a care and maintenance basis for 1998 due to the project being uneconomic at a current gold price of US$300. The Company has concluded that no provision against the carrying value of this asset is required based on long-term assumed gold prices of US$375 per ounce. FINANCIAL RESULTS For the year ended December 31, 1997, the Company recorded a loss of $40.4 million, or $0.27 per share, compared to net income of $9 million ($0.06 per share) in 1996 and $10.5 million ($0.09 per share) in 1995. Excluding the writedown and closure costs of $31.7 million, there was a loss from operations of $12.2 million in 1997 compared to income from operations of $6.7 million in 1996 and $11.3 million in 1995. The loss from operations in 1997 is principally due to lower gold prices, a decrease in gold production and higher mining costs and exploration expense at the Santa Gertrudis Mine. The decrease in net income in 1996 compared to 1995 was primarily due to increased depreciation and amortization charges at the Joe Mann Mine and an increase in exploration expense at the Santa Gertrudis Mine. REVENUE
Gold produced (ounces): 1997 1996 1995 Joe Mann Mine 73,500 70,400 64,500 Santa Gertrudis Mine 39,200 54,400 55,600 - ---------------------------------------------------------------- 112,700 124,800 120,100 ================================================================ Gold revenue per ounce US$336 US$396 US$402 Average market price US$331 US$388 US$384 - ----------------------------------------------------------------
Revenue from metal sales decreased in 1997 by 21.2% to $52.6 million compared to $67.2 million in 1996 and $67.4 million in 1995. The decrease in 1997 was attributable to a 15% decrease in the gold price realized during the year and a 9.7% decrease in gold production to 112,700 ounces compared to 124,800 ounces in 1996. The decrease in gold production was attributable to lower grade material mined at the Santa Gertrudis Mine and the cessation of mining operations at Santa Gertrudis in early December, 1997. Revenue in 1996 was comparable to 1995 as the 4% increase in gold production during 1996 was offset by a reduction in the overall gold price per ounce recorded after reflecting past hedging gains. The average gold price realized compared to the average market price is disclosed in the previous table. The difference between the price realized and the market price is primarily attributable to the Company's limited hedging activities. Campbell's general policy is to hedge a maximum of 50% of its gold production for up to two years, dependent on market conditions and planned capital expenditure commitments. With respect to gold price hedging, the Company either sells gold forward in US dollars or in Canadian dollars. Where the gold sold forward is denominated in US dollars and the sale relates to the Joe Mann Mine in Canada, the Company may also enter into a US / Canadian dollar forward sale agreement to fix the sale proceeds in Canadian dollars and therefore fund the operating and capital expenses of the Canadian operation. As disclosed in the notes to the financial statements, under Canadian GAAP the Company recognizes the gain or loss on these financial instruments in sales revenue when the related production is delivered as they are considered hedges of future production revenue. Under U.S. GAAP foreign exchange forward contracts would be marked to market at the balance sheet date and any gains or losses included in income at that time (see note 13 to Consolidated Financial Statements). Revenues from copper production at the Joe Mann Mine accounted for 3.6% of total revenue in 1997 compared to 3.1% in 1996 and 4% in 1995. Copper production decreased to 1.4 million pounds compared to 1.5 million pounds in 1996 and 1995. The Company has sold forward its estimated 1998 copper production at US$0.95 per pound. EXPENSES
Cash Cost per ounce: 1997 1996 1995 - ---------------------------------------------------------------- Joe Mann Mine US$264 US$272 US$284 Santa Gertrudis Mine US$333 US$227 US$205 - ---------------------------------------------------------------- Overall US$288 US$252 US$247 ================================================================
Mining expense increased to $46.7 million in 1997 compared to $44.7 million in 1996 and $43.4 million in 1995. The increase in 1997 compared to 1996 was primarily due to mining ore at Santa Gertrudis with higher waste to ore ratios compared to 1996. 16 19 JOE MANN MINE The Joe Mann Mine increased production by 4.5% to 73,500 ounces of gold in 1997 compared to 70,400 ounces in 1996 and 64,500 ounces in 1995. The increase is primarily attributable to higher mill head grades of 0.30 ounces of gold per ton in 1997 compared to 0.29 in 1996 and 0.252 in 1995. Mill recoveries also increased to 93.9% in 1997 compared to 93.2% in 1996 and 92.7% in 1995, largely as a result of the higher mill head grades and continuing mill circuit improvements. The tons of ore milled remained constant at approximately 266,000 tons in 1997 and 1996 compared to 282,000 tons in 1995. The higher head grades result from the scheduled mining during 1997 and 1996 of some higher grade shrinkage and long-hole stopes together with the continued emphasis on dilution control. The decrease in cash costs per ounce of gold produced in 1997 and 1996 is primarily attributable to higher gold production in each of those years. For 1998, the Joe Mann Mine is expected to produce approximately 73,000 ounces of gold at a cash cost of US$275 per ounce. SANTA GERTRUDIS MINE For the year ended December 31, 1997, 1.02 million tonnes of ore were mined with an average grade of 1.71 grams per tonne compared to 0.97 million tonnes with a grade of 2.06 grams per tonne in 1996 and 1.14 million tonnes with a grade of 2.17 grams per tonne in 1995. The 28% decrease in gold production during 1997 was primarily attributable to the lower ore grades mined. The main sources of production were the Dora, Katman and El Toro pits, all of which are now mined out, and the La Trinidad pit which has some remaining mineralized material should mining resume. The cash production cost per ounce of gold, excluding the severance and related closure costs, increased by 47% compared to 1996 as a result of the lower gold production and the fixed nature of a portion of the mine's costs. In addition to the continuing exploration effort noted above, the Company will continue applying solution to the leach pads during 1998 and estimates it may produce approximately 12,000 to 15,000 ounces from the leach pads in 1998. Subsequently a solution treatment program will be undertaken to neutralize the remaining toxic elements. DEPRECIATION AND AMORTIZATION Depreciation and amortization expense was $9.6 million in 1997 and 1996 and $8.1 million in 1995. The amortization on a per ounce produced basis was $85 per ounce in 1997 compared to $78 in 1996 and $69 in 1995. The increase in amortization per ounce in 1997 is due to a higher proportion of gold production being generated from the Joe Mann Mine which has a higher depreciable base than the Santa Gertrudis Mine. EXPLORATION Total exploration expenditures for 1997 were $4.7 million compared to $7.2 million in 1996 and $4.5 million in 1995. Of this amount, $0.6 million (1996 - $1.7 million; 1995 - $1.2 million) relates to the Joe Mann Mine and $3.7 million (1996 - $4.9 million; 1995 - $2.8 million) relates to the Santa Gertrudis Mine. These amounts have been capitalized to natural resource properties in accordance with the Company's accounting policies. The balance of the exploration expenditures of $0.3 million (1996 - $0.6 million; 1995 - $0.5 million) relates to grass roots exploration in Mexico and was expensed. In addition to grass roots exploration, the expense for 1997 includes $5 million (1996 - $2.6 million; 1995 - $1.3 million) representing the amortization and / or write-off of exploration costs at the Santa Gertrudis Mine that had been previously capitalized. The amortization is with respect to production from the mine during the year and the write-off is with respect to individual exploration target costs where economic mineralization was not identified. The Company expects to spend approximately $1.4 million on exploration at Santa Gertrudis for the first six months of 1998 and $0.3 million at the Joe Mann Mine for the year. OTHER INCOME (EXPENSE) Other income was $2.1 million in 1997 compared to $3.6 million in 1996 and $1.3 million in 1995. The major component, interest income on short-term deposits, decreased to $1.8 million from $3.2 million in 1996 and $1.7 million in 1995. The decrease in 1997 was due to a decrease in interest bearing balances as a result of the capital expenditure programs at the Cerro Quema project and Joe Mann Mine. The increase in 1996 was due to the increase in the interest bearing balances following the public share issue for US$22.5 million in early 1996. 17 20 Interest expense on the Company's convertible debentures was $0.6 million in 1997 compared to $0.7 million in 1996 and $1.2 million in 1995. The decrease is attributable to the continuing conversion of a portion of the debentures to common shares (see note 5 to Consolidated Financial Statements). INCOME TAXES The Company recorded an income tax recovery of $2 million in 1997 as a result of the draw down of deferred mining taxes compared to an expense of $0.6 million in 1996 and $1 million in 1995. Reference should be made to note 8 to the Consolidated Financial Statements for additional information on the reported tax provisions. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company's working capital decreased to $49 million compared to $65.5 million in 1996 and includes cash and short-term deposits of $41.7 million in 1997 and $55.3 million in 1996. Cash flow from operations before the net change in non-cash operating working capital decreased to $0.6 million in 1997 compared to $21.4 million in 1996 and $18.7 million in 1995. The decrease in cash flow is due to the decrease in gold sales revenue and the increase in mining costs discussed above. Based on a US$300 per ounce average gold price for 1998 and the production estimates noted above, the Company believes it will achieve a modest positive operating cash flow in 1998. The main source of cash for the Company during 1997 was the early termination of various gold hedging instruments totalling 118,100 ounces. The Company received cash proceeds of $9,679,000 which was credited against the cost of the Cerro Quema project to which they related. Sources of cash in 1996, other than from operations, was the issuance of 18 million units comprising one common share and one half common share purchase warrant at a unit price of US$1.25 per unit for net proceeds of $28.6 million. CAPITAL EXPENDITURES During 1997, the Company spent $31.2 million (1996 - $14.4 million; 1995 - $7.9 million) on capital expenditures including $8.9 million (1996 - $5.5 million; 1995 - $4 million) at the Joe Mann Mine of which $6.6 million (1996 - $1.6 million; 1995 - $ nil) is for the shaft deepening, $1.3 million (1996 - $1.7 million; 1995 - $1.6 million) for capital additions at the Santa Gertrudis Mine, $3.7 million (1996 - $4.9 million; 1995 - $2.8 million) for exploration at Santa Gertrudis and $17.2 million (1996 - $3.4 million; 1995 - $ nil) at the Cerro Quema project. OUTLOOK Campbell will continue to focus on conserving its cash through the continued prudent management of its assets. It will also continue to pursue acquisition and/or merger targets. During 1997, the Company engaged outside consultants to assist in locating suitable acquisitions or possible merger partners. As a result of these efforts Campbell conducted due diligence procedures on several targets and made an offer for one of those. To date these efforts have not resulted in a transaction. Campbell is naturally disappointed that it has been unable to consummate a transaction this year. However, to ensure shareholders obtain the maximum accretion from any acquisition, the Company has been selective in the assets it has reviewed. The Company established specific criteria for an acquisition including that the property should already be at or approaching commercial production, produce at least 60,000 ounces of gold a year at a projected cash cost in the US$175-US$250 range and have a mine life of at least five years with significant potential to extend that. Campbell believes its strong cash position and lack of debt should enable it to be appropriately selective in locating the right opportunity. The continuing low gold price is obviously of much concern. Campbell will continue to engage in prudent fiscal management to preserve working capital and maintain cash flow. Should gold prices continue at these levels during 1998, the Company may have to re-evaluate its new life-of-mine plan for the Joe Mann Mine. It may be necessary to assume lower gold prices than at present which would likely decrease ore reserves and amend the life-of-mine plan and the carrying value of the mine. Campbell will complete the shaft deepening program to access the ore below the 2350 foot level at the Joe Mann Mine during the first half of 1998 at a cost of approximately $5.2 million. Further capital expenditures for underground development at the Joe Mann Mine are currently being analysed to determine whether any can be postponed without negatively impacting future production. These decisions will also take into account the prevailing gold price. 18 21 Campbell anticipates 1998 production of 88,000 ounces of gold at a cash cost of approximately US$245 per ounce. Through a re-structuring of its hedge book subsequent to the year end, the Company now has 45,000 ounces of this production hedged through the use of purchased puts at an average of US$327 per ounce of gold. Computer based systems are used to a limited extent in parts of the Company's business processes. Campbell is aware of the implications of the year 2000 issue which is the concern that computer programs will create errors because the programs were written using fewer than the four digits required to unambiguously define the applicable year. Campbell believes that the year 2000 issue will not pose a significant problem for the Company as it understands minimal modifications will be required to the off-the-shelf software currently employed. Initiatives with key suppliers will be undertaken during 1998 to address year 2000 compliance of their systems. The profitability of the Company is directly influenced by the price of gold, the Company's ability to control its costs and the relative Canadian, US and Mexican foreign exchange rates. The price of gold and the relative exchange rates are volatile and beyond the Company's control although it does engage in some limited hedging from time-to-time to protect against a portion of the volatility. 19 22 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING TO THE SHAREHOLDERS OF CAMPBELL RESOURCES INC.: The accompanying consolidated financial statements of the Company were prepared by management in accordance with accounting principles generally accepted in Canada, consistently applied and within the framework of the summary of significant accounting policies in these consolidated financial statements. Management is responsible for all information in the annual report. All financial and operating data in the annual report is consistent, where appropriate, with that contained in the consolidated financial statements. A system of internal accounting control is maintained in order to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. This system includes established policies and procedures, the selection and training of qualified personnel and an organization providing for appropriate delegation of authority and segregation of responsibilities. The Board of Directors discharges its responsibilities for the consolidated financial statements primarily through the activities of its Audit Committee composed of three directors, none of whom are members of management. This Committee meets with management to assure that it is performing its responsibility to maintain financial controls and systems and to approve the annual consolidated financial statements of the Company. The Audit Committee also meets with the independent auditors to discuss the results of their audit, their review of internal accounting controls and their audit report prior to submitting the consolidated financial statements to the Board of Directors for approval. The consolidated financial statements have been audited on behalf of the shareholders by the Company's independent auditors, KPMG, in accordance with generally accepted auditing standards. The auditors' report outlines the scope of their examination and their opinion on the consolidated financial statements. /s/ John O. Kachmar /s/ Paul J. Ireland - ------------------- ------------------- John O. Kachmar Paul J. Ireland President and Vice President, Finance Chief Executive Officer AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of Campbell Resources Inc. as at December 31, 1997 and 1996 and the consolidated statements of income, retained earnings (deficit) and cash flows for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1997 and 1996 and the results of its operations and the cash flows for each of the years in the three-year period ended December 31, 1997 in accordance with generally accepted accounting principles. KPMG Chartered Accountants Toronto, Canada March 9, 1998 20 23 CONSOLIDATED BALANCE SHEETS as at December 31 (Expressed in thousands of Canadian dollars)
1997 1996 - -------------------------------------------------------------------------------- ASSETS Current assets Cash and short-term deposits $ 41,735 $ 55,302 Receivables 4,805 8,270 Inventories (note 2) 7,250 9,134 Prepaids 995 749 - -------------------------------------------------------------------------------- Total current assets 54,785 73,455 - -------------------------------------------------------------------------------- Other assets (note 3) 986 1,271 - -------------------------------------------------------------------------------- Natural resource properties (note 4) 170,256 149,879 Less accumulated depreciation and amortization (102,145) (59,307) - -------------------------------------------------------------------------------- 68,111 90,572 - -------------------------------------------------------------------------------- Total assets $ 123,882 $ 165,298 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 3,989 $ 5,504 Accrued liabilities 1,757 2,337 Income taxes payable 31 94 - -------------------------------------------------------------------------------- Total current liabilities 5,777 7,935 - -------------------------------------------------------------------------------- Other liabilities 1,442 881 Convertible debentures (note 5) 7,341 7,657 Deferred mining taxes 4,198 6,767 Shareholders' equity Capital stock (note 6) 121,425 118,605 Foreign currency translation adjustment 408 (248) Retained earnings (deficit) (16,709) 23,701 - -------------------------------------------------------------------------------- Total shareholders' equity 105,124 142,058 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 123,882 $ 165,298 - --------------------------------------------------------------------------------
Commitments and contingencies (note 9) Approved by the Board /s/ James D. Beatty ------------------- Director /s/ John O. Kachmar ------------------- Director See accompanying notes to the consolidated financial statements. 21 24 CONSOLIDATED STATEMENTS OF INCOME for the Years Ended December 31 (Expressed in thousands of Canadian dollars except per share amounts)
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- METAL SALES $ 52,635 $67,180 $67,418 - ------------------------------------------------------------------------------------------------------------------- EXPENSES Mining 46,681 44,667 43,373 General administration 3,203 3,064 2,846 Depreciation and amortization 9,587 9,604 8,072 Exploration 5,315 3,179 1,838 - ------------------------------------------------------------------------------------------------------------------- 64,786 60,514 56,129 - ------------------------------------------------------------------------------------------------------------------- Income (loss) from operations before writedown and closure costs of natural resource properties (12,151) 6,666 11,289 Writedown and closure costs of natural resource properties 31,684 - ------------------------------------------------------------------------------------------------------------------- Income (loss) from operations (43,835) 6,666 11,289 - ------------------------------------------------------------------------------------------------------------------- Other income (expense) Other income (note 7) 2,096 3,595 1,318 Convertible debenture interest expense (639) (661) (1,166) - ------------------------------------------------------------------------------------------------------------------- 1,457 2,934 152 - ------------------------------------------------------------------------------------------------------------------- Income (loss) before taxes (42,378) 9,600 11,441 Income and mining taxes (recovery) (note 8) (1,968) 588 980 - ------------------------------------------------------------------------------------------------------------------- Net income (loss) $(40,410) $9,012 $10,461 =================================================================================================================== Earnings (loss) per share (note 6) $(0.27) $0.06 $0.09 ===================================================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT) for the Years Ended December 31 (Expressed in thousands of Canadian dollars)
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $23,701 $14,689 $4,228 Net income (loss) (40,410) 9,012 10,461 - ------------------------------------------------------------------------------------------------------------------- Balance at end of year $(16,709) $23,701 $14,689 ===================================================================================================================
See accompanying notes to the consolidated financial statements. 22 25 CONSOLIDATED STATEMENTS OF CASH FLOWS for the Years Ended December 31 (Expressed in thousands of Canadian dollars)
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED IN): OPERATING ACTIVITIES Net income (loss) $(40,410) $ 9,012 $10,461 Items not involving cash Depreciation and amortization 9,587 9,604 8,199 Writedown of natural resource properties 30,239 Exploration amortized and written-off 4,998 2,599 Recognition of deferred hedging gains (1,603) Deferred mining taxes (recovery) (2,569) 358 318 Other (1,289) (134) 1,328 - ------------------------------------------------------------------------------------------------------------------- 556 21,439 18,703 Net change in non-cash operating working capital 2,945 (2,478) (1,978) - ------------------------------------------------------------------------------------------------------------------- 3,501 18,961 16,725 - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Issues of capital stock 2,820 33,565 4,519 Conversion of convertible debentures (611) (3,006) (3,998) - ------------------------------------------------------------------------------------------------------------------- 2,209 30,559 521 - ------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES Expenditures on natural resource properties (29,283) (13,968) (7,934) Termination of hedging contracts 9,679 Acquisition of Cerro Quema gold project (13,185) Mining tax credits received 669 1,175 Decrease in other assets 165 214 226 - ------------------------------------------------------------------------------------------------------------------- (19,439) (26,270) (6,533) - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate change on cash and short-term deposits 162 (219) (1,614) - ------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and short-term deposits (13,567) 23,031 9,099 Cash and short-term deposits at beginning of year 55,302 32,271 23,172 - ------------------------------------------------------------------------------------------------------------------- Cash and short-term deposits at end of year $41,735 $55,302 $32,271 =================================================================================================================== Changes in non-cash operating working capital Receivables $3,465 $(433) $(1,190) Inventories and prepaids 1,638 (2,997) (934) Accounts payable (1,515) 1,184 1,032 Accrued liabilities (580) (203) (739) Income taxes payable (63) (29) (147) - ------------------------------------------------------------------------------------------------------------------- $2,945 $(2,478) $(1,978) ===================================================================================================================
See accompanying notes to the consolidated financial statements. 23 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Tabular amount are expressed in thousands of Canadian dollars) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared by management in accordance with accounting principles generally accepted in Canada and, except as described in note 13, conform in all material respects with accounting principles generally accepted in the United States. The principal accounting policies followed by the Company, which have been consistently applied, are summarized as follows: INTERCORPORATE INVESTMENTS: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. CASH AND SHORT-TERM DEPOSITS: Cash and short-term deposits includes short-term money market instruments which are highly liquid, intended to be held to maturity and are carried at amortized cost which approximates market. The Company's policy is to invest in highly rated instruments and to limit the amount of credit exposure to any one institution. INVENTORIES: Mining and milling materials and supplies are valued at the lower of average cost and net replacement cost. Work-in-process is valued at the lower of average production cost or net realizable value. Production costs include direct labour, benefits, supplies and equipment operating costs and maintenance. NATURAL RESOURCE PROPERTIES: Plant and equipment are recorded at cost with depreciation generally provided either on the unit-of-production method over the estimated economic life of the mine to which they relate or on the straight-line method over their estimated useful lives. Mining properties and deferred mining expenditures are recorded at cost and are depleted on the unit-of-production method over the estimated economic life of the mine to which they relate. Development costs incurred to expand existing capacity, develop new ore bodies and develop property substantially in advance of production are capitalized. Exploration expenditures are charged to income in the period incurred except where these costs relate to specific properties for which economically recoverable reserves exist, in which case they are deferred. Significant property payments for active exploration properties are capitalized. If no mineable ore body is discovered, previously capitalized costs are expensed. Mining properties and deferred expenditures are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future net cash flows expected to result from the use of the properties and their eventual disposition are less than the carrying amount, then these properties are written down to their estimated recoverable amount determined on a non-discounted basis. SITE RESTORATION: Provisions are established for estimated future costs of site restoration of mining properties, including the removal of production facilities at the end of their useful lives. Costs are based upon estimates of the anticipated method and extent of site restoration to meet current legal and industry standards. These standards are continually changing and the estimated provision is reviewed annually. The amount of the provision is amortized over the estimated life of the underlying asset and the annual charge, determined on the same basis as the amortization of the underlying asset, is included in mining costs. RECOGNITION OF METALS REVENUE: Gold and copper revenues are recognized at the time of production. Gains and losses on hedging instruments that effectively establish prices for future production are not recognized in income until reflected in sales revenue when the related production is delivered. CURRENCY TRANSLATION: The U.S. dollar is considered to be the functional currency of the Company's Mexican operations as most of those activities are conducted in U.S. dollars. Accordingly, the Mexican operations are translated from Mexican pesos into U.S. dollars using the temporal method whereby monetary assets and liabilities are translated at the year end rate of exchange and non-monetary assets and liabilities are translated at historical rates of exchange. Exchange gains or losses are included in the determination of earnings. The U.S. dollar financial statements of the Mexican operations are translated into Canadian dollars at the year end rate of exchange for the balance sheet and the average rate of exchange for the year for the statement of income. Exchange gains or losses are included as a separate component of shareholders' equity. The Panamanian operations are translated into Canadian dollars using the temporal method. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expense during the period. Actual results could differ from estimates. During the fiscal periods presented, management has made a number of significant estimates and valuation assumptions, including estimates of the net realizable value of accounts receivable, inventory, the useful lives of capital assets, the recoverability of net resource properties, the future costs associated with environmental and site restoration matters, and the fair value of financial assets and liabilities. These estimates and valuation assumptions are based on current information and management's planned course of action, as well as assumptions about future business and economic conditions. Should the underlying valuation assumptions and estimates change, the recorded amounts could change by a material amount. 24 27 COMPARATIVE FIGURES: Certain comparative figures have been reclassified to conform with the current financial statement presentation.
2 INVENTORIES ----------------------------------------------------------- 1997 1996 - ---------------------------------------------------------------- Materials and supplies $5,519 $5,813 Work-in-process 1,731 3,321 - ---------------------------------------------------------------- $7,250 $9,134 - ---------------------------------------------------------------- 3 OTHER ASSETS ----------------------------------------------------------- 1997 1996 - ---------------------------------------------------------------- Advances $ 590 $ 775 Deferred financing costs 603 657 - ---------------------------------------------------------------- 1,193 1,432 Accumulated amortization 207 161 - ---------------------------------------------------------------- $986 $1,271 - ----------------------------------------------------------------
4 NATURAL RESOURCE PROPERTIES ------------------------------------------------------------
1997 1996 Accumulated Accumulated Depreciation and Depreciation and Cost Amortization Net Cost Amortization Net ----------------------------------- ----------------------------------- Property, plant and equipment $29,239 $14,639 $14,600 $21,883 $11,851 $10,032 Mining properties and deferred expenditures 122,495 87,506 34,989 121,337 47,456 73,881 Construction in progress 18,522 - 18,522 6,659 - 6,659 - -------------------------------------------------------------------------------------------------- $170,256 $102,145 $68,111 $149,879 $59,307 $90,572 - --------------------------------------------------------------------------------------------------
During 1997, as part of its periodic evaluation of the carrying value of its natural resource properties, the Company wrote down the carrying value of its Joe Mann Mine by $28,000,000. During 1992, the Company entered into agreements under which the Societe Quebecoise d'Exploration Miniere ("Soquem") could earn a 50% interest in the Joe Mann property (excluding the Joe Mann Mine) and in the Company's other properties in the Chibougamau area by incurring specified amounts on exploration on those properties. To July 1, 1997, Soquem had incurred total qualifying expenditures under the previous agreements of $2,548,000 on the Joe Mann property and $2,431,000 on the Chibougamau property. Effective July 2, 1997, the agreements were modified to provide that Soquem spend an additional $1,600,000 on the Joe Mann property and an additional $750,000 on the Chibougamau property from the effective date until June 1, 2002 to earn a 50% interest in each of the properties. At December 31, 1997, Soquem had incurred total qualifying expenditures under the new amendment of approximately $72,000 on the Joe Mann property and $19,000 on the Chibougamau area property. On January 26, 1996 the Company purchased the right of first refusal to acquire a 100% interest in the shares of Minera Cerro Quema, SA, whose primary asset is the Cerro Quema gold project in Panama. Concurrently the Company exercised the right of first refusal and purchased the shares for US$8,372,000 cash closing on March 4, 1996. The Company paid the former holder of the right of first refusal ("CEMSA") US$250,000 cash and issued 730,000 common shares on closing and an additional US$250,000 cash and 730,000 common shares on February 21, 1997 following approval by the Board of Directors of a positive feasibility study for the Cerro Quema gold project. The aggregate cost of the acquisition, including the cost of reducing the royalty payable to CEMSA from 3.5% to 2% through the issuance of 1,040,000 common shares, and expenses, amounted to $15,598,000 and has been included in natural resource properties. 5 CONVERTIBLE DEBENTURES ----------------------- In July 1994, the Company issued US$11,005,000 of 7.5% Convertible Subordinated Debentures. The debentures are unsecured, bear interest at 7.5% payable in arrears on June 1 and December 1 each year and mature on July 21, 2004. The debentures are convertible at the option of the holder into common shares of the Company at any time prior to maturity at a conversion of US$0.50 per common share. The debentures are redeemable for cash at any time after the fifth anniversary of the date of issue or, at the Company's option, may be redeemed in common shares on the basis of one common share for each US$0.50 of debenture principal being redeemed. The right of the Company to redeem the debentures for cash or common shares is conditional on the average price of the Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to notice of redemption. The Company may, at its option, repay the debenture at maturity by issuing common shares of the Company at the conversion price of US$0.50 per common share. During 1997, debenture holders converted US$454,000 (1996 - US$2,307,000; 1995 - US$3,107,000) of debenture principal into 908,000 (1996 - 4,614,000; 1995 - 6,214,000) common shares of the Company resulting in a balance outstanding at December 31, 1997 of US$5,137,000 (1996 - US$5,591,000; 1995 - US$7,898,000). 25 28 6 CAPITAL STOCK ----------------------- a) AUTHORIZED SHARES Preference shares - unlimited, issuable in series, without par value Common shares - unlimited b) ISSUED AND OUTSTANDING SHARES (IN THOUSANDS)
1997 1996 1995 - ----------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount Common shares: Balance at beginning of year 148,588 $118,605 124,466 $ 85,040 117,528 $80,521 Issued: Conversion of convertible debentures 908 611 4,614 3,006 6,214 3,998 Public issue for cash 18,000 28,585 Issued to CEMSA (Note 4) 1,770 2,071 730 1,256 Employee Incentive Plan and Directors' Stock Option Plan 179 138 778 718 724 521 - ------------------------------------------------------------------------------ 151,445 $121,425 148,588 $118,605 124,466 $85,040 ==============================================================================
c) EMPLOYEE INCENTIVE PLAN The Employee Incentive Plan comprises a Share Option Plan, a Share Purchase Plan, a Share Bonus Plan and a Share Loan Plan. The Share Purchase Plan calls for Company contributions of an amount equal to 50 per cent of the employees' contributions, which can amount to a maximum of 5 per cent of their basic annual salaries or wages. The common shares are issued on a quarterly basis at market value. Under the Share Bonus Plan, shares can be issued to full-time salaried employees as a bonus in recognition of services as determined by the Compensation Committee or the Board of Directors. The Share Loan Plan provides the Compensation Committee or the Board of Directors the discretion to make loans to full time employees to enable them to acquire shares in the Company. No loans are outstanding under this plan. Options granted under the Directors' and Employee share option plans expire not later than five years from the date on which they were granted and all current options expire on or before August 13, 2002. Changes in the share options outstanding under the plans are as follows (in thousands):
1997 1996 1995 - ---------------------------------------------------------------- Balance at beginning of year 7,175 5,090 4,925 Granted 450 2,900 900 Exercised (19) (790) (585) Expired (356) (25) (150) - ---------------------------------------------------------------- Balance at end of year 7,250 7,175 5,090 ================================================================ Average option price at end of year $1.15 $1.18 $0.95 ================================================================ Options exercisable at end of year 6,037 5,319 3,940 ================================================================ Average price for options exercised during year $0.57 $0.82 $0.60 ================================================================
d) COMMON SHARE PURCHASE WARRANTS As part of a public offering of units consisting of common shares and warrants in February, 1996, the Company issued 9,000,000 warrants which entitle the holder to purchase one common share of the Company for US$1.50 on or before February 26, 1999, all of which remain outstanding at December 31, 1997. e) EARNINGS (LOSS) PER SHARE The weighted average number of common shares outstanding during the year ended December 31, 1997 used to calculate the earnings (loss) per common share amounted to 150,548,000 (1996 - 145,907,000; 1995 - 121,214,000). Outstanding warrants and options were not dilutive to earnings (loss) per share in any of the periods presented. 7 OTHER INCOME Other income comprises:
1997 1996 1995 - ------------------------------------------------------------------ Interest income $ 1,781 $3,167 $ 1,722 Other income 243 520 69 Currency translation gains (losses) 72 (92) (473) - ------------------------------------------------------------------ $ 2,096 $3,595 $ 1,318 ==================================================================
8 INCOME AND MINING TAXES a) GEOGRAPHIC COMPONENTS The geographic components of income (loss) before taxes is as follows:
1997 1996 1995 - ---------------------------------------------------------------- Canada $(32,729) $3,089 $ 2,371 Mexico (9,101) 6,511 9,070 Panama (548) - ---------------------------------------------------------------- $(42,378) $9,600 $11,441 ================================================================
The geographic components of income and mining taxes is as follows:
Current income tax expense: Canada $ 220 $ 229 $ 246 Mexico 381 1 416 - ----------------------------------------------------------------- 601 230 662 Deferred mining tax expense (recovery) Canada (2,569) 358 318 - ----------------------------------------------------------------- $ (1,968) $ 588 $ 980 =================================================================
26 29 b) DEFERRED MINING TAXES The payment of certain mining taxes is deferred due to the recognition of amounts for tax purposes in different periods than for accounting purposes. The principal timing difference is depreciation and amortization. c) LOSS CARRY FORWARDS At December 31, 1997, the Company and its subsidiaries had operating losses for income tax purposes in Canada approximating $1,920,000 and in Mexico approximating $16,042,000 which are available to reduce taxes in future years and expire over the period to the year 2004. In addition, the Company and its subsidiaries had net capital losses for income tax purposes in Canada of approximately $10,600,000 available to apply against future taxable capital gains. The Company's subsidiary has an additional $17,200,000 of net capital loss carry forwards which have not been accepted by the tax authorities. The Company is objecting to the tax authorities' position. The Company also had unclaimed deductions for income tax purposes in excess of carrying values for financial statement purposes in the amount of approximately $59,000,000. The potential future benefit of these tax losses and deductions has not been recognized in these financial statements. d) EFFECTIVE TAX RATE The provision for (recovery of) income taxes varies from the amounts that would be computed by applying the Canadian federal and provincial statutory tax rates of approximately 40% to income before taxes as follows:
1997 1996 1995 - ---------------------------------------------------------------- Expected income tax provision (recovery) using statutory income tax rates $(16,785) $4,173 $4,932 Resource allowance (167) (1,800) (543) Mining taxes (recovery) (2,569) 358 318 Utilization of prior year losses carried forward (2,922) (3,666) Foreign earnings subject to different tax rates (687) (847) Tax benefit not currently recognized 16,952 1,235 119 Other 601 231 667 - ---------------------------------------------------------------- Income and mining tax provision (recovery) $(1,968) $ 588 $ 980 ================================================================
9 COMMITMENTS AND CONTINGENCIES a) At December 31, 1997 the Company's subsidiary had sold forward 12,000 ounces of gold for delivery in 1998 under spot deferred contracts at an average price of US$340 per ounce. In addition, the Company had sold calls for 33,200 ounces of gold in 2001 and 20,000 ounces of gold in 2002 at an average of US$440 per ounce. Subsequent to December 31, 1997, the Company purchased puts enabling it to deliver 45,000 ounces of gold during 1998 at an average price of US$327 per ounce. The purchase of the puts was funded by the buy-back of the spot deferred contract and reducing the strike price on the calls to US$350 per ounce of gold. The Company has also sold forward 1,320,000 pounds of copper for delivery in 1998 at an average price of US$0.95 per pound. b) At December 31, 1997, the Company's subsidiary had sold forward US$14,000,000 to purchase Canadian dollars during 1998 at an average rate of Cdn$1.3882 to the US dollar. c) The Company's Joe Mann Mine is subject to a graduated net smelter return royalty increasing from 1.8% up to a gold price of Canadian $500 per ounce to 3.6% at a gold price of Canadian $625 per ounce. d) During 1996, the Company's Mexican subsidiary received import duty assessments following an audit claiming the subsidiary's interest in certain pieces of machinery and equipment with an approximate value of US$2,200,000 and levying taxes, penalties, interest and inflationary adjustments for a further Mexican pesos 9,200,000. On May 26, 1997, the Company received notice that it was successful in its appeal against the assessments and that the Mexican pesos 9,200,000 was not payable. The tax authorities have the ability to issue another tax assessment in connection with their audit but any such assessment must take into account the supporting documentation in the Company's possession that was presented at the appeal. The charge against the assets will be released when the final tax assessment covering this matter is issued by the tax authorities. e) During 1991, a subsidiary of the Company entered into a corporate restructuring and financing arrangement ("Arrangement") in which it issued to a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate Debentures and Notes ("Debentures") and $12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares ("Preferred Shares"). The Debentures are unsecured, subordinate to all existing non-trade debt and future senior debt, bear interest at varying rates, are repayable upon maturity in 2007, and cannot be prepaid. The Preferred Shares are redeemable at any time at an amount of $240,000 per Preferred Share, rank equally and parri passu with the common shares for dividends when declared, and are retractable in 2007. In order to secure the performance of the Debentures and Preferred Shares the Company's subsidiary entered into an Interest Rate and Currency Exchange Swap Agreement ("Swap Agreement") with a major international bank. The Swap Agreement provides for the conversion of one floating rate interest basis to another and for differences in the timing of payments so as to match the interest payment requirements under the Debentures, repay the Debentures upon maturity and retract the Preferred Shares. All payments are denominated in Canadian dollars. The Company's subsidiary placed Canadian dollar deposits with the counter party to the Swap agreement which deposits have been charged to secure the performance under the Swap agreement. These deposits earn interest at Canadian Bankers Acceptance rates. The Swap Agreement was irrevocably assigned directly to the investors. Accordingly the bank is the primary obligor under the Arrangement. 27 30 f) The Company is from time to time involved in various claims, legal proceedings and reassessments for income, mining and other taxes, arising in the ordinary course of business. The Company's current and proposed mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect its employees, the general public and the environment and, to the best of its knowledge, believes its operations are in compliance with all applicable laws and regulations, in all material respects. The Company has made, and expects to make in the future, submissions and expenditures to comply with such laws and regulations. Where estimated reclamation and closure costs are reasonably determinable, the Company has recorded a provision for environmental liabilities based on management's estimate of these costs. Such estimates are subject to adjustment based on changes in laws and regulations and as new information becomes available. 10 PENSION PLAN The Company maintains a defined benefit pension plan for certain employees which provides benefits based on length of service and remuneration. The most recent actuarial valuation of the plan was as at December 31, 1996. As at December 31, 1997, the estimated projected benefit obligation was approximately $2,659,000 (1996 - $2,271,000) and the market value of assets aggregated $3,410,000 (1996 - $3,555,000). 11 SEGMENTED DATA The Company's operations consist principally of the exploration, development, mining and processing of precious metals in Canada, Mexico and Panama. The following is a summary of the Company's operations by geographic area:
1997 1996 1995 - ------------------------------------------------------------------ Revenue: Canada $ 35,443 $ 38,226 $ 38,209 Mexico 17,192 28,954 29,209 - -------------------------------------------------------------------- $ 52,635 $ 67,180 $ 67,418 ==================================================================== Income (loss) from operations: Canada $ (32,476) $ (152) $ 2,002 Mexico (9,541) 6,818 9,287 Panama (1,818) - -------------------------------------------------------------------- $ (43,835) $ 6,666 $ 11,289 ==================================================================== Identifiable assets: Canada $ 40,436 $ 70,892 $ 70,279 Mexico 18,922 25,755 19,880 Panama 22,784 16,719 Corporate 41,740 51,932 33,544 - -------------------------------------------------------------------- $ 123,882 $1 65,298 $123,703 ====================================================================
Corporate assets primarily consist of cash and short-term deposits. 12 FAIR VALUE AND CREDIT RISK DISCLOSURES At December 31, 1997 the fair value of the Company's convertible debentures was estimated to be $8,810,000 (1996 - $14,500,000) compared to the carrying amount of $7,341,000 (1996 - $7,657,000) based on a quoted price. The carrying amount of cash and short-term deposits, receivables and accounts payable in the consolidated balance sheets approximates fair value. The fair value of the Company's off-balance sheet financial instruments is based on the notional gain or loss accrued using the market prices on the reporting date and at December 31, 1997 was a gain of approximately $234,000 (1996 - $1,460,000) for the forward gold and copper contracts and a loss of approximately $505,000 (1996 - a gain of $45,000) for the foreign currency contracts. The Company is exposed to credit-related losses in the event of non-performance by counter parties to financial instruments but does not expect any counter parties to fail to meet their obligations. The Company deals with only highly rated counter parties, normally major financial institutions including banks. The credit risk exposure of derivative instruments is represented by the fair value of contracts with a positive fair value at the reporting date. The credit risk represents the maximum amount that would be at risk if the counter parties failed completely to perform under the contracts. 28 31 13 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The reconciliation of net income (loss) determined in accordance with generally accepted accounting principles in Canada to net income (loss) determined under accounting principles which are generally accepted in the United States is as follows:
1997 1996 1995 - ------------------------------------------------------------------------------------ Net income (loss) for year as reported $(40,410) $ 9,012 $ 10,461 Depreciation and amortization (a) 19,061 (1,513) (2,654) Deferred income taxes (b) (6,083) (158) 8,586 - ------------------------------------------------------------------------------------ Net income (loss) for the year in accordance with United States accounting principles $(27,432) $ 7,341 $ 16,393 ==================================================================================== Earnings (loss) per share for the year in accordance with United States accounting principles Basic and fully diluted $ (0.18) $ 0.05 $ 0.14 ====================================================================================
Differences between Canadian and United States accounting principles as they affect the Company's financial statements are as follows: a) DEPRECIATION AND AMORTIZATION Under Canadian accounting principles, depreciation and amortization may be calculated on the unit-of-production method based upon the estimated mine life, whereas under United States accounting principles the calculations are made based upon proven and probable mineable reserves. b) DEFERRED INCOME TAXES Under Canadian accounting principles income and mining taxes may be accounted for under the deferral method. Under United States accounting principles the asset and liability method (FAS 109) is used, whereby deferred tax assets and liabilities are recognized for the deferred taxes attributable to differences between book value and the tax basis of the Company's assets and liabilities. Significant components of the Company's deferred tax assets and liabilities under United States accounting principles are as follows:
1997 1996 - ---------------------------------------------------------------- Noncurrent deferred tax assets: Natural resource properties $32,136 $25,464 Operating loss carry forwards 6,309 2,989 Other 1,352 1,000 - ---------------------------------------------------------------- 39,797 29,453 Valuation allowance 38,057 19,799 - ---------------------------------------------------------------- $ 1,740 $ 9,654 - ----------------------------------------------------------------
1997 1996 - ---------------------------------------------------------------- Current deferred tax liabilities: Inventory $ 1,679 $3,380 Noncurrent deferred tax liabilities Natural resource properties 1,736 2,935 Other 61 1,560 - ---------------------------------------------------------------- $ 3,476 $7,875 - ---------------------------------------------------------------- Net deferred tax assets (liabilities) $(1,736) $1,779 ================================================================
The tax loss carry forwards disclosed in note 8(c) and other temporary timing differences giving rise to deferred taxes have been tax effected for purposes of the above disclosure at the tax rate effective in the applicable jurisdiction, that is, 40% for Canada and 34% for Mexico. c) STOCK OPTIONS Beginning in 1996, United States accounting principles allow, but do not require companies to record compensation cost for stock option plans at fair value. The Company has chosen to continue to account for stock options using the intrinsic value method as permitted under Canadian and United States accounting principles. The new United States accounting pronouncement does, however, require the disclosure of pro forma net income and earnings per share information as if the Company had accounted for its employee stock options issued in 1995, 1996 and 1997 under the fair value method. Accordingly, the fair value of these options has been estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for each year; risk free interest rates for 1997 of 5.15-6.30% (1996 - 5.25-5.70%; 1995 - 6.65-6.95%); dividend yields of 0%; volatility factors of the expected market price of the Company's common shares of 55%; and a weighted average expected life of the options of four years. The weighted average grant date fair values of options issued in 1997, 1996 and 1995 were $0.43, $0.72 and $0.63, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is expensed over the options' vesting period, which is three years in the case of employees and immediately in the case of Directors. For the year ended December 31, 1997, the Company's pro forma net income (loss) and earnings (loss) per share in accordance with United States accounting principles are a net loss of $27,951,000 (1996 and 1995 net income of $6,385,000 and $15,940,000, respectively) and a loss of $0.19 (1996 and 1995 earnings of $0.04 and $0.13, respectively). 29 32 d) STATEMENTS OF CASH FLOWS Under Canadian accounting principles, the issuance of common shares on the conversion of convertible debentures and as part of the purchase consideration for the acquisition of the Cerro Quema project has been reflected as a financing activity in the consolidated statements of cash flows. Under United States accounting principles, these non-cash transactions would have been excluded from financing activities and separately disclosed in the notes to the consolidated financial statements. Included in cash and short-term deposits at December 31, 1997 are investments of $28,097,000 (1996 - $49,427,000; 1995 - $ nil) with maturities on acquisition of greater than 90 days. Under United States accounting principles these investments would not be included in cash and short-term deposits. For the year ended December 31, 1997, under United States accounting principles the sources of cash from financing activities would be $138,000 (1996 - $29,303,000; 1995 - $521,000) the sources of cash from investing activities would be $3,962,000 (1996 - use of $74,441,000; 1995 - use of $6,533,000) and there would be an increase in cash and short-term deposits of $7,763,000 (1996 decrease of $26,396,000; 1995 - increase of $9,099,000). The following additional disclosure requirements are also required:
1997 1996 1995 - ---------------------------------------------------------------- Cash Taxes Paid $695 $565 $751 Cash Interest Paid $616 $596 $993
e) CONTINGENT LIABILITY Under United States accounting principles the contingent liability disclosed in note 9 (e) would be reflected in the balance sheet. Accordingly, under United States accounting principles total assets and liabilities would increase by $50 million. The increase in assets represents investments (non-current) comprising Canadian dollar payments under the Swap agreement and Canadian dollar deposits with the counter party to the Swap agreement. The liabilities (non-current) represent the Guaranteed Subordinate Debentures and Notes of $38 million and the Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares of $12 million which would be included outside of shareholders' equity. f) FOREIGN EXCHANGE CONTRACTS In accordance with Canadian accounting principles, certain long-term foreign exchange contracts are considered to be hedges of sales revenue denominated in foreign currencies or the cost of goods to be purchased in foreign currencies. Gains and losses related to changes in market values of such contracts are deferred and recognized when the contract is settled as part of sales revenue or the cost of purchased goods as appropriate. Under United States accounting principles, changes in the market value of the contracts would be included in current earnings. The impact of this difference between Canadian and United States accounting principles has not been material during the reporting periods presented. g) BALANCE SHEETS The cumulative effect of the application of United States accounting principles, noted in (a) to (e) above, on the consolidated balance sheets of the Company as at December 31, 1997 and 1996 would be to decrease cash and short-term deposits and increase short-term investments each by $28,097,000 (1996 - $49,427,000), decrease natural resource properties by $14,014,000 (1996 - $33,076,000), increase long-term investments by $50,000,000 (1996 - $50,000,000), increase long-term liabilities by $38,000,000 (1996 - $38,000,000), decrease deferred mining taxes by $2,462,000 (1996 - $8,546,000), increase preferred shares by $12,000,000 (1996 - $12,000,000) and reduce shareholders equity by $11,552,000 (1996 - $24,530,000). 30 33 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 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ Metal sales $ 52,635 67,180 67,418 46,940 30,668 Income (loss) from continuing operations $ (40,410) 9,012 10,461 5,307 (1,743) Net income (loss) $ (40,410) 9,012 10,461 5,307 (3,493) Earnings (loss) per share - from continuing operations $ (0.27) 0.06 0.09 0.05 (0.02) - Net income (loss) $ (0.27) 0.06 0.09 0.05 (0.03) Total assets $ 123,882 165,298 123,703 113,780 91,916 Long-term debt $ 7,341 7,657 10,782 15,438 - Deferred hedging gain - - - 1,603 4,809 Shareholders' equity $ 105,124 142,058 99,554 84,800 79,278 Book value per share $ 0.69 0.96 0.80 0.72 0.68 Gold production - ounces 113,000 125,000 120,000 81,000 55,000 Foreign exchange rate - US dollars Year end/average $ 0.70/0.73 0.73/0.73 0.73/0.73 0.71/0.73 0.76/0.78 High/low $ 0.75/0.69 0.75/0.72 0.75/0.70 0.76/0.71 0.80/0.74 Shares outstanding (in thousands) At year end 151,445 148,588 124,466 117,528 117,225 Weighted average during year 150,548 145,907 121,214 117,274 106,051 - ------------------------------------------------------------------------------------------------------------------
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, 1997 Metal sales $ 12,289 13,569 12,979 13,798 Income (loss) from operations $ (3,260) (1,773) (3,650) (35,152) Net income (loss) $ (2,782) (1,771) (3,368) (32,489) Earnings (loss) per share $ (0.02) (0.01) (0.02) (0.21) - --------------------------------------------------------------------------------------- Year ended December 31, 1996 Metal sales $ 18,397 18,733 16,191 13,859 Income (loss) from operations $ 3,227 2,862 837 (260) Net income $ 3,466 3,227 1,465 854 Earnings per share $ 0.02 0.02 0.01 0.01 - ---------------------------------------------------------------------------------------
31 34 SHAREHOLDER INFORMATION Campbell Resources Inc. common shares are listed on the New York, Toronto and Montreal stock exchanges and trade under the symbol "CCH". The warrants are listed on the New York Stock Exchange trading under the symbol "CCH.ws" and on the Toronto and Montreal stock exchanges trading under the symbol "CCH.wt". Each warrant entitles the holder to purchase one common share of Campbell Resources Inc. for US$1.50 on or before February 26, 1999. There are 9.0 million warrants issued and outstanding. QUARTERLY TRADING STATISTICS
COMMON SHARE PRICES - -------------------------------------------------------------------------- TORONTO STOCK EXCHANGE NEW YORK STOCK EXCHANGE (CDN$) (US$) HIGH LOW VOLUME HIGH LOW VOLUME - -------------------------------------------------------------------------- 1997 4th Quarter 1.02 0.51 2,311,854 0.75 0.34 34,417,134 3rd Quarter 1.00 0.68 2,348,237 0.81 0.50 15,816,900 2nd Quarter 1.12 0.85 3,595,200 0.81 0.56 14,138,200 1st Quarter 1.30 1.01 3,589,700 1.00 0.75 21,623,200 - -------------------------------------------------------------------------- 1996 4th Quarter 1.60 1.20 2,454,280 1.25 0.88 10,471,000 3rd Quarter 1.70 1.35 3,342,945 1.25 1.00 12,038,100 2nd Quarter 1.82 1.53 8,256,690 1.38 1.13 16,728,300 1st Quarter 1.98 1.36 16,823,841 1.50 0.94 33,223,300 - --------------------------------------------------------------------------
WARRANT PRICES - -------------------------------------------------------------------------- TORONTO STOCK EXCHANGE NEW YORK STOCK EXCHANGE (CDN$) (US$) - -------------------------------------------------------------------------- HIGH LOW VOLUME HIGH LOW VOLUME - -------------------------------------------------------------------------- 1997 4th Quarter 0.22 0.05 234,200 0.16 0.05 645,500 3rd Quarter 0.22 0.12 103,500 0.19 0.13 777,200 2nd Quarter 0.38 0.18 352,300 0.31 0.19 302,900 1st Quarter 0.46 0.36 223,100 0.41 0.28 120,100 - -------------------------------------------------------------------------- 1996 4th Quarter 0.60 0.48 485,500 0.44 0.38 198,300 3rd Quarter 0.62 0.40 902,050 0.56 0.41 342,000 2nd Quarter 0.78 0.50 1,390,550 - - - 1st Quarter 0.65 0.40 1,426,100 - - - - --------------------------------------------------------------------------
TRADING BEGAN FEBRUARY 26, 1996 TRADING BEGAN JULY 26, 1996 [LINE GRAPH] [PLOT POINTS TO COME] TRANSFER AGENT MONTREAL TRUST COMPANY 151 Front Street West 8th Floor Toronto, Ontario M5J 2N1 Phone: (416) 981-9500 Fax: (416) 981-9800 MONTREAL TRUST COMPANY Place Montreal Trust 1800 McGill College Avenue Montreal, Quebec H3A 3K9 CHASEMELLON SHAREHOLDER SERVICES 85 Challenger Road Overpeck Center Ridgefield Park, New Jersey U.S.A. 07660 FINANCIAL PUBLICATIONS A copy of the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or copies of the Annual Report and Quarterly Reports may be obtained without charge, upon request. INQUIRIES Inquiries regarding shareholder-related matters, including change of address notifications, can be directed to the Secretary or to the Transfer Agent. Questions regarding the Company's operating and financial performance may be directed to the Manager, Investor Relations at (416) 366-5201. 32 35 SHAREHOLDER INFORMATION BOARD OF DIRECTORS - -------------------------------------- James D. Beatty (2,3) Chief Executive Officer Trinity Capital Corporation Graham G. Clow Senior Vice President N.A. Operations Breakwater Resources Ltd. Rod P. Douglas (2) Mining Engineer John O. Kachmar (1) President & Chief Executive Officer Campbell Resources Inc. James C. McCartney, Q.C. (1,3) Partner, Law Firm of McCarthy Tetrault Donald R. Murphy (2) President, Societe de developpement de la Baie James Francis S. O'Kelly Mining Engineer G.E. 'Kurt' Pralle (3) Mining Engineer James D. Raymond (1) Private Investor (1) Member of Executive Committee (2) Member of Audit Committee (3) Member of Compensation Committee LEGAL COUNSEL - -------------------------------------- McCarthy Tetrault Toronto, Ontario AUDITORS - -------------------------------------- KPMG Toronto, Ontario PRINCIPAL SUBSIDIARIES - -------------------------------------- Meston Resources Inc. (Quebec, Canada) Oro de Sotula, S.A. de C.V. (Mexico) Dr. Guillermo Salas Piza, Chairman Minera Cerro Quema, S.A. (Panama) OFFICERS AND SENIOR MANAGEMENT - -------------------------------------- James C. McCartney, Q.C. Chairman of the Board John O. Kachmar President and Chief Executive Officer Paul J. Ireland Vice President, Finance Lorna D. MacGillivray Vice President, Secretary and General Counsel William S. Hamilton Manager, Exploration Santa Gertrudis Steven Dawson Manager, Investor Relations Gary A. Cohoon Consulting Exploration Geologist OPERATIONS - -------------------------------------- Joe Mann Mine Meston Resources Inc. Phone: (418) 745-2537 Fax: (418) 745-3238 Alain Coulombe, General Manager Santa Gertrudis Mine Oro de Sotula S.A. de C.V. Phone: (52-631) 85099 Fax: (52-631) 81141 Dave Loder, General Manager Cerro Quema Project Minera Cerro Quema, S.A. Phone: (507) 995-8293 Fax: (507) 995-8295 George J. Simchuk, Vice President and General Manager CORPORATE HEAD OFFICE - -------------------------------------- CAMPBELL RESOURCES INC. 120 Adelaide Street West Suite 1910 Toronto, Ontario Canada M5H 1T1 Phone: (416) 366-5201 Fax: (416) 367-3294 e-mail: cchgold@aol.com Production: Walter J. Mishko & Co. Inc. Design: Kirkwood Communications Inc. Printed in Canada on re-cycled paper using vegetable based inks EX-20.1 4 NOTICE AND PROXY CIRCULAR 1 CAMPBELL RESOURCES INC. Suite 1910, 120 Adelaide Street West Toronto, Ontario M5H 1T1 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS NOTICE is hereby given that the Annual Meeting of Shareholders of Campbell Resources Inc. (the "Corporation") will be held at The Ontario Club, 30 Wellington St. West, Commerce Court South, The Engineer's Room, 5th Floor, Toronto, Ontario on Tuesday, May 19th, 1998 at 9:30 A.M. (Eastern Daylight Saving Time) for the following purposes: 1. to receive the Consolidated Financial Statements of the Corporation and Auditors' Report thereon for the fiscal year ended December 31, 1997; 2. to elect directors for the ensuing year; 3. to appoint auditors for the ensuing year and to authorize the Directors to fix their remuneration; and 4. to transact such other business as may properly come before the Meeting or any adjournment or adjournments thereof. The Board of Directors of the Corporation has fixed the close of business on March 30, 1998 as the record date for the determination of shareholders entitled to notice of and to vote at the Meeting and any adjournment thereof. If you do not expect to be present at the Meeting, please sign, date and fill in the enclosed form of proxy and return it by mail in the enclosed addressed envelope. All instruments appointing proxies to be used at the Meeting must be deposited with the Secretary of the Corporation at the Corporation's office in Toronto, or at the office of the Corporation's transfer agent, Montreal Trust Company, in Toronto not later than 5:00 p.m. (Eastern Daylight Saving Time) on Friday, May 15, 1998. Shares represented by instruments appointing proxies that are not so deposited will not be voted at the Meeting. By Order of the Board of Directors Lorna D. MacGillivray Vice President, Secretary and General Counsel Dated: March 20, 1998. 2 CAMPBELL RESOURCES INC. PROXY CIRCULAR ANNUAL MEETING OF SHAREHOLDERS THIS PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE MANAGEMENT AND BOARD OF DIRECTORS OF CAMPBELL RESOURCES INC. (THE "CORPORATION" OR "CAMPBELL") OF PROXIES TO BE VOTED AT THE ANNUAL MEETING OF SHAREHOLDERS (THE "MEETING") TO BE HELD ON MAY 19, 1998 AT THE ONTARIO CLUB, 30 WELLINGTON ST. WEST, COMMERCE COURT SOUTH, 5TH FLOOR THE ENGINEER'S ROOM, TORONTO, ONTARIO. The record date for determination of shareholders entitled to receive notice of the Meeting is March 30, 1998. If a person has acquired ownership of shares since that date he may, in accordance with the provisions of the Canada Business Corporations Act, produce properly endorsed share certificates or otherwise establish that he owns such shares and demand, not later than the close of business on May 11, 1998, to be included in the list of shareholders entitled to vote at the Meeting, in which case the transferee is entitled to vote his shares at the Meeting. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON, WHO NEED NOT BE A SHAREHOLDER, OTHER THAN THE PERSONS SPECIFIED IN THE ENCLOSED FORM OF PROXY TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING. SUCH RIGHT MAY BE EXERCISED BY STRIKING OUT THE NAMES OF MANAGEMENT'S NOMINEES IN THE ENCLOSED FORM OF PROXY AND INSERTING THE NAME OF THE PERSON TO BE APPOINTED IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY, SIGNING THE FORM OF PROXY AND RETURNING IT IN THE REPLY ENVELOPE PROVIDED. Any person giving a proxy may revoke it by depositing an instrument in writing executed by him or by his attorney authorized in writing at the registered office of the Corporation at any time up to the close of business on the last business day preceding the Meeting or any adjournment thereof or with the Chairman at the Meeting or in any other manner permitted by law. ALL PROPERLY EXECUTED PROXIES, NOT THERETOFORE REVOKED, WILL BE VOTED ON ANY POLL TAKEN AT THE MEETING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED THEREIN. IF NO INSTRUCTIONS ARE GIVEN WITH RESPECT TO ANY PARTICULAR MATTER, THE PROXY AUTHORIZES A VOTE IN FAVOUR OF SUCH MATTER AND IT WILL BY VOTED ACCORDINGLY. Proxies must be received by the Corporation not later than 5:00 p.m. (Eastern Daylight Saving Time) on Friday, May 15, 1998. All dollar amounts contained in this Proxy Circular are expressed in Canadian dollars unless specifically stated otherwise. As of March 20, 1998, the Noon Buying Rate in New York City for Canadian dollars was U.S.$0.7051. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF As of March 20, 1998, the Corporation had outstanding 152,462,861 Common Shares entitled to be voted at the Meeting. Each Common Share is entitled to one vote. 1 3 To the knowledge of the Corporation, as of March 20, 1998, the following is the only party who beneficially owned or exercised control or direction over more than 5% of the Common Shares of the Corporation:
Name and Address Number of Common Shares Percentage of Class - ---------------- ----------------------- ------------------- Heartland Advisors, Inc. 15,715,000(1) 10.3% 790 North Milwaukee Street Milwaukee, WI 53202
1. Based on U.S. Securities and Exchange Commission Schedule 13G filing dated January 8, 1998). ELECTION OF DIRECTORS (ITEM NO. 2 OF NOTICE OF MEETING) Shareholders will be asked to elect nine directors to serve, subject to the Corporation's by-laws, until the next annual meeting of shareholders or until their respective successors have been duly elected or appointed. IT IS THE INTENTION OF THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY TO VOTE AT THE MEETING FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED BELOW. IF ANY SUCH NOMINEE SHOULD BE UNABLE TO SERVE, AN EVENT NOT CURRENTLY ANTICIPATED, PROXIES WILL BE VOTED FOR SUCH PERSON AS SHALL BE DESIGNATED BY THE BOARD OF DIRECTORS OF THE CORPORATION TO REPLACE SUCH NOMINEE. The following table sets forth certain information concerning the persons to be nominated for election as directors of the Corporation, including their beneficial ownership of Common Shares of the Corporation as of March 20, 1998. Unless otherwise indicated, each nominee holds sole voting and investment power over his shares.
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 53 2,500(1) * Toronto, Ontario Capital Corporation, Toronto, Ontario, investment company. Graham G. Clow Mining Engineer; Senior Vice 1996 47 2,500(2) * Oakville, Ontario President, Operations, Breakwater Resources Ltd., President, CanZinco Ltd., Toronto, Ontario; prior to June, 1996, President, Granduc Mining Corporation; prior to June, 1993, Vice President, Project Development, Curragh Inc., Toronto, Ontario, mining companies.
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 72 10,000(3) * Vancouver, B.C. Mining of Canada Inc., Vancouver, B.C., mining company. John O. Kachmar President and Chief Executive Officer 1992 61 175,000(4) * Toronto, Ontario of the Corporation; prior to August 1993, President of Northgate Exploration Limited, Toronto, Ontario, mining company. James C. McCartney Q.C. Chairman of the Corporation; 1993 60 50,000(5) * Toronto, Ontario Partner, McCarthy Tetrault, Barristers & Solicitors, Toronto, Ontario; Director of Algoma Steel Inc., Sault Ste Marie, Ontario, steel company. Donald R. Murphy President, Societe de developpement 1987 54 nil(1)(6) -- Rouyn/Noranda, Quebec de la Baie James, Matagami, Quebec, government owned corporation; Director of MSV Resources Inc., Montreal, Quebec; and Espalau Mining Corporation, Val d'Or, Quebec; mining companies. Francis S. O'Kelly Mining Engineer; Director of 1993 56 5,000(7) * New York, New York Rayrock Yellowknife Resources Inc., Toronto, Ontario and Glamis Gold Ltd., Vancouver, B.C.; mining companies. G. E. "Kurt" Pralle Mining and Metallurgical Consultant; 1993 63 100,000(7) * Ramsey, New Jersey prior to August 1993, Vice-President and Senior Mining Engineer, Citicorp, New York, New York.
3 5
Number of Name & Municipality of Principal Occupation Director Common Percent Residence and Business Experience Since Age Shares of Class - --------- ----------------------- ----- --- ------ -------- James D. Raymond Private Investor and Director; 1979 72 10,000(8) * Montreal, Quebec Director of Cineplex Odeon Corporation, Toronto, Ontario, entertainment company; Canadian 88 Energy Corporation, Calgary, Alberta, oil and gas company; Denbridge Capital Corporation, Toronto, Ontario, manufacturers radar and electronics.
Notes: (1) Excludes 500,000 Common Shares subject to option. (2) Excludes 150,000 Common Shares subject to option. (3) Excludes 250,000 Common Shares subject to option. (4) Excludes 1,350,000 Common Shares subject to option. (5) Excludes 800,000 Common Shares subject to option. (6) Excludes 26,110 Common Shares held by Societe de developpement de la Baie James of which Mr. Murphy is President. (7) Excludes 400,000 Common Shares subject to option. (8) Excludes 600,000 Common Shares subject to option. * Less than 1% of the outstanding Common Shares. As of March 20, 1998, the directors and officers of the Corporation as a group beneficially owned 437,008 Common Shares representing approximately 0.3% of the outstanding Common Shares of the Corporation excluding 5,650,000 Common Shares subject to option. The information as to Common Shares beneficially owned or over which control or direction is exercised, not being within the knowledge of the Corporation, has been furnished by the respective directors and officers individually. COMMITTEES OF THE BOARD OF DIRECTORS The Executive Committee of the Board of Directors consists of three directors, Messrs. Kachmar, McCartney and Raymond and has substantially all of the powers of the Board of Directors, except those required by law to be exercised by the Board of Directors. The Audit Committee of the Board of Directors consists of three directors, Messrs. Beatty, Douglas and Murphy. The Audit Committee reviews the Corporation's financial statements and audit procedures and reports thereon to the Board of Directors. The Compensation Committee consists of three directors, Messrs. Beatty, McCartney and Pralle. The Compensation Committee considers and approves compensation, remuneration and incentive arrangements for officers and senior employees of Campbell. The Corporation does not have a nominating committee. 4 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. The performance of the management team is reviewed annually by the Compensation Committee in the context of the Corporation's success in meeting its objectives which are established as part of the review of the annual financial forecast. This Committee is comprised solely of non-management members being the Chairman and two independent directors. The 6 8 philosophy of the Compensation Committee is stated below under "Report on Executive Compensation". In addition, the Compensation Committee periodically reviews the compensation paid to members of the Board and makes recommendations to the Board on compensation of directors. COMPENSATION OF DIRECTORS All directors of the Corporation receive an annual director's fee of $6,000 and an attendance fee of $750 per meeting and out-of-pocket expenses relating to attendance at a board or committee meeting. The Corporation paid aggregate remuneration of $131,250 to the 9 incumbent directors in their capacities as such during the fiscal period ended December 31, 1997. In 1997, the Corporation purchased directors' and officers' liability insurance with a liability limit of $20,000,000 for which the Corporation paid an annual premium of $71,280 in 1997. The policy contains a deductible clause of $250,000 payable by the Corporation. In 1997, Mr. Francis S. O'Kelly, a director of the Corporation, provided consulting services to the Corporation on a part-time basis for a monthly fee of US$1,500. This arrangement was terminated on October 31, 1997. The Corporation paid Mr. O'Kelly US$15,000 in respect of such services in 1997. In 1997, the Corporation continued to engage the law firm McCarthy Tetrault of which James C. McCartney, Q. C., a director and chairman of the Corporation, is a senior partner to provide legal advice to the Corporation. An aggregate of $11,700 was paid to McCarthy Tetrault for legal services in 1997. DIRECTORS' STOCK OPTION PLAN At December 31, 1997, options to acquire an aggregate of 3,700,000 Common Shares were outstanding under the Directors' Stock Option Plan. During 1997, no options were granted or exercised under the Directors' Stock Option Plan. EXECUTIVE COMPENSATION The following table (presented in accordance with the regulation (the "Regulation") made under the Securities Act (Ontario)) sets forth all annual and long-term compensation for services in all capacities to the Corporation and its subsidiaries for the fiscal years ended December 31, 1997, 1996 and 1995 (to the extent required by the Regulation) in respect of the individuals who were at December 31, 1997, the Chief Executive Officer and the other most highly compensated individuals who were serving as executive officers of the Corporation and whose total salary and bonus exceeded $100,000 (the "Named Executive Officers"): 7 9 SUMMARY COMPENSATION TABLE
==================================================================================================================================== Annual Compensation Long-Term Compensation ----------------------------------------------------------------------------------- Awards Payouts ------------------------------------- Securities Under Restricted Other Options/ Shares or Annual SARs Restricted LTIP All Other Name and Salary Bonus Compensation granted Share Units Payouts Compensation Principal Position Year ($) ($) ($)(3) (#) ($) ($) ($) - ------------------------------------------------------------------------------------------------------------------------------------ John O. Kachmar 1997 285,000 70,000(1) -- -- Nil Nil 18,000(4) President & Chief 1996 225,000 200,000 -- 450,000 Nil Nil 18,000(4) Executive Officer 1995 225,000 170,000(2) -- -- Nil Nil 12,500(4) - ------------------------------------------------------------------------------------------------------------------------------------ Lorna D. MacGillivray 1997 130,000 15,000 -- -- Nil Nil Nil Vice President, 1996 115,000 56,500 -- 150,000 Nil Nil 3,000(4) Secretary & General 1995 115,000 52,500 (2) -- -- Nil Nil Nil Counsel - ------------------------------------------------------------------------------------------------------------------------------------ Paul J. Ireland 1997 130,000 15,000 -- -- Nil Nil Nil Vice President, Finance 1996 115,000 56,500 -- 150,000 Nil Nil Nil 1995 106,000 52,500 (2) -- -- Nil Nil Nil - ------------------------------------------------------------------------------------------------------------------------------------ Gary A. Cohoon 1997 108,333(5) -- -- -- Nil Nil 108,333(5) Vice President, 1996 115,000 31,500 -- 100,000 Nil Nil Nil Exploration 1995 106,000(6) 2,100 -- 150,000 Nil Nil Nil ====================================================================================================================================
Notes: (1) Of the $70,000 bonus paid to Mr. Kachmar, $15,000 was paid in cash, $27,500 was paid through the issuance of 50,000 Common Shares issued net of tax. (2) Of the $170,000 bonus paid to Mr. Kachmar, $40,000 was paid in cash and the balance paid through the issuance of 50,000 Common Shares issued net of income tax. Of the $52,500 bonuses paid to each of Ms. MacGillivray and Mr. Ireland, $20,000 was paid in cash and the balance through the issuance of 12,500 Common Shares issued net of income tax. (3) Perquisites and other personal benefits for the Named Executive Officers did not exceed the lesser of $50,000 and 10% of total annual salary and bonus. (4) Represents director's fees. (5) Salary includes compensation to October 31, 1997. Other compensation reflects amounts paid or payable in respect of the resignation of the Named Executive Officer. (6) Includes compensation in all capacities for the full year. Mr. Cohoon became an executive officer on November 13, 1995. 8 10 The following table (presented in accordance with the Regulation) sets forth information concerning the exercise of stock options and SAR's by Named Executive Officers in 1997 and the number and the unrealized value of exercisable and unexercisable stock options held by Named Executive Officers at December 31, 1997. AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
================================================================================================================================= Securities, Aggregate Unexercised Acquired Value Options/SARs at Value of Unexercised in- on Exercise Realized FY-End (#) the-Money Options/SARs at FY- Name (#) ($) Exercisable/Unexercisable End ($) Exercisable/Unexercisable - --------------------------------------------------------------------------------------------------------------------------------- John O. Kachmar Nil Nil 1,175,000(1)/175,000 NIL/NIL President and CEO - --------------------------------------------------------------------------------------------------------------------------------- Lorna D. MacGillivray Nil Nil 325,000/75,000 NIL/NIL Vice President, Secretary and General Counsel - --------------------------------------------------------------------------------------------------------------------------------- Paul J. Ireland Nil Nil 225,000/75,000 NIL/NIL Vice President, Finance - --------------------------------------------------------------------------------------------------------------------------------- Gary A Cohoon Nil Nil 237,500/87,500 NIL/NIL Vice President, Exploration =================================================================================================================================
Note: (1) Includes options granted under the Directors' Stock Option Plan to acquire 100,000 Common Shares exercisable at $0.57 share, 200,000 Common Shares at $1.10 per share and 100,000 Common Shares at $1.48 per share. EMPLOYEE INCENTIVE PLAN The Corporation maintains an Employee Incentive Plan consisting of the Share Purchase Plan, the Share Option Plan, the Share Bonus Plan and the Share Loan Plan. Directors who are not officers do not participate in the Employee Incentive Plan. SHARE OPTION PLAN The Share Option Plan is intended to promote the interests of Campbell and its shareholders by making provisions for stock options as an additional incentive to attract, retain and motivate officers and salaried employees. Grants are made at the discretion of the Board of Directors or a committee of the board comprised of members, a majority of whom are not eligible to participate in the Plan (the "Compensation Committee"). The Board of Directors or the Compensation Committee may, in its discretion, determine which officers or employees will be granted options, the number of Common Shares to be the subject of each option, the purchase price of such shares and the duration of the options, which may not exceed five years. The Board of Directors or the Compensation Committee may also impose other terms and conditions respecting any option granted as it may consider appropriate or necessary. 9 11 Freestanding "SARs" are not provided for under the Share Option Plan. The options may, at the discretion of the Board of Directors or the Compensation Committee, be accompanied by SARs which entitle the holder to elect to terminate his or her options, in whole or in part and, in lieu of receiving the Common Shares ("Option Shares") to which the terminated options relate, elect to receive that number of Common Shares, disregarding fractions, which have a total value equal to the product of the number of Option Shares times the difference between the fair value (at the date of such election) and the option price per share of the Option Shares, less any amount withheld on account of income taxes, which income taxes will be remitted on the employee's behalf by the Corporation. All currently outstanding options are accompanied by SARs. During 1997 no options were granted under the Share Option Plan to Named Executive Officers and options to purchase 450,000 Common Shares were granted to employees who are not Named Executive Officers. These options are exercisable at $0.89 to $0.94 per share and are exercisable as to 25% immediately, with a further 25% becoming exercisable cumulatively on each of the first, second and third anniversary dates and are accompanied by SARs. All of the options were granted for a term of five years. As at December 31, 1997, a total of 3,450,000 Common Shares were issuable upon exercise of options under the Plan including 1,975,000 Common Shares issuable upon exercise of options held by the four Named Executive Officers. Such options are exercisable at exercise prices ranging from $0.57 to $1.48 per share. These options expire between August 17, 1998 and August 15, 2001. SHARE PURCHASE PLAN The Share Purchase Plan is designed to encourage employees of Campbell to purchase Common Shares on a regular basis. Employees of Campbell who have been continuously employed by Campbell for at least one year, or less at the discretion of the Compensation Committee or the Board of Directors, are eligible each January 1 to participate in the Share Purchase Plan. Each eligible employee may contribute up to 5% of his or her basic salary to the Share Purchase Plan through monthly deductions. On a quarterly basis, Campbell will contribute an amount equal to 50% of the employee's contributions to such date and each participating employee will then be issued Common Shares having a value equal to the aggregate amounts contributed by such employee and Campbell. In 1997, 10,828 Common Shares were issued to Lorna D. MacGillivray in respect of which Campbell contributed $2,875 and 12,239 Common Shares were issued to Gary A. Cohoon in respect of which Campbell contributed $3,250 and 137,168 Common Shares were issued to employees who are not Named Executive Officers in respect of which Campbell contributed $42,389 pursuant to the Share Purchase Plan. SHARE BONUS PLAN The Share Bonus Plan is intended to promote the interests of Campbell and its shareholders by permitting the Board of Directors or the Compensation Committee, in its discretion, to issue Campbell 10 12 Common Shares to full-time salaried employees of Campbell as a bonus in recognition of services provided to Campbell by such employee. The issue of Common Shares to such employee may be subject to such terms and conditions as are determined by the Board of Directors or the Compensation Committee. During 1997, 50,000 Common Shares were issued to a Named Executive Officer pursuant to the Share Bonus Plan. SHARE LOAN PLAN The Share Loan Plan is intended to provide an additional incentive to motivate full time officers who will make important contributions to the success of Campbell by assisting such persons to acquire shares of the Corporation. The Compensation Committee may in its discretion make loans to full time officers of the Corporation. Such loans shall be subject to such terms and conditions including rates of interest, if any, as the Compensation Committee may consider appropriate. During 1997, no loans were granted and no loans are outstanding under the Share Loan Plan. INDEBTEDNESS OF DIRECTORS AND OFFICERS No directors or officers of the Corporation are indebted to the Corporation. PENSION PLAN The Corporation has a defined benefit pension plan (the "Pension Plan") available on a voluntary basis to all employees of the Corporation and its subsidiaries other than those who are subject to the provisions of a collective agreement. The Pension Plan provides a pension equal to 2% of the average annual salary not including bonuses and other compensation during the three most highly paid years for each year of credited service subject to the maximum benefit limitation applicable to registered pension plans under the Income Tax Act (Canada). Benefits under the Pension Plan vest after two years. Early retirement is permitted after age 55, subject to reductions. The Pension Plan also provides that certain members may be designated as "Class A" non-contributory members. Head office and certain senior employees have been designated as "Class A" non-contributory members. The following table sets forth the benefits calculated under the Pension Plan at various salary levels and years of employment on the assumption such benefits become payable upon retirement at age sixty-five. Benefits under the Pension Plan are not reduced by social security or other offset amounts. The payment of such benefits is subject to the maximum benefit limitation applicable to registered pension plans under the Income Tax Act (Canada) which currently is $1,722 for each year of service. 11 13 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 ======================================================================================================================
Three Named Executive Officers participate in the Pension Plan. Mr. Kachmar had 7 years of credited services, Ms. MacGillivray had 4.4 years of credited service and Mr. Ireland had 1 year of credited service under the Pension Plan at December 31, 1997. No other Named Executive Officer participates in the Plan. EMPLOYMENT CONTRACTS On August 1, 1993, the Corporation entered into an employment agreement with Mr. Kachmar as President and Chief Executive Officer. The agreement stipulates, among other things, a base salary of $285,000 per annum effective January 1, 1997. On December 1, 1994, Mr. Kachmar's agreement was amended to provide that in the event that Mr. Kachmar's employment is terminated, he will be entitled to be paid up to thirty-six months' salary and benefits. In the event of a change of control, as defined, Mr. Kachmar will be entitled to resign within six months thereof and be paid thirty-six months' salary and benefits. The amendment also provides that in the event of resignation or termination, options held by Mr. Kachmar will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. On August 1, 1993, the Corporation entered into an employment agreement with Ms. MacGillivray as Vice President, Secretary and General Counsel. The agreement stipulates among other things, a base salary of $130,000 per annum effective January 1, 1997. On December 1, 1994, Ms. MacGillivray's agreement was amended to provide that in the event that Ms. MacGillivray's employment is terminated, she will be entitled to be paid up to twenty-four months' salary and benefits. In the event of a change of control, as defined, Ms. MacGillivray will be entitled to resign within six months thereof and be paid twenty-four months' salary and benefits. The amendment also provides that in the event of resignation or termination, options held by Ms. MacGillivray will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. On October 1, 1994, the Corporation entered into an employment agreement with Mr. Paul J. Ireland as Vice President, Finance. The agreement stipulated a base salary of $130,000 effective January 1, 1997. On December 10, 1996, Mr. Ireland's agreement was amended to provide that in the event that his employment is terminated, he will be entitled to be paid up to twenty-four months' salary and benefits. 12 14 In the event of a change of control, as defined, Mr. Ireland will be entitled to resign within six months thereof and be paid twenty-four months' salary and benefits. The amendment also provides that in the event of resignation or termination, options held by Mr. Ireland will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. COMPOSITION OF THE COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors considers and approves compensation, remuneration and incentive arrangements for directors, officers and senior employees of the Corporation. The members of the Compensation Committee are James C. McCartney, Q.C. (Chairman), James D. Beatty and G. E. "Kurt" Pralle. Mr. McCartney is Chairman of the Corporation and he is also Chairman of the Compensation Committee. Mr. McCartney is a senior partner with the law firm McCarthy Tetrault which provides legal advice to the Corporation. Neither Mr. Beatty nor Mr. Pralle is, nor was, at any time, an officer or employee of the Corporation or any of its subsidiaries. In 1994, the Committee established an executive compensation philosophy and policy to be followed in its future consideration of executive compensation and incentive arrangements. EXECUTIVE COMPENSATION PHILOSOPHY AND POLICY The Corporation's Executive Compensation Policy is primarily based on a pay for performance philosophy. The main objective of the policy is the alignment of all financial reward systems with shareholder interests. The compensation structure must also reflect the Corporation's current financial position and the scope of its operations. As a consequence, a heavy emphasis is placed on the long-term business objectives of creating wealth, decreasing risk by expanding operations, and providing returns to the Corporation's shareholders. The particular elements of the executive compensation program for senior executives of the Corporation, designed to encourage, compensate and reward employees on the basis of individual and corporate performance, may be summarized as follows: - BASE SALARY The program is designed to attract and retain executive officers by delivering a competitive rate of base pay. Market competitive rates will be determined by comparison with average compensation levels of comparable mining companies. It is believed that the average pay of these companies is a reasonable reference point from which to target and manage base pay, while recognizing the need for executive level experience and skills in the current phase which will further the Corporation's achievement of its growth objectives. - ANNUAL INCENTIVE COMPENSATION The Corporation currently does not offer a short-term variable pay or incentive plan but may in future implement an annual incentive plan. The Corporation's Employee Incentive Plan has a Share Bonus Plan component which may be used to provide annual incentive compensation. The use of this plan can combine both short and longer term incentives and, through increased share holding, would also align the interests of executive officers with those of the Corporation's shareholders. Grants of annual bonuses would be based on the 13 15 employee's contribution towards the Corporation's success in meeting its goals. - STOCK OPTION PROGRAMS The Corporation strongly believes that by providing those persons who have substantial responsibility for the management and growth of the Corporation with an opportunity to acquire the Corporation's stock, the interests of shareholders and executives will be increasingly aligned. The number of stock options that will be granted to executive officers will be based on competitive practices of comparable mining companies and will reflect an emphasis on long-term performance awards. Options will generally become exercisable gradually over their term and will generally be for a five-year term. REPORT ON EXECUTIVE COMPENSATION In August, 1997, the Compensation Committee reviewed the long term incentive arrangements of the Corporation. The level of outstanding stock options under the Employee Incentive Plan was discussed. The Committee considered the recommendation of the Chief Executive Officer that only a limited number of new options be granted to three senior employees who are not Named Executive Officers. In approving the grant of options, the Committee took into account the number, terms and pricing of previously outstanding options. Consideration was also given to the employee's level of responsibility and potential contribution to the Corporation's achieving its long-term goals. The Committee also considered and determined not to grant additional options to directors under the Directors' Stock Option Plan at its August meeting. Base salary and annual incentive compensation of senior executives were reviewed by the Committee on December 10, 1997. Corporate performance relative to 1997 objectives was reviewed. The Committee also reviewed the compensation arrangements of a peer group of five Canadian based gold producers of similar size and circumstance. During this review, the Committee considered the appropriate balance between the three components of executive compensation: base salary, annual incentive compensation and long-term incentives. Based on the recommendations of John O. Kachmar, the Corporation's Chief Executive Officer, base salaries were maintained at the existing level and annual incentive awards were reduced to reflect the difficult circumstances facing the Corporation at sustained lower gold prices. Cash compensation of executive officers was maintained in the lower half of the peer group levels. In addition, the Committee determined that further incentive awards, based on specific criteria to be determined by the Chairman of the Committee in consultation with the Chief Executive Officer, could be considered in the future when the Corporation's growth objectives are met. CHIEF EXECUTIVE OFFICER COMPENSATION In considering compensation of the Chief Executive Officer, the Committee reviewed the Chief Executive Officer's performance in establishing and pursuing a strategic direction for the Corporation; building and maintaining a sound management team; providing leadership and implementing a course of 14 16 action to achieve the Corporation's goals and objectives, taking the necessary actions to ensure that the Corporation is profitable and pursuing all growth opportunities. The Chief Executive Officer's contribution in ensuring that all growth opportunities are pursued was the most important factor in the grant of the annual incentive award as set out in the Summary Compensation Table. The Chief Executive Officer's compensation package was compared to the peer group levels as discussed above. Both Mr. Kachmar's base salary and annual incentive are in the lower half of the peer group levels. Mr. Kachmar's base salary, which was increased in December, 1996 effective at the beginning of 1997 was maintained. The level of his annual incentive award was decreased to reflect the difficult conditions facing the Corporation with sustained lower gold prices. March 20, 1998 COMPENSATION COMMITTEE James D. Beatty James C. McCartney, Q.C. G. E. "Kurt" Pralle SHAREHOLDER RETURN PERFORMANCE GRAPH The chart below (as required by the Regulation) compares the yearly percentage change in the cumulative total shareholder return on the Corporation's Common Shares against the cumulative total shareholder return of The TSE 300 Stock Index and the TSE Gold and Precious Metals Index for the five fiscal year periods commencing December 31, 1992 and ending December 31, 1997. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* BETWEEN CAMPBELL RESOURCES INC. AND THE TSE 300 INDEX AND THE TSE GOLD AND PRECIOUS METALS INDEX
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec 31, 1992 1993 1994 1995 1996 1997 ------- ------- ------- ------- ------- ------- CCH Stock 100 231.58 202.63 347.37 328.95 139.47 TSE 300 Composite 100 132.55 132.31 151.54 194.49 223.62 Gold and Precious Metals 100 205.40 185.33 202.80 221.38 125.85
*$100 INVESTED ON 12/31/92 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF DIVIDENDS. 15 17 APPOINTMENT OF AUDITORS (ITEM NO. 3 OF NOTICE OF MEETING) UNLESS SUCH AUTHORIZATION IS WITHHELD, THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE AT THE MEETING FOR THE RE-APPOINTMENT OF KPMG, CHARTERED ACCOUNTANTS, AS AUDITORS OF THE CORPORATION TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND TO AUTHORIZE THE BOARD OF DIRECTORS TO FIX THEIR REMUNERATION. Representatives of KPMG are expected to be present at the Meeting and will have the opportunity to make statements if they so desire and will be available to respond to appropriate questions. OTHER MATTERS WHICH MAY COME BEFORE THE MEETING Management does not know of any matters to be presented to the Meeting other than those specifically set forth in the Notice of Annual Meeting of Shareholders. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING AND ARE SUBMITTED TO A VOTE, ALL PROXIES WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS NAMED THEREIN. PROPOSALS BY SHAREHOLDERS Pursuant to the Canada Business Corporations Act (the "Act"), resolutions intended to be presented by shareholders for action at the 1999 Annual Meeting must comply with the provisions of the Act and be deposited at the Corporation's head office not later than January 24, 1999 in order to be included in the Proxy Circular and form of proxy relating to such Meeting. SOLICITATION OF PROXIES The Corporation will bear the cost of this proxy solicitation. The Corporation will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to beneficial owners of Common Shares and requesting authority to execute proxies. In addition to the use of the mails, proxies may be solicited by telephone or facsimile and in person, by the directors, officers and regular employees of the Corporation, none of whom will receive any extra compensation therefor. In addition, the Corporation has retained D.F. King & Co. Inc. to assist in the solicitation of proxies for a fee of US$2,500 plus reimbursement of reasonable out-of-pocket expenses. MISCELLANEOUS The Corporation files with the United States Securities and Exchange Commission an annual report on Form 10-K containing certain information with respect to the Corporation and its business and properties, including financial statements and related schedules. A copy of this Form 10-K will be filed with Canadian securities commissions in lieu of an Annual Information Form. Upon the written request 16 18 of any beneficial owner of the Corporation's Common Shares, the Corporation will mail to such owner, without charge, a copy of its Form 10-K for the fiscal year ended December 31, 1997. Requests for copies of the Form 10-K should be addressed to: Manager, Investor Relations Campbell Resources Inc. 120 Adelaide Street West, Suite 1910 Toronto, Ontario, Canada M5H 1T1 APPROVAL BY DIRECTORS The Board of Directors of the Corporation has approved the contents of this Proxy Circular and has approved its being sent to shareholders. By Order of the Board of Directors Lorna D. MacGillivray Vice President, Secretary and General Counsel Dated: March 20, 1998 17 19 FORM OF PROXY CAMPBELL RESOURCES INC. THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON TUESDAY, MAY 19, 1998. The undersigned shareholder of CAMPBELL RESOURCES INC. (the "Corporation") hereby nominates, constitutes and appoints James C. McCartney or, failing him, John O. Kachmar, or failing him, Lorna D. MacGillivray, or, instead of any of them __________________________________________________________ lawful attorney and proxy of the undersigned, with full power of substitution to vote in respect of all common shares held by the undersigned at the above noted meeting or any and all adjournments thereof in the following manner: 1. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the election of the directors. 2. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the appointment of KPMG as auditors for the coming year and authorizing the directors to fix remuneration. 3. Upon such other matters (none known at the time of solicitation of this proxy) as may properly be brought before the Meeting or any and all adjournments thereof. The shares represented by this proxy will be voted as directed by the shareholder. IF NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AS DIRECTORS, AND FOR THE APPOINTMENT OF KPMG AS AUDITORS. THE PROXY CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO AMENDMENTS OR VARIATIONS TO THE MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING. YOU HAVE THE RIGHT TO APPOINT ANY PERSON (WHO NEED NOT BE A SHAREHOLDER) TO ATTEND AND ACT ON YOUR BEHALF AT THE MEETING. IF YOU DESIRE TO EXERCISE SUCH RIGHT, STRIKE OUT THE NAMES OF THE BOARD'S NOMINEES AND INSERT THE NAME OF SUCH OTHER PERSON IN THE BLANK SPACE PROVIDED. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and the Proxy Circular. Dated this day of , 1998. --------------------------------------------------------- Signature of Holder This form of proxy must be dated and signed exactly as your name appears herein. When signing in a fiduciary or representative capacity, please give full title as such. In the case of joint shareholders, each must sign. Proxies from a corporation must be signed under corporate seal by an officer thereof, or by an attorney thereof duly authorized in writing. If this proxy is not dated in the space above, it will be deemed to bear the date on which it is mailed by management. EX-21.1 5 SIGNIFICANT SUBSIDIARIES 1 EXHIBIT 21.1 CAMPBELL RESOURCES INC. SIGNIFICANT SUBSIDIARIES December 31, 1997 The following significant subsidiaries are consolidated in the financial statements submitted as a part of this report:
Jurisdiction of Percentage of Incorporation Voting Securities Owned Controlled by Campbell Resources Inc.: Meston Resources Inc. Quebec 100% Sotula Gold Corp. Canada 100% Controlled by (i) Campbell Resources Inc. and (ii) Sotula Gold Corp. Oro de Sotula, S.A. de C.V Mexico 100% Controlled by Meston Resources Inc. Minera Cerro Quema, S.A Panama 100%
EX-23.1 6 CONSENT OF KPMG 1 Securities and Exchange Commission 450 Fifth St. N.W. Washington, DC 20259 USA CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS We hereby consent to the inclusion in the Annual Report on Form 10-K of Campbell Resources Inc. (the "Corporation") for the year ended December 31, 1997 of our report dated March 9, 1998 which appears under Item 14 of the aforementioned Annual Report on Form 10-K. We also consent to the incorporation by reference of our report in the Registration Statements on Form S-8 (Registration Nos. 33-28296 and 33-91824)pertaining to the Corporation's Employee Incentive Plan and Director's Stock Option Plan and on Form F-3 pertaining to the Common Shares underlying Share Purchase Warrants (Registration No. 333-1882) and to the reference to our firm under the caption "Experts" in the prospectuses related to these Registration Statements. March 27, 1998 Independent Chartered Accountants EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 DEC-31-1997 41,735 0 4,805 0 7,250 54,785 170,256 102,145 123,882 5,777 7,341 0 0 121,425 (16,301) 123,882 52,635 52,635 61,583 61,583 31,684 0 639 (42,378) (1,968) (40,410) 0 0 0 (40,410) (0.27) (0.27)
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