-----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, WnFzG2rnRYj72d9mt7db2ejtTKeAYi8uMPdgObdU9XJGyNp3PdNJ5g1pwPrhWtCp ANqSsqnBj5TOM1GzcLy03A== 0000950123-99-002792.txt : 19990402 0000950123-99-002792.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950123-99-002792 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99580385 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, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-8488 CAMPBELL RESOURCES INC. (Exact name of registrant as specified in its charter) Canada Not Applicable (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 120 Adelaide Street West, Suite 1910, Toronto, Ontario M5H 1T1 Not Applicable (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (416) 366-5201 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Shares New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] At March 26, 1999, the registrant had outstanding 155,486,121 common shares, without nominal or par value, the only class of registrant's stock outstanding. The aggregate market value of the voting and non-voting common equity held by non-affiliates at such date was US$43,599,513(based on the closing price of such common share of US$0.2813 on such date as reported on the New York Stock Exchange, Inc. composite listings.) 2 DOCUMENTS INCORPORATED BY REFERENCE Certain portions of registrant's Proxy Circular relating to an Annual and Special Meeting of Shareholders scheduled to be held on May 18, 1999 are incorporated by reference into Part III of this report and certain portions of the 1998 Annual Report to shareholders are incorporated herein by reference into Parts I, II, and IV of this report. These portions of such Proxy Circular and Annual Report are filed as exhibits to this Form 10-K. 3 CAMPBELL RESOURCES INC. Index Annual Report on Form 10-K for Year Ended December 31, 1998
Page PART I Items 1. and 2. Business and Properties................................................................2 Item 3. Legal Proceedings.....................................................................22 Item 4. Submission of Matters to a Vote of Security Holders......................................................................23 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................................23 Item 6. Selected Financial Data...............................................................24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................24 Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................24 Item 8. Financial Statements and Supplementary Data..................................................................................24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................24 PART III Item 10. Directors and Executive Officers of the Registrant.....................................................................24 Item 11. Executive Compensation................................................................25 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................................26 Item 13. Certain Relationships and Related Transactions........................................26 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................................................26
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 ----------- ---- ---- --- 1994 0.7129 0.7301 0.7632 0.7105 1995 0.7323 0.7286 0.7431 0.7076 1996 0.7301 0.7332 0.7513 0.7235 1997 0.6999 0.7198 0.7487 0.6961 1998 0.6447 0.6746 0.7105 0.6343
(1) The average rate means the average of the exchange rates on the last day of each month during the year. On March 26, 1999, the noon buying rate for Cdn. $1.00 was US$0.6607 TONNAGES referred to in this report are to either short tons equal to 2,000 pounds, referred to herein as tons, or to metric tonnes, equal to 2,204.6 pounds and referred to herein as tonnes or metric tonnes. A reference herein to OUNCES means a troy ounce which is equal to 31.103 grams. To convert grams per tonne to ounces per ton, multiply grams per tonne by 0.029. DISTANCES are referred to either as miles, equal to 1.6093 kilometres; feet, equal to 0.305 metres; kilometres, equal to 0.621 miles; or metres, equal to 3.28 feet. ACREAGE is referred to as acres, which represents 0.4046 hectares; hectares, equal to 2.471 acres; or square miles equal to 640 acres or 258.99 hectares. As used throughout this report, the term "PROVEN (MEASURED) RESERVES" means reserves for which (a) quantities are computed from dimensions revealed in outcrops, trenches, workings or drill holes; (b) grade and/or quality are computed from the results of detailed sampling and (c) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well-established. The term "PROBABLE (INDICATED) RESERVES" means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. Cautionary "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995. This report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe-harbor created by such section. Such forward-looking statements concern the Corporation's operations, economic performance and financial condition. Such statements involve known and unknown risks, uncertainties and other factors, including those identified under the "Risk Factors" section in Item 1 and 2 and elsewhere in this report, that may 5 cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: differences between estimated and actual ore reserves and recovery rates; failure of plant, equipment or processes to operate in accordance with expectations and specifications; changes to exploration, development and mining plans due to prudent reaction of management to ongoing exploration results, engineering and financial concerns; environmental costs; and fluctuations in gold price which affect the profitability and ore reserves of the Corporation. These risks and uncertainties are the normal risks involved in mining. Readers are cautioned not to put undue reliance on forward-looking statements. See "Risk Factors", and elsewhere in Item 1 and 2, and "Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7". The forward-looking statements are made as of the date of this report, and the Corporation assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. 6 PART I ITEMS 1 AND 2 - BUSINESS AND PROPERTIES GENERAL Campbell Resources Inc. ("Campbell" or the "Corporation") was incorporated in June 1950 under the laws of British Columbia. On September 8, 1982, the Corporation was continued under the Canada Business Corporations Act and on June 8, 1983, in connection with an amalgamation of three other companies, the name of the Corporation was changed from GM Resources Limited to Campbell Resources Inc. The Corporation is a gold mining and natural resource company whose principal assets are the Joe Mann gold mine (the "Joe Mann Mine") located in the Chibougamau area of northwestern Quebec, the Santa Gertrudis gold mine (the "Santa Gertrudis Mine") located in the State of Sonora, Mexico and the Cerro Quema gold property (the "Cerro Quema Property") located in the southern Azuero Peninsula in the Los Santos province of Panama. Segmented financial information with respect to the Corporation's domestic and foreign operations is set out in Note 10 to the Corporation's consolidated financial statements for the year ended December 31, 1998. Such financial statements are filed as a part of Item 14 of this report. The Joe Mann Mine, an underground gold mine owned by Meston Resources Inc., a wholly-owned subsidiary of the Corporation, is located near the town of Chibougamau which is approximately 350 miles north of Montreal, Quebec. The Joe Mann Mine was brought into production by Campbell in 1987. In July 1994, the Corporation acquired the Santa Gertrudis Mine from Phelps Dodge Corporation. The Santa Gertrudis Mine, an open pit heap leach gold mine located near the town of Magdalena, Sonora, Mexico, approximately 150 miles south of Tucson, Arizona, was brought into production in 1991 by its previous owner. The Corporation holds its interests in Mexico through its wholly-owned subsidiary, Oro de Sotula, S.A. de C.V. ("Sotula"). In December 1997, mining operations were temporarily suspended due to low gold prices and insufficient developed ore reserves. Leaching operations continued until the end of 1998. Activities are now focussed on an exploration programme to identify additional ore reserves sufficient to permit mining operations to resume at a rate that is economic at the then prevailing gold price. There can be no assurance that gold prices will rise to a level or that sufficient ore reserves will be discovered and developed that will make it economic to resume mining operations. In March 1996, the Corporation acquired all of the shares of Minera Cerro Quema, S.A., a Panamanian corporation ("Minera"), whose primary asset is the Cerro Quema Property. In November 1996, a positive feasibility study, at an assumed gold price of US$400 per ounce, was completed and presented to the Board of Directors on the basis of which approval was given to proceed with pre-production development including road construction and preparation of construction tender documents. Following completion of some additional test work and receipt of required permitting and exploitation concessions, final approval for the project was given in February 1997. In December 1997, as a consequence of sustained lower gold prices, the 2 7 Corporation decided to defer further development of Cerro Quema until the gold price reaches a level that will ensure economic viability of the project. There can be no assurance that such gold prices will be attained. The Corporation continues to have, as one of its primary business objectives, the acquisition of additional sources of gold production through the acquisition of producing mines or developed properties. It is evaluating a number of such investment opportunities in North and South America. The Corporation sells metals on international markets at prices which fluctuate daily based on world market supply and demand and is in competition with other mining companies, insofar as they produce the same product, in a market where price and quality advantages can not be claimed by any of the market participants. Factors which allow producers to remain competitive in the market over the long-term are the quality (grade, metallurgy, etc.) and size of the orebody, cost of production and the proximity to market. In all these factors the Corporation is competitive to greater or lesser degrees; but because of the number of companies and variables involved, no individual or group of producers can be pointed to as being in direct competition with Campbell. Except as otherwise noted herein, there have been no recent changes with respect to properties which the Corporation owns, or in which it has significant interests, which have materially affected operating profits. Except as herein noted, to the knowledge of the Corporation, it and its subsidiaries are in compliance with all environmental laws and regulations in effect in all jurisdictions in which operations are being conducted. Campbell and its wholly-owned subsidiaries employed approximately 300 persons as of December 31, 1998, of which 172 were covered by collective bargaining agreements. The relationship of Campbell and its subsidiaries with their employees and contractors is considered by Campbell to be satisfactory. See "Employees" on pages 10 and 15. During 1998 and 1997, there were no material strikes or walkouts at the Joe Mann Mine. In September 1996, the collective bargaining unit at the Joe Mann Mine, represented by Le Syndicat des Travailleurs-euses de la Mine Meston ("CSN"), consisting of 145 employees, approved a collective bargaining agreement covering a three year period. In February 1999, CSN agreed to a two year extension of current agreements with a wage increase of $0.25 per hour and a gold price participation formula. Also in February 1999, a three year contract, on the same terms as to wage increase and gold price participation, was approved by the Metallurgistes Unis d'Amerique covering 27 workers at the Camchib Mill. See "Employees" on page 10. In December 1997, the Corporation concluded an agreement with the National Union of Miners, Metallurgists and Similar Workers of the Mexican Republic, which represented the 143 hourly employees at the Santa Gertrudis Mine, with respect to the cessation of mining operations and termination of all employees covered by the agreement. 3 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 100% 100% ORO DE SOTULA, S.A. de C.V. MINERA CERRO QUEMA, S.A. (Mexico) (Panama) Santa Gertrudis Mine Cerro Quema Property Exploration Properties THE JOE MANN MINE HISTORY The Joe Mann property was acquired in July 1980 by Meston Lake Resources Inc. ("Meston Lake"), a predecessor of Meston Resources Inc. ("Meston"), a wholly-owned subsidiary of the Corporation. 4 9 The original deposit was discovered in 1950. A three compartment exploration shaft was sunk and some 859,000 tons of ore grading 0.176 oz/ton of gold had been mined and milled until June 1975 when rising costs coupled with poor recoveries prohibited further mining. Subsequently, Meston Lake acquired the mine and the shaft was dewatered in 1980 before financial problems put a halt to the operation. Campbell became involved in the Joe Mann property in 1983 when it acquired a minority position in Meston Lake and entered into a management agreement under which it designed and implemented an exploration programme and aided in the financing of this programme with the objective of determining the commercial viability of the project. The mine was dewatered in early 1985 and in June of that year, an underground exploration programme began. The exploration programme resulted in the discovery of 800,000 tons of ore reserves and prompted the decision to re-start production. Commercial production began on April 2, 1987 with proven and probable mineable reserves of 910,000 tons grading 0.22 ounces of gold per ton at December 31, 1986. During 1987, Campbell also increased its ownership in the mine to 100%. The mine has been in continuous production since 1987. During 1992, the No. 2 shaft was deepened to a depth of 2,676 feet. This deepening project opened up four new levels between the 1825 and 2350 levels. To date, the deposit has been mined along a 3,000 foot strike length to a depth of 2,350 feet and remains open at depth. During 1997 and 1998, the No. 2 shaft was further deepened by 1,081 feet to a depth of 3,757 feet to permit six new levels to be mined. This project was completed in July 1998 at a cost of $13.1 million, approximately $1.4 million less than budget. (See "Mine Exploration, Development and New Long Term Mine Plan" on page 7). At the Joe Mann Mine, the Corporation's subsidiary Meston holds a number of mining concessions and a mining lease along with 25 mining claims surrounding the concessions. Under Quebec mining law, the Corporation's interest in the mining concessions and lease is maintained in good standing by payment of an annual rental fee of $25.00 per hectare or by the completion of $25.00 of exploration and development work annually per hectare. As to mining claims, a fee of $22.00 per claim must be paid and $500 of exploration work incurred every two years. Exploration expenses may be carried forward to future years and may be applied to claims within a 3.2 square kilometre block distance. Current work credits will entitle the Corporation to retain currently held mining claims for in excess of twenty years. Under the exploration agreements with SOQUEM described under "Mineral Exploration Properties--Chibougamau Exploration Properties" on pages 17 and 18, SOQUEM pays the annual fees and incurs the expenditures necessary to keep the applicable mining claims in good standing. LOCATION AND ACCESS The Joe Mann Mine is located approximately 40 miles south of Chibougamau, Quebec which is approximately 350 miles north of Montreal. The property consists of mining concessions covering 90 hectares, a mining lease covering 14.8 hectares and 25 mining claims covering 5 10 approximately 400 hectares. In addition, Meston holds 197 mining claims covering approximately 3,150 hectares outside of the Joe Mann Mine area. The property is accessed from Chibougamau by road. Highway 167 leads to the gravel mine access road, which is approximately 12 miles in length and is serviced by Meston. GEOLOGY The deposit represents a classic Archean vein-type deposit with gold-copper mineralization hosted by quartz veining within three laterally continuous shear systems. In the mine area, the rocks consist predominantly of mafic lavas intruded by gabbro sills and feldspar porphyry dykes. The intrusives appear to have been introduced along a prominent east-west break structure. The gabbro sills which are moderately magnetic are traceable over widths of 400 to 600 feet and for at least thirty miles along strike. Many late diabase dykes of varying thicknesses crosscut the sequence and strike northeast. Two principal veins account for approximately 70% of the known reserves and 100% of the current production. The Main Vein is located north of the No. 1 shaft and has an east-west strike length of approximately 3,000 feet with an 80 degree dip to the north. The Main Vein contains about 41% of the reserves. The South Vein accounts for 29% of reserves and is located about 350 feet south of the Main Vein between the No. 1 shaft and the No. 2 production shaft. The South Vein has a strike length of about 3,000 feet in an east-west direction and a north dip. Exploration results indicate that the ore zones continue and are open at depth. Early exploration on the 2575 level, initiated in the fall of 1998, encountered positive results approximately 1,000 feet east of the shaft and led to the discovery of a new zone situated north of the Main Vein. The new zone has, to date, been defined between the 2350 and 2575 levels. A crosscut driven at 1100E to investigate results from three earlier holes drilled from the 2350 level intersected a zone of high-grade mineralization with a true width of 39.2 feet averaging 0.293 ounces gold per ton. Historically, mine widths at Joe Mann have been approximately 6.0 feet. This new zone is situated approximately 200 feet north of the Main Vein. Drilling to test a 475 foot section of the zone between 975E and 1450E and the 2350 and 2575 levels is ongoing. At present, it is thought that the mineralization of the new zone is spatially and genetically related to a large quartz-feldspar porphyry dyke. There are two limbs of high-grade ore mineralization which occur at the northern and southern contacts between the porphyry dyke and a sheared gabbro. MINEABLE RESERVES Mineable reserves at the Joe Mann Mine are continually updated by management to reflect operations and exploration activity and are periodically reviewed by independent consultants. The following table summarizes diluted mineable reserves estimated by management and calculated as at December 31, 1998 on the basis of a gold price of US$325 per ounce, and as at December 31, 1997 and December 1996, on the basis of gold prices of US$375 per ounce. 6 11 PROVEN AND PROBABLE MINEABLE RESERVES
December 31, 1998 December 31, 1997 December 31, 1996 Grade Grade Grade Tons (oz/ton) Tons (oz/ton) Tons (oz/ton) Proven 397,305 0.231 489,931 0.239 515,522 0.277 Probable 119,285 0.224 63,486 0.232 211,869 0.245 ------- ----- ------- ----- ------- ----- Total 516,590 0.229 553,417 0.238 727,391 0.268 ======= ===== ======= ===== ======= =====
The total estimated diluted proven and probable mineable reserves at the Joe Mann Mine decreased by 36,827 tons from 553,417 tons at December 31, 1997 to 516,590 tons at December 31, 1998. After taking into account production during 1998 of 299,000 tons grading 0.252 ounces per ton, the total diluted proven and probable mineable reserves increased on a net basis during this period by 262,173 tons. Reserves decreased during 1997 because access to the mineralization below the 2350 level could only be achieved on completion of the deepening of the No. 2 production shaft in July 1998. With this completion and development of the six mining levels below the 2350 feet level, reserves should return to historical levels. MINE EXPLORATION, DEVELOPMENT AND NEW LONG-TERM MINE PLAN In light of sustained lower gold prices some development and diamond drilling expenditures originally scheduled for 1998 were deferred while analysis was completed to prepare the new long term mine plan. As a result,17,361 feet of lateral development and 101,438 feet of diamond drilling were completed in 1998 at an estimated cost of approximately $4,552,000 net of deferred revenue from development ore compared to an original forecast of 24,915 feet of lateral development and 72,000 feet of diamond drilling at an estimated cost of $5,110,000. This compares to 18,513 feet of lateral development and 103,670 feet of diamond drilling in 1997, completed at a net cost of approximately $4,871,000. Continuity of gold mineralization has been confirmed to a depth of 3,700 feet, 1,350 feet below the current deepest production level of the mine and mineralization remains open at depth. The 1998 programme concentrated on production development. To date, both widths and grades are somewhat higher than those encountered in the currently mined areas. The 1,081 foot deepening of the No. 2 production shaft to facilitate the opening of six new production levels to a depth of 3,450 feet, commenced in December, 1996, and was completed in July, 1998 at a cost of $13.1 million. The No. 2 production shaft is constructed to permit future deepening without interruption of production. Following the successful completion of the shaft deepening programme Campbell considered various alternatives for the further development of the mine. The new long-term plan calls for the immediate full development of all six levels between the 2350 level, which is currently being mined, and the shaft bottom at 3,700 feet. The Plan assumes gold prices of US$300 per ounce in 1999, US$315 for 2000 and US$325 thereafter. The plan also assumes a 7 12 mill gold recovery rate of 93.8% and a US$/Cdn$ exchange rate of US$1 = Cnd$1.50 for 1999 and 2000 and 1.475 thereafter. The plan is expected to have significant economic benefits for the Corporation including reduced cash operating costs. The long term mine plan envisages mining approximately 1.8 million tons of ore at an average of 0.258 ounces gold per ton to produce more than 425,000 ounces of gold over the next 6 years. Additional increases in gold production and lower cash operating costs are expected once the impact of the new zone, discussed in detail below is taken into account. A key component of the plan includes the adoption of a 7 day per week mining schedule as compared to the current 5 day per week schedule and the elimination of the 2 week summer shut down. The net effect will be to increase the number of days of mining from an average of 237 days per year to 347 days per year. Due to excess mill capacity, the mill will operate an average of 260 days per year. NEW ZONE Development on the 2575 level is continuing to determine the eastern extent of mineralization of the new zone, discussed above under Geology on page 6. In addition, crosscuts are also being driven on the 1100E and 1300E sections of the 2575 level to enable drilling to test the new zone below the 2575 level. While the extent and grade of the new zone are not fully known, early estimations indicate that the zone contains approximately 140,000 tons averaging 0.312 ounces per ton between the 2350 and 2575 levels. Mine management expects to mine some of this mineralized material begining in the second half of 1999 using cut and fill methods. It is estimated that the new zone will contribute approximately 8,000 ounces to gold production in 1999, increasing thereafter. Lateral development is being carried out on the 2750, 2925 and 3100 levels and it is expected that within two months the 2750 level will have advanced to the projected depth of the new zone enabling further definition drilling of the zone. WEST ZONE In addition to ore from the Main and South Veins, which are situated east of the production shaft, the long term mine plan includes initial production from the West Zone between the 1650 and 1825 levels of the mine. Further exploration and development in the West Zone is contemplated above the 2350 level with an expected increase in reserves. Results from three raises completed between the 1650 and 1500 levels indicate vertical continuity for at least 80 feet. MINING Mining is predominantly carried out using the shrinkage stope mining method and currently all stope production comes from above the 2350 level. In 1998, approximately 67% of the ore came from the shrinkage stopes, 19% from longhole stoping, and 14% from development muck. The production capacity of the No. 2 shaft system is estimated to be 2,000 tons per day assuming 12 hours of hoisting per day. The No. 1 shaft services the mine to the 1650 level and is currently 8 13 inactive, but is maintained to provide standby support for the operation. During 1999 the No. 1 shaft will be withdrawn from service. Mining operations in the stopes utilize jackleg drills and high explosives to break the rock. Ore is loaded into five-ton ore cars at stope draw-points and trammed by electric locomotives to an ore pass. Mucked ore is passed through a rock breaker then hoisted to the surface. All production and development ore is hoisted from the No. 2 production shaft to the surface. The equipment used in the mining operations is regularly maintained and is in good working order. The following table sets out production from the Joe Mann Mine for the past three years: JOE MANN MINE PRODUCTION SUMMARY
Year ended December 31 ------------------------------------------------- 1998 1997 1996 ---- ---- ---- Tons Milled 299,000 266,000 266,000 Gold Grade (oz./ton) 0.252 0.299 0.290 Copper Grade (%) 0.243 0.280 0.302 Gold Produced (ounces) 70,100 73,500 70,400 Copper Produced (000's lbs) 1,316 1,367 1,473 Cash Operating Costs (1) (US$ $257 $264 $272 per oz. of gold)
(1) Operating costs include all on-site mining, processing and administrative costs, net of copper and silver by-product credits. MILLING Ore from the Joe Mann Mine is transported approximately 40 miles by truck to the Corporation's Camchib Mill for processing. The Camchib Mill was commissioned in 1955 and is regularly maintained and is in good working order. During 1998, the gold recovery rate at the Camchib Mill which processed ore from the Joe Mann Mine was 94.3% and the copper recovery rate was 94.2% compared to 93.9% and 96.3% respectively in 1997. The higher gold recovery rate, despite lower grades, reflects continuing mill circuit improvements and refinements to the process. The mill process includes three separate circuits; a gravity circuit, a flotation circuit and a cyanide circuit. Original design capacity at the Camchib Mill was 3,500 tons per day as a flotation mill. The Camchib Mill was modified to include a cyanide circuit. Gold recovered from the gravity and cyanide circuits is formed into dore bars on site and is shipped to the Royal Canadian Mint for refining. The flotation circuit uses standard technology to produce a copper-gold concentrate. The copper-gold 9 14 concentrate is shipped by rail to Noranda Inc.'s Horne Smelter in Rouyn/Noranda, Quebec for smelting and refining. EMPLOYEES At the Joe Mann Mine, 228 persons were employed as of December 31, 1998 of whom 145 mine workers were covered by a collective bargaining agreement with Le Syndicat des Travailleurs-euses de la Mine Meston (CSN) and 27 mill workers were covered by a collective bargaining agreement with Les Metallurgistes Unis d'Amerique (the United Steelworkers of America). During 1998 and 1997, there were no material strikes or walkouts at the Joe Mann Mine. In September 1996, the collective bargaining unit at the Joe Mann Mine, represented by CSN, approved a collective bargaining agreement covering a three year period with wage increases of 0.73% in the first year and 1.22% and in the second and third years. The new long- term mine plan includes the adoption of a 7 day per week mining schedule as compared to the current 5 day per week schedule and the elimination of the 2 week summer shut down. In February 1999, CSN, the union representing the hourly mine workers, supported the implementation of the new work schedule and agreed to a two year extension to the current labour agreement. Also in February 1999, a new three year contract was agreed to with Les Metallurgistes Unis d'Amerique (the United Steel Workers of America), the union representing the hourly mill workers, on the same terms regarding wages and gold price participation as were approved by the CSN. The agreements provide for a general increase of $0.25 per hour for the mine and mill workers amounting to an annual cost of $120,000. In addition, a gold price participation formula has also been approved. For a gold price ranging between $525 and $625 per ounce, the employees would share an additional $90,000 for each $25 multiple in this range. NET SMELTER ROYALTY In May 1993, Meston sold a graduated net smelter return royalty to Repadre Capital Corporation, a subsidiary of Dundee Bancorp Inc., for $3 million cash. The royalty, based on production from the Joe Mann Mine, is 1.8% at gold prices up to $512 per ounce increasing to 3.6% at gold prices of $625 per ounce and greater. A 2% royalty is also payable on copper production in excess of 5 million pounds per year and silver production in excess of 1 million ounces per year. For the year ended December 31, 1998, $548,000 was paid to Repadre under this agreement compared to $593,000 paid for the year ended December 31, 1997. THE SANTA GERTRUDIS MINE HISTORY The previous owner of the Santa Gertrudis Mine, Phelps Dodge Corporation, through its Mexican exploration subsidiary, began to explore the Santa Gertrudis district in 1984. The district was recognized to have potential for sediment-hosted gold in fine-grained chemiclastic rocks similar to the gold deposits of the Carlin trend in Nevada. By April 1986, the first deposit was 10 15 discovered and as exploration continued, an additional eight deposits were discovered soon thereafter. A preliminary feasibility study was completed in 1987 and the final feasibility study completed in October 1988. In 1989, Compania Minera Santa Gertrudis was formed for the purpose of holding the concessions where deposits had been identified and for the eventual mining of the deposits. The decision to begin production was made in 1989 and facility construction started in May 1990. See also page 2 for "History of Santa Gertrudis". The first shipment of gold precipitate from the initial 2,000 metric tonne of ore per day heap leach facility was made in June 1991. The initial capital investment was US$28.4 million including pre-operating costs of US$5.9 million. In 1992, an expansion was completed increasing mine production to 3,000 metric tonnes of ore per day. LOCATION, ACCESS AND INFRASTRUCTURE The Santa Gertrudis Mine is located mid-way between Tucson, Arizona and Hermosillo, Sonora, Mexico, 80 miles south of the United States-Mexico border. The property is accessible by road which is paved except for the last 20 miles. The town of Magdalena is located about an hour drive from the site. The Santa Gertrudis Mine consists of a heap leach facility, a processing plant and associated facilities. In September 1995 the Santa Gertrudis Mine property was expanded by 28.2 square miles. Approximately half of the new property was acquired through staking with the other half acquired through option agreements that allow the Corporation to earn a 100% interest through staged payments aggregating a maximum of US$1,000,000 over a five year period. During 1996, six square miles were added to the property through staking. During 1997, one of the five option agreements entered into in 1995 was exercised with total payments, including previous option payments, of US$200,000. The claims acquired include the recently developed La Trinidad deposit. Also during 1997, an additional 22.87 square miles were acquired through staking and a lottery process. One claim acquired in 1995 was reduced in size by 11.6 square miles after initial work had defined the ground with most prospective interest. During 1998, one optioned claim was returned to the owner. The present property consists of 44 claims comprising 22,784 hectares or 87.97 square miles. The Corporation's subsidiary, Sotula holds both the exploration and exploitation concessions. To maintain these concessions, Sotula was required either to incur exploration or development work or to have production revenues in 1998 amounting to approximately US$1.7 million or US$72 per hectare. Exploration and development expenditures and production revenues for 1998 were considerably in excess of this requirement. The excess from 1998 and prior years can be carried-forward and should be sufficient to cover requirements for the foreseeable future on all of the strategic claims. Some claims may be dropped or reduced in size in the future if additional work fails to indicate potential for economic mineralization. However, prior years' work plus planned exploration expenditures exceed estimated work requirements for the foreseeable future on all claims. In addition, an aggregate of US$112,000 was paid for property taxes during 1998. 11 16 The mine site includes a diesel power plant, four-bay maintenance shop, warehouse, modern office and telecommunications network, medical building, recovery plant, kitchen, recreational building and residential quarters for employees. GEOLOGY The gold deposits are generally located within a nine mile by two mile belt of sedimentary rocks that trends northwesterly along the southern range front of Cerro Azul. Mineralization occurs throughout the stratigraphic section; however, economically significant deposits are preferentially hosted by limey siltstone and carbonate rocks. The Santa Gertrudis deposits have strong geological similarities to the deposits in the Carlin trend in Nevada. Mineralized zones are usually completely oxidized and other Carlin features such as siliceous alteration, jasperoid zones, carbonaceous material and low angle thrusting are also present at Santa Gertrudis. Forty-six gold deposits and occurrences, including the recent discoveries of La Trinidad and Greta, have been identified in the District. Additional prospects are in the early stages of exploration. MINEABLE RESERVES The following table summarizes mineable reserves estimated by management (1996 reserves were estimated on the basis of a gold price of US$380 per ounce): PROVEN AND PROBABLE MINEABLE RESERVES
December 31, 1998 December 31, 1997 December 31, 1996 Grade Grade Grade Tonnes g/tonne Tonnes g/tonne Tonnes g/tonnes ------ ------- ------ ------- ------ -------- Proven Nil - Nil - 1,287,000 1.87 Probable Nil - Nil - 291,000 1.46 --------- ---- Total Nil - Nil - 1,578,000 1.79 ========= ====
Following cessation of mining activities in December, 1997, approximately 732,900 tonnes of proven and probable material grading approximately 1.69 grams per tonne remained. Due to lower gold prices and because the quantity of material is insufficient to support costs, this material no longer met the definition of ore reserves and was reclassified as possible mineralized material. Exploration work is continuing in an effort to identify additional material which together with this remaining material would be economic to mine at current gold prices. OPERATIONS Current low gold prices and insufficient developed ore resulted in mining operations being suspended on December 7, 1997 to permit focus to be placed on building ore reserves through exploration. Mining operations will resume when sufficient reserves have been discovered and developed to enable mining to be carried out at a rate that is economic at the then prevailing gold price. There can be no assurance that gold prices will rise to a level, or that sufficient ore reserves will be discovered and developed, that will make it economic to resume mining operations. 12 17 Until December, 1997, mining had been carried out on a continuous, round-the-clock basis with hydraulic shovels, front-end loaders, drills and a fleet of twelve 50-tonne and two 85-tonne haulage trucks. The average mining rate during 1997 was approximately 22,000 tonnes per day of which approximately 3,000 tonnes was ore representing a strip ratio of 6.3:1. Mining equipment is being regularly maintained in anticipation of resumption of mining operations. The ore was oxidized and processing utilized conventional heap leach technology. Approximately 70% of the ore was crushed to minus three inches before delivery to the leach pads and the remaining 30%, representing fines, was amenable to direct delivery to the leach pads. Sodium cyanide solutions were dripped over the ore piles on the leach pads and the gold-enriched solutions are collected in solution ponds. Extraction of the gold from the gold-enriched leach solutions was accomplished by pumping the solutions through a series of carbon columns. The gold was adsorbed onto the carbon that was subsequently transported to the plant for stripping using a hot caustic solution. Zinc dust was added to the gold-laden strip solution to facilitate precipitation of the gold. A filter system collected the gold-rich zinc precipitate which was then dried. The zinc precipitate containing 75 to 90% gold and approximately 5% silver was shipped to the United States for final refining. Subsequent to the acquisition of the Santa Gertrudis Mine in July, 1994, based on the ore placed on the leach pads and the gold recovered, a recovery rate of approximately 76.3% was experienced. Leaching operations continued until the end of December 1998 when the level of gold production became uneconomic. The Phase IV leach pad, completed in mid 1997 to the east of the existing Phase I pad provides an additional 2.0 million tonne capacity. If mining operations resume, the recovery process described above will be used. The following table sets out production from the Santa Gertrudis Mine for the past three years: SANTA GERTRUDIS MINE PRODUCTION SUMMARY
Year ended December 31 ------------------------------------------------------- 1998 1997 1996 ---- ---- ---- Tonnes ore mined - 1,021,000 965,000 Gold Grade (g/tonne) - 1.71 2.06 Gold Recovery (%) - 69.5 84.6 Gold Produced (ounces) 12,300 39,200 54,400 Cash Operating Costs $242(2) $333(1) $227(1) (US$ per ounce of gold)
(1) 1996 and 1997 operating costs include all on-site mining, plant, administration and transportation costs. 13 18 (2) 1998 cash operating costs include overhead costs associated with keeping the mine infrastructure in place while the exploration work continues. During 1998, the Santa Gertrudis Mine produced 12,300 ounces of gold as a result of the continued application of cyanide solutions to the heaps on the leach pads. This process was completed in December 1998. Cash operating costs per ounce of gold for 1998 were US$242 compared to US$333 for 1997. This lower unit cost is attributable to the cessation of mining operations in December 1997. EXPLORATION Exploration expenditures for 1998 were $2.3 million compared to $3.7 million in 1997. During early 1998, exploration efforts at Santa Gertrudis continued to focus on evaluating large portions of the property that, in the past, had received little, if any, exploration. In 1998, the Corporation continued to conduct exploration involving geological mapping, rock and soil geochemical sampling, trenching and drilling in an effort to define resources and reserves outside the area of past mining activity. This effort led to the delineation of a geological resource contained in five deposits within the Greta area, approximately 7 kilometres southeast of the mine district. Because the Greta area is situated some distance from the mine infrastructure and with gold prices at historic lows, the resource identified is presently uneconomic. Approximately 120 holes totalling in excess of 10,000 metres were drilled to explore and develop reserves at Santa Gertrudis in 1998. Should the gold price improve, exploration will resume in the area to establish mineable reserves. Ongoing regional exploration led to the discovery of the San Enrique anomaly, a large soil geochemical anomaly with great potential situated approximately 7 kilometres south of the mine district. Further exploration on the anomaly has been delayed because of difficulties in concluding an agreement with the surface rights owner. As a result the Corporation filed an application for temporary occupation from the Government of Mexico. The Corporation has been advised that Temporary Occupation Resolution was granted on March 17, 1999. This Resolution entitles the Corporation to explore and exploit its claims, which underlie the property of the surface rights owner, for five years and requires an annual payment of approximately US$50,000. This amount was established by the Government of Mexico and is adjusted annually for inflation. A program of mapping, trenching, drilling and sampling will commence in April, 1999. In May 1998, the Corporation commenced discussions to acquire the former gold producing property of Minera Roca Roja which filed for bankruptcy in September, 1998. On March 26, 1999, the realization value of the Roca Roja property was appraised at US$1,002,000. The Corporation has indicated to the trustee in bankruptcy, that it intends to acquire the property. The acquisition is expected to close on April 14, 1999. The adjoining Roca Roja property, which consists of approximately 4,568 hectares, has the potential to host mineralized material which could be developed in the near term given its proximity to the existing mine infrastructure. The initial phase of exploration for 1999, covering the first 3 to 4 months, has been budgeted at $750,000. Additional funds will be made available as results warrant. Efforts will focus on the Roca Roja property, the adjacent mine district and the San Enrique soil geochemical anomaly. 14 19 In addition, in 1997 Campbell started to investigate the potential for deeper gold-bearing sulphide mineralization. A report by independent mineral consultants concluded that the property has potential for a deep Carlin-type target and that the geology, structure, geochemistry, geophysics and mineralization are similar to the Post-Betze deposit located in Nevada's Carlin Trend. Results of Campbell's exploration efforts and the independent report supporting the similarities between Santa Gertrudis and the Carlin Trend prompted management to seek a joint venture partner in order to undertake a systematic exploration program to evaluate the deep sulphide potential. Several senior mining companies with experience in exploring for and mining Carlin-type orebodies have visited the property and concurred that there appears to be excellent potential for the property hosting Carlin-type orebodies. However, the current prevailing low gold prices have resulted in exploration budgets being drastically cut within the gold mining industry making it difficult to consummate a joint venture exploration program at this time. EMPLOYEES In December, 1997, the Corporation concluded an agreement with the National Union of Miners, Metallurgists and Similar Workers of the Mexican Republic ("Union") pursuant to which mining operations were suspended and 143 employees covered by the collective bargaining agreement were terminated. An additional 55 employees not covered by the collective agreement were also terminated. At December 31, 1998, there were 48 employees of whom 22 were engaged in exploration activities. It is expected that approximately 40 employees will continue to be employed in 1999 to carry out exploration and to ensure that plant and infrastructure is maintained in anticipation of a restart of mining operations. THE CERRO QUEMA PROPERTY HISTORY The Cerro Quema Property was acquired on March 4, 1996. The history of the Property is described above in Items 1 and 2 "Business and Properties" under the caption "General". LOCATION, ACCESS AND INFRASTRUCTURE The Cerro Quema Property is located approximately 250 km southwest of Panama City, on the southern Azuero Peninsula of Panama. The property is accessible by road and close to hydroelectric power. The regional city of Chitre is approximately 50 km north of the property. Chitre has a population of 35,000 and is served by an airport which has two regular daily flights from Panama City. At the Cerro Quema Property, the Corporation's subsidiary, Minera Cerro Quema, S.A. held exploration concessions covering approximately 20,000 hectares which comprise the Cerro Quema Property. These exploration concessions were converted to three extraction concessions totalling 15,000 hectares in February, 1997. Pre-extraction activities, which must commence within one year of the date of the extraction concession, commenced in December, 1996. The mining law permits a reduction or cessation of activities if prevailing economic conditions hinder continuing activities. See "Mine Feasibility and Development" on page 16. Under Panamanian mining law, 15 20 a 2% net smelter return royalty is payable on production. In addition, an annual surface tax of approximately US$1.00 per hectare is also payable. GEOLOGY The geology at the Cerro Quema Property consists of host volcanic rocks which originally contained pyrite and very low-grade gold. These rocks have been highly weathered to result in a concentration of gold near the surface. The highest grade ore is at the surface, with the grade gradually declining with depth down to the lower limit of the oxidation boundary. Three near-surface oxide deposits, the La Pava, Quema West and Quemita, currently comprise the project, of which the La Pava deposit is the largest. The Quema West and Quemita deposits are adjacent to each other and approximately 2.5 to 3.0 kilometres from the La Pava deposit. The local topography consists of steep canyons and narrow ridges with little or no extended flat or gently sloping areas. Below the steeper ridge crests and canyons that form the core of the project area, the topography, although still mountainous, is not as extreme and some wider canyons or valleys and rolling hills are present. a 2% net smelter return royalty is payable on production. In addition, an annual surface tax of approximately US$1.00 per hectare is also payable. MINE FEASIBILITY AND DEVELOPMENT In November, 1996, a positive feasibility study was completed, based on an assumed gold price of US$400 per ounce, and presented to the Board of Directors on the basis of which approval was given to proceed with pre-production development including road construction and preparation of construction tender documents. Following completion of some additional test work and receipt of required permitting and exploitation concessions, final approval for the project was given in February, 1997. In preparing the feasibility study, the Corporation carried out a detailed review of the data produced by a previous owner on the property and completed some confirmation drilling and test work. It is believed approximately US$8.5 million was spent on the property, prior to acquisition by the Corporation, including 17,000 metres of reverse circulation drilling and 4,500 metres of diamond drilling. In the feasibility study which was prepared on the basis of a gold price of US$400 per ounce, a probable mineable reserve of 8.8 million tonnes at a grade of 1.16 grams per tonne was estimated by the Corporation. Given current gold prices, this reserve is no longer economic and is now categorized as mineralized material. Based on a review of the metallurgy of the mineralized material and proposed mining plans and methods and on test work performed on representative samples taken from the property, the feasibility study assumes that a stripping ratio of 0.64:1 and gold recoveries of 86% can be achieved in an open pit heap leach operation. The oxidized nature of the gold mineralization accounts for the favourable indicated recoveries. The feasibility study estimates the capital cost to develop an open pit heap leach mine capable of producing 50,000 ounces of gold annually at US$32.8 million which includes provisions for contingencies. The capital costs were to be funded from available cash and through debt financing, if necessary. Based on existing reserves the feasibility study indicates an estimated minimum mine life of six years. At such time as production may commence, the Cerro Quema Mine is expected to have approximately 170 employees. 16 21 Construction and upgrading of the access road commenced in late 1996 with main construction activities being commenced in early 1997, including the start of the La Pava haul road, earthmoving and levelling of the general plant site area, and initial construction of leach pad pond stability dams and the camp infrastructure. Total construction and equipment cost incurred to December 31, 1997 was US$13.4 million. The fleet of mining equipment, acquired for the Cerro Quema gold project, was sold in October, 1998 for US$2 million. In June, 1997 construction at the Cerro Quema gold project was temporarily suspended by government order following heavy rainfalls which created high levels of sedimentation in the local rivers. The Corporation, working in conjunction with the Panamanian authorities, resolved the problem by completing a program of sedimentation control and revegetation. As a result of these environmental efforts, a resolution was passed lifting restrictions on the project's development. In December 1997, as a consequence of sustained lower gold prices, the Corporation decided to defer further development of Cerro Quema until the gold price reaches a level that will ensure economic viability of the project. The project has been placed on a care and maintenance basis during 1998 and for 1999. EXPLORATION POTENTIAL A large portion of the 75 square mile property has only been covered by reconnaissance exploration, usually including stream sediment sampling and rock sampling on exposed ridges. More extensive road access that has been built within the past year will allow for exploration of a number of existing prospective exploration targets. An exploration program will be initiated when economics permit the project to proceed and once access and infrastructure are in place. MINERAL EXPLORATION PROPERTIES The Corporation has interests in precious and base metal properties in the Chibougamau region of northwestern Quebec, and in the State of Sonora, Mexico. CHIBOUGAMAU EXPLORATION PROPERTIES Meston owns extensive exploration properties in the Chibougamau area, including mining claims and several former producing mines. These former producing mines include the S-3, Lac Chib, Kokko Creek, Quebec Chibougamau and the Main Mine. In June 1992, Meston entered into two agreements with the Societe quebecoise d'exploration miniere ("SOQUEM") under which SOQUEM could expend up to $7 million towards exploration programmes on the Meston and Chibougamau properties. During 1995, these agreements were amended to extend their term and increase the expenditures. In July 1997, these agreements were further amended to provide that, SOQUEM can earn a 50% interest in the Meston property which comprises 148 claims and one mining concession (and excludes the Joe Mann Mine), in exchange for spending $1.6 million in the five year period ending June 1, 2002 and a 50% interest in the Chibougamau properties, which comprises 198 claims and three mining concessions, by spending $750,000 in the five year period ending June 1, 2002. During 1997, 4 claims located northwest of the Joe Mann Mine were added to the Meston property agreement, excluding the lateral and at depth extension of the Main Zone of the Joe Mann Mine protected by a 500 foot wide corridor north of the Main Zone. A separate third agreement was also entered into with SOQUEM covering 4 claims and one mining concession located northeast of the Joe Mann Mine, excluding 17 22 the lateral and at depth extension of the Main Zone of the Joe Mann Mine protected by a 500 foot wide corridor north of the Main Zone, pursuant to which SOQUEM can earn a 3.5% net smelter return by expending $400,000 over the five year period ending June 1, 2002. Meston has the right to repurchase the net smelter return, if earned, for $600,000 on or before June 1, 2002 or $1,000,000 on or before June 1, 2007. Amounts expended under this agreement shall also be credited against the spending requirements under the Meston property agreement. As additional consideration for the 1997 amendments, SOQUEM agreed to fund $100,000 of underground drilling on the North Zone of the Joe Mann Mine. This amount was credited to the $1.6 million of required expenditures on the Meston property Should SOQUEM not spend the amounts set out above, SOQUEM will earn no interest in the properties. Meston has retained the right of first refusal to treat any ore produced from these properties at its Camchib Mill. If either party fails to fund its pro rata share of expenditures once SOQUEM has earned its 50% interest, the defaulting party will have its interest diluted. If either party's interest is diluted to 15% or lower, such party's interest will automatically revert to a 3% net smelter return. From the inception of the programme in 1992 to December 31, 1998, SOQUEM has spent approximately $2,631,000 on the Meston property and $2,462,000 on the Chibougamau properties including $83,000 on the Meston properties and $31,000 on the Chibougamau properties since the effective date of the 1997 amendment. The Corporation is not responsible for sharing expenditures with respect to the referenced properties. During 1998, SOQUEM carried out an induced potential survey and minor trenching on the Chibougamau properties. A diamond drilling programme is planned for 1999. On the Meston property, only claim renewal costs were incurred in 1998. Some surface exploration work is scheduled for 1999. WILDCAT PROPERTY In January, 1995, Campbell acquired the Wildcat advanced exploration gold property located in Nevada from Lac Minerals (USA), Inc. for US$300,000. This property required further drilling to determine whether the project could be economic. The Corporation's interest in the Wildcat property consisted of 315 mining claims held directly and under lease agreements. In November, 1996, Campbell entered into an option to purchase agreement with Sagebrush Exploration Inc. pursuant to which Sagebrush acquired the Wildcat property on April 8, 1998 for US$650,000. CAMPBELL FINANCINGS On February 8, 1996, the Corporation entered into an underwriting agreement with First Marathon Securities Limited, Nesbitt Burns Inc. and CIBC Wood Gundy Securities Inc. (the "Underwriters") pursuant to which the Corporation sold 18,000,000 Units, each Unit consisting of one Common Share and one-half of a Common Share Purchase Warrant (a "Warrant"). Each whole Warrant entitles the holder to purchase one Common Share for US$1.50 on or before February 26, 1999. The Corporation received approximately US$21,150,000 from the Underwriters net of underwriting fees and before deducting other expenses of sale, from the sale of such securities. The 18,000,000 Common Shares and 9,000,000 Warrants were registered under the Securities Act of 1933 (the "Act"), on a Registration Statement on Form F-10. 18 23 (Registration No. 333-770). Reference is made to the Prospectus, dated February 9, 1996, contained in said Registration Statement for a description of the details of such offering and to the Warrant Indenture, referred to in such Registration Statement for the terms of the Warrants. The Corporation has separately registered under the Act the 9,000,000 Common Shares issuable upon the exercise of the Warrants pursuant to a Registration Statement on Form F-3 (Registration No. 333-1882) which was declared effective on July 25, 1996. The warrants expired on February 26, 1999 in accordance with their terms. In July, 1994, concurrent with the acquisition of Santa Gertrudis, the Corporation entered into an underwriting agreement with First Marathon Securities Limited pursuant to which the Corporation sold US$11,005,000 aggregate principal amount of 7 1/2% Convertible Subordinated Debentures (Unsecured) (the "7 1/2% Debentures"). The 7 1/2% Debentures will mature on July 21, 2004, the tenth anniversary of their date of issue. The 7 1/2% Debentures are convertible at the option of the holder into Common Shares at any time prior to maturity at a conversion price of US$0.50 per Common Share. The 7 1/2% Debentures are redeemable for cash at any time after the fifth anniversary of the date of issue and, at the Corporation's option, may be redeemed in Common Shares on the basis of one Common Share for each US$0.50 of 7 1/2% Debenture principal being redeemed. The right of the Corporation to redeem the 7 1/2% Debentures for cash or Common Shares is conditional on the average price of the Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to notice of redemption. The Corporation may, at its option, repay the 7 1/2% Debentures at maturity by issuing Common Shares of the Corporation at the conversion price of US$0.50 per Common Share. To March 19, 1999, debenture holders had converted US$7,712,000 of debenture principal into 15,424,000 Common Shares. Debentures in the amount of US$3,293,000 remain outstanding as of March 19, 1999. MESTON DEBENTURES AND PREFERENCE SHARES During 1991, a predecessor of Meston entered into a corporate restructuring and financing arrangement (the "Financing") in which it issued to a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate Debentures and Notes (the "Guaranteed Debentures") and $12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares (the "Preferred Shares") and renounced Canadian development expenses. The Guaranteed Debentures bear interest at varying rates and are repayable upon maturity in 2007. The Preferred Shares are retractable in 2007. In order to secure the obligations in respect of the Guaranteed Debentures and the Preferred Shares, a subsidiary of the Corporation entered into an Interest Rate and Currency Exchange Swap Agreement (the "Swap Agreement") with a major international bank and irrevocably assigned all amounts receivable under the Swap Agreement directly to the investors. The proceeds of the Swap Agreement will be used to make all interest payments, repay the Guaranteed Debentures upon maturity and retract the Preferred Shares. Accordingly, such bank is primary obligor under the Financing. The Guaranteed Debentures are subordinate to all current non-trade and future senior indebtedness of the Corporation and its subsidiary. ENVIRONMENTAL MATTERS The Corporation believes that it and its subsidiaries are currently complying in all material respects with applicable environmental legislation. During 1995, proposed amendments to the Quebec Mining Act relating particularly to rehabilitation and restoration plans came into force. This legislation required that a rehabilitation and restoration plan be submitted for approval within one year of the legislation coming into force and that a financial guarantee be furnished with 19 24 respect to such plan. The Corporation filed a preliminary rehabilitation and restoration plan on March 9, 1996, and has filed additional information required thereunder within the extensions granted by Quebec mining authorities. The plan is pending approval. Annual financial guarantees are required to be filed in connection with the rehabilitation and restoration plan within 15 days of approval of the plan. The Corporation estimates that these annual amounts will range from $95,000 in the first year to $658,000 in the fourth year. The Corporation currently accrues for the estimated site restoration costs at the Joe Mann Mine over the estimated life of the mine. At the Joe Mann Mine, and for the Camchib Mill site on Merrill Island, the total cost of completing the work contemplated under the rehabilitation plan filed on March 9, 1996 is estimated at $2,000,000. This work is to be completed over a six year period and as a consequence is not anticipated to have a material effect on the Corporation's financial condition. At the Santa Gertrudis Mine in Mexico, based on general guidelines, total reclamation costs are currently estimated at US$744,000 which has been accrued in the Corporation's books. This estimated cost will be more than exceeded by the salvage value of plant and equipment. Only limited reclamation will be carried out while the exploration programme continues. On an ongoing basis, environmental compliance costs are not material at the Joe Mann Mine or the Santa Gertrudis operation. At the Cerro Quema Property in Panama, the feasibility study indicates rehabilitation costs of up to US$2,000,000 which will be covered by the salvage value of the plant and equipment. Three environmental studies were filed. A Preliminary Evaluation and an Environmental Reconnaissance study were filed by the previous owner and an Environmental Viability study was filed by the Corporation and was approved in December, 1996. Based on current legislation and the recent experience of other mining projects, the Corporation believes that environmental compliance can be achieved without material impact on the economics of the Project. See "Mine Feasibility Development" on pages 16 and 17 for a discussion of stop work orders issued by Panamanian authorities in June, 1997 as a consequence of heavy rainfall and sedimentation problems. RISK FACTORS MINING RISKS The Corporation is subject to the risks typical in the mining business including uncertainty of success in exploration and development; operational risks including unusual and unexpected geological formations, rock bursts, particularly as mining moves into deeper levels, cave-ins, flooding and other conditions involved in the drilling and removal of material as well as environmental damage and other hazards; risks that intended production schedules or estimated costs will not be achieved; and risks of fluctuations in the price of gold and currency exchange rates. The Cerro Quema Property is a low grade open pit heap leach project located in a region of steep topography which experiences seasonally heavy rainfall. While the rainfall has been taken into account in preparing the feasibility study, and the Corporation believes that its impact on the project can be managed, given the difficulties experienced during 1997 (see "Mine Feasibility and Development" on pages 16 and 17), there can be no assurance that excessive rainfall will not have an unforeseen negative impact on the construction schedule, operating conditions, recovery rates or environmental compliance. 20 25 While the feasibility study for the Cerro Quema project was carefully prepared by experienced engineers and advisors, no assurance can be given that gold prices will improve to a level that the Cerro Quema Project can proceed or that it can be completed as contemplated in the feasibility study for the estimated costs or within the estimated time schedule. Also no assurance can be given that the intended production schedule or estimated operating costs can be achieved. While appropriate testing has been carried out by the Corporation and its independent mining experts, there can be no assurance that recovery rates achieved in small scale laboratory tests will be achieved under onsite conditions or in production scale leaching. Gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, all of which are beyond the Corporation's control, including expectations for inflation, levels of interest rates, sales of gold by central banks, the demand for gold, global or regional political, economic and banking crises and production rates in major gold producing regions. The aggregate effect of these factors is impossible to predict with any degree of certainty. Although the Corporation does engage in some limited hedging from time to time to protect against a portion of the volatility (as described in Management's Discussion and Analysis and the notes to the consolidated financial statements included in Exhibit 13.1 of this report), a significant portion of the price movements in gold is not protected. If the Corporation's realization on gold sales were to decrease further or remain at the current level for any substantial period, the Corporation could determine that it is no longer economically feasible to continue required development at the Joe Mann Mine, (see "Mine Exploration, Development and New Long-Term Mine Plan" on page 7) or to continue commercial production. The cash operating costs per ounce of gold produced from the Corporation's operations are set forth on pages 9 and 13 herein. With sustained lower gold prices, mining operations at Santa Gertrudis have been suspended and the Cerro Quema project has been placed on care and maintenance. As a consequence, the Corporation is primarily dependant on production from one operation, the Joe Mann Mine. The figures for ore reserves presented herein are estimates and no assurance can be given that the anticipated tonnages and grades will be achieved or the indicated level of recovery realized. In addition, no assurance can be given that the gold price estimates on which the reserve calculations are based can be achieved. See "Mineable Reserves" on pages 7 and 12. As well, lead times required for underground stope and open pit preparation and development in mining operations can affect production decisions and schedules. Gold price fluctuations may render ore reserves containing relatively lower grades of gold mineralization uneconomic. Moreover, short-term operating factors relating to the ore reserves, such as the need for orderly development of ore bodies or the processing of new or different ore grades, may cause the Corporation to be unprofitable in any particular accounting period. The Corporation carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not insured against include political risk, environmental pollution, mine flooding, landslides or other natural hazards relating to climate or topography as well as other hazards which cannot be insured against or which the Corporation may elect not to insure against. 21 26 COMPETITION The Corporation competes with other mining companies in connection with the acquisition of mining claims and leases on gold and other precious metals prospects and in connection with the recruitment and retention of qualified employees. There is significant competition for the limited number of gold acquisition opportunities in North and South America. As a result of this competition, some of which is with companies with greater financial resources than the Corporation, the Corporation may be unable to continue to acquire attractive gold mining properties on terms it considers acceptable. Since there is a world market for gold, the Corporation believes that no single company has sufficient market power to materially affect the price or supply of gold in the world market. RISKS OF FOREIGN OPERATIONS The operations at Santa Gertrudis and Cerro Quema are subject to the federal, state and local laws of Mexico and Panama, respectively, including laws and regulations relating to mining operations, environmental protection and reclamation, labour relations and safety, land acquisition and mineral tenure, expropriation of property and taxation and repatriation of profits. Future changes in these laws or regulations or in their application are beyond the control of the Corporation and may adversely affect its operations. The Corporation believes the present attitude of the Mexican government toward foreign investment and the mining industry is favourable. However, in view of recent political and economic events in Mexico, including political assassinations, currency devaluation, inflation and domestic banking failures, investors should consider the risks associated with projects in Mexico. Over the last few years, Panama has modified its laws relating to mining and the taxation of mining operations to stimulate foreign and local investment in the mining sector. These include provisions that permit the duty-free importation of all equipment, spare parts and materials required for mining operations and the duty-free export of all minerals produced. The Corporation views these legislative changes as reflecting an increasingly supportive regulatory climate for mining investment in Panama. ITEM 3. LEGAL PROCEEDINGS During 1996, the Corporation's Mexican subsidiary received import duty assessments claiming the subsidiary's interest in certain pieces of machinery and equipment with an approximate value of US$2,200,000 and levying taxes, penalties, interest and inflationary adjustments for a further Mexican pesos 9,200,000. The claim against the subsidiary's assets and the additional amount payable arose as a result of the subsidiary not presenting certain import documentation to tax authorities by a prescribed date in connection with their audit of imports of the claimed machinery and equipment during 1990 and 1991 when the mine was not owned by the Corporation. The Corporation, which has all of the required documentation, has not provided for these amounts in its financial statements on the basis of professional advice received indicating 22 27 the basis for these assessments to be weak and accordingly appealed the assessments on March 5, 1997 before the Local Tax Legal Administration for Revenues in Nogales, Sonora. On May 26th, 1997, the Corporation was advised that it was successful in its appeal and that Mexican pesos 9,200,000 was not payable. While the local tax authority was requested by the federal tax authorities to issue a re-assessment which must take into account the basis of the appeal, on May 6, 1998, the tax authorities issued a tax assessment identical to that issued in 1996 except that the amounts claimed have increased to Mexican pesos 18,000,000 as a result of inflation and additional interest. The Corporation has been advised that this assessment is improper as it completely ignores the earlier ruling. Accordingly the Corporation has filed a new appeal before the Federal Tax Court to nullify the assessment. No provision has been made in the financial statements for the amounts assessed on the basis of the earlier ruling and the legal advice received. The charge against certain pieces of machinery and equipment will be released when the final tax assessment is issued. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the Corporation's fiscal year covered by this report, no matters were submitted to the shareholders for approval through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET PRICE RANGES FOR COMMON SHARES Information relating to the market prices for the Common Shares appears on page 32 of the 1998 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. On March 26, 1999 the closing price of the Common Shares on The Toronto Stock Exchange was $0.42 and on the New York Stock Exchange composite transactions was US $0.2813 as reported by the Globe and Mail. SHAREHOLDERS As of March 26, 1999, Campbell had 13,008 common shareholders of record. DIVIDEND RECORD AND POLICY The Corporation has not paid a dividend on its common shares since 1984. The Corporation's present policy is to retain earnings to finance future growth. Dividends on the common shares paid to non residents of Canada will generally be subject to withholding tax under the Income Tax Act (Canada) at the rate of 25%. Such rate may be subject to reduction under the provisions of a tax treaty between Canada and the country in which the recipient is resident. The Canada-U.S. Income Tax Convention (1980) provides for a general reduction in the rate of withholding tax to 15% on dividends paid on shares of a corporation resident in Canada (such as the Corporation) 23 28 to a resident of the United States, and also provides for a further reduction to 5% where the beneficial owner of the dividend is a corporation, resident in the United States, which owns at least 10% of the voting shares of the corporation paying the dividend. ITEM 6. SELECTED FINANCIAL DATA Information relating to this item appears under the caption "Five Year Comparative Summary of Selected Financial Data" on page 31 of the 1998 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information relating to this item appears on pages 15 through 18 of the 1998 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information relating to this item appears on pages 20 through 30, and under the caption "Selected Quarterly Financial Data (unaudited)" on page 31, of the 1998 Annual Report to Shareholders which information is incorporated herein by reference and is filed as Exhibit 13.1 to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no disagreements on accounting and financial disclosure that require mention in this Form 10-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information relating to the Directors of Campbell is set out in the Election of Directors section of the Proxy Circular in connection with the 1999 Annual and Special Meeting of Shareholders scheduled for May 18, 1999 which information is incorporated herein by reference and is filed as Exhibit 20.1 to this report. EXECUTIVE OFFICERS OF REGISTRANT 24 29 The executive officers of the Corporation, together with the offices of the Corporation held by them, their ages and their experience since January 1, 1994, is set out below:
Years in Other Position and Age -------- ------------------ --- Name Office Office Business Experience - ---- ------ ------ ------------------- John O. Kachmar President and 8 Certified Management 62 Chief Executive Accountant. Officer of the Corporation Lorna D. Vice President, 11 Lawyer. 47 MacGillivray Secretary and General Counsel Paul J. Ireland Vice President, 4 Chartered Accountant. Prior 41 Finance and to September 1994, Manager Chief Financial of Special Projects, Polaris Officer Realty (Canada) Limited, Toronto, Ontario, real estate company.
There are no family relationships existing among any of the executive officers, directors, or nominees for same of the Corporation. As a foreign private issuer pursuant to Rule 3a12-3 under the Securities Exchange Act of 1934 ("Exchange Act"), the registrant is not subject to Section 16 of the Exchange Act. ITEM 11. EXECUTIVE COMPENSATION Information required under this item is set out in the Proxy Circular in connection with the 1999 Annual and Special Meeting of Shareholders which is incorporated herein by reference and is filed as Exhibit 20.1 to this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item not set out below is set out in the Proxy Circular, in connection with the 1999 Annual and Special Meeting of Shareholders which is incorporated herein by reference and is filed as Exhibit 20.1 to this report. 25 30 The following table lists the number of Common Shares beneficially owned by each executive officer listed in the table under the caption "Executive Compensation" in the Proxy Circular. The percentage ownership calculation for each owner has been made on the basis that there are outstanding 155,486,121 Common Shares.
Name Number of Shares % of Class ---- ---------------- ---------- John O. Kachmar 190,000 (1) (less than) 1% Lorna D. MacGillivray 81,546 (2) (less than) 1% Paul J. Ireland 16,638 (3) (less than) 1% Three executive officers as a group 288,184 (4) (less than) 1%
(1) Excludes 1,350,000 Common Shares subject to option, of which 962,500 are currently exercisable or exercisable within the next 60 days. (2) Excludes 400,000 Common Shares subject to option, of which 250,000 are currently exercisable or exercisable within the next 60 days. (3) Excludes 375,000 Common Shares subject to option of which 281,250 are currently exercisable or exercisable within the next 60 days. (4) Excludes 2,125,000 Common Shares subject to option of which 1,493,750 are currently exercisable or exercisable within the next 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No reportable transactions or relationships involving the registrant and any of its directors or officers existed during the last fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. FINANCIAL STATEMENTS Auditors' Report Consolidated Balance Sheets as at December 31, 1998 and 1997 Consolidated Statements of Operations Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Retained Earnings (Deficit) - Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - 26 31 Years Ended December 31, 1998, 1997 and 1996 Notes to the Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES All financial Statement Schedules filed as a part of this report are included in Item 8 of this report and reference is made thereto. 3. EXHIBITS A refers to documentation previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. B refers to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1994 (Commission file number 1-8488) and incorporated herein by reference. C refers to documents previously filed as an exhibit to Campbell's registration statement on Form S-8 (Registration No. 33-28296) and incorporated herein by reference. D refers to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission file number 1-8488) and incorporated herein by reference. E refers to documents previously filed as an exhibit to Campbell's Current Report on Form 8-K dated March 28, 1996 (Commission file number 1-8488)and incorporated herein by reference. F refers to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1996 (Commission file number 1-8488) dated March 26, 1997 and incorporated herein by reference. Exhibits in parentheses are references to the Exhibit No. of the filing indicated. 3 Articles of Incorporation and By-Laws 3.1 Articles of Continuance dated September 7, 1982 (A) (Exhibit 3.1) 3.2 Articles of Amendment dated November 1, 1982 (A) (Exhibit 3.2) 3.3 Articles of Amendment dated April 15, 1983 (A) (Exhibit 3.3) 3.4 Articles of Amendment dated June 8, 1983 (A) (Exhibit 3.4) 27 32 3.5 Articles of Amendment dated September 13, 1983 (A) (Exhibit 3.5) 3.6 Articles of Amendment dated January 31, 1984 (A) (Exhibit 3.6) 3.7 Articles of Amendment dated November 8, 1984 (A) (Exhibit 3.7) 3.8 Articles of Amendment constituted by special resolution of shareholders dated November 7, 1984 (A) (Exhibit 3.8) 3.9 Articles of Amendment dated September 11, 1985 (A) (Exhibit 3.9) 3.10 Articles of Amendment dated December 2, 1987 (A) Exhibit 3.10) 3.11 By-Law No. 1 as amended and as in effect on the date hereof (A) (Exhibit 3.12) 3.12 Amendment of By-Law No. 1 (A) (Exhibit 3.11) 4 Instruments Defining the Rights of Security Holders Including Indentures 4.1 Trust Indenture made as of July 21, 1994 between the Corporation and Montreal Trust Company of Canada regarding the 7 1/2% Convertible Subordinated Debentures (B) (Exhibit 4.1) 10 Material Contracts Management Contracts and Compensatory Plans and Arrangements 10.1 The Corporation's Employee Incentive Plan (C) (Exhibit 4(i)) 10.2 Amended Employment agreement dated December 1, 1994 between the Corporation and John O. Kachmar (B) (Exhibit 10.2) 10.3 Amended Employment agreement dated December 1, 1994 between the Corporation and Lorna D. MacGillivray (B) (Exhibit 10.3) 10.4 Amended Employment agreement dated December 10, 1996 between the Corporation and Paul J. Ireland (H) (Exhibit 10.4) 10.5 Directors' Stock Option Plan (D) (Exhibit 10.8) Material Contracts 10.6 Royalty Agreement with Repadre Capital Corporation made as of April 23, 1993. (D) (Exhibit 10.14) 10.7 Stock Purchase Agreement dated July 6, 1994 between the Corporation, Sotula Gold Corp., Sonoran Mining Corporation and Compania Minera Zapata S. de R.L. de C.V. relating to the purchase of Santa Gertrudis (B) (Exhibit 10.11) 10.8 Bullion Dealing Master Agreement and Security Agreement between the Corporation and Citibank dated February 24, 1995 regarding forward gold sales (B) (Exhibit 10.12) 28 33 10.9 Purchase and Sale Agreement dated March 4, 1996 between Cyprus Exploration and Development Corporation, Campbell Resources Inc. and Compania de Exploracion Mineral, S.A. (E) (Exhibit 1.1) 13.1 Certain Portions of the Annual Report to the Shareholders for the year ended December 31, 1998 contained on pages 15 to 32 inclusive. [Note: Such Annual Report, except for those portions thereof which are expressly incorporated by reference in this Report on Form 10-K, is furnished for the information of the Securities and Exchange Commission and is not deemed "filed" as part of the filing of this Report on Form 10-K.] 20.1 Proxy Circular dated March 22, 1999 in connection with the 1999 Annual and Special Meeting of Shareholders scheduled to be held on May 18, 1999. 21.1 Significant subsidiaries. 23.1 Consent of KPMG LLP. 27.1 Financial Data Schedule (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed in the fourth quarter of 1998. (c) EXHIBITS Exhibits are listed under (a)3 above. (d) FINANCIAL STATEMENTS SCHEDULES REQUIRED BY REGULATION S-X WHICH ARE EXCLUDED FROM THE CORPORATION'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1998. Not applicable 29 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAMPBELL RESOURCES INC. Dated: March 26, 1999 By:/s/JOHN O. KACHMAR ------------------------ John O. Kachmar President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ JOHN O. KACHMAR Principal Executive Officer March 26, 1999 - ---------------------------------------- and Director John O. Kachmar, President and Chief Executive Officer /s/ PAUL J. IRELAND Principal Financial and March 26, 1999 - ---------------------------------------- Principal Accounting Paul J. Ireland, Vice President, Officer Finance and Chief Financial Officer /s/ JAMES D. BEATTY March 26, 1999 - ---------------------------------------- James D. Beatty Director /s/ GRAHAM G. CLOW March 26, 1999 - ---------------------------------------- Graham G. Clow Director /s/ ROD P. DOUGLAS March 26, 1999 - ---------------------------------------- Rod P. Douglas Director /s/ JAMES C. McCARTNEY March 26, 1999 - ---------------------------------------- James C. McCartney Q.C. Chairman and Director /s/ DONALD R. MURPHY March 26, 1999 - ---------------------------------------- Donald R. Murphy Director - ---------------------------------------- Francis S. O'Kelly Director /s/ G.E."KURT" PRALLE March 26, 1999 - ---------------------------------------- G.E."Kurt" Pralle Director /s/ JAMES D. RAYMOND March 26, 1999 - ---------------------------------------- James D. Raymond Director
30 35 CAMPBELL RESOURCES INC. 1998 FORM 10-K EXHIBIT INDEX EXHIBITS A refers to documentation previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. B refers to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1994 (Commission file number 1-8488) and incorporated herein by reference. C refers to documents previously filed as an exhibit to Campbell's registration statement on Form S-8 (Registration No. 33-28296) and incorporated herein by reference. D refers to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission file number 1-8488) and incorporated herein by reference. E refers to documents previously filed as an exhibit to Campbell's Current Report on Form 8-K dated March 28, 1996 (Commission file number 1-8488)and incorporated herein by reference. F refers to documents previously filed as an exhibit to Campbell's Annual Report on Form 10-K for the year ended December 31, 1996 (Commission file number 1-8488) dated March 26, 1997 and incorporated herein by reference. Exhibits in parentheses are references to the Exhibit No. of the filing indicated. 3 Articles of Incorporation and By-Laws 3.1 Articles of Continuance dated September 7, 1982 (A) (Exhibit 3.1) 3.2 Articles of Amendment dated November 1, 1982 (A) (Exhibit 3.2) 3.3 Articles of Amendment dated April 15, 1983 (A) (Exhibit 3.3) 3.4 Articles of Amendment dated June 8, 1983 (A) (Exhibit 3.4) 3.5 Articles of Amendment dated September 13, 1983 (A) (Exhibit 3.5) 3.6 Articles of Amendment dated January 31, 1984 (A) (Exhibit 3.6) 3.7 Articles of Amendment dated November 8, 1984 (A) (Exhibit 3.7) 3.8 Articles of Amendment constituted by special resolution of shareholders dated November 7, 1984 (A) (Exhibit 3.8) 3.9 Articles of Amendment dated September 11, 1985 (A) (Exhibit 3.9) 3.10 Articles of Amendment dated December 2, 1987 (A) Exhibit 3.10) 3.11 By-Law No. 1 as amended and as in effect on the date hereof (A) (Exhibit 3.12) 3.12 Amendment of By-Law No. 1 (A) (Exhibit 3.11) 4 Instruments Defining the Rights of Security Holders Including Indentures 4.1 Trust Indenture made as of July 21, 1994 between the Corporation and Montreal Trust Company of Canada regarding the 7 1/2% Convertible Subordinated Debentures (B) (Exhibit 4.1) 10 Material Contracts Management Contracts and Compensatory Plans and Arrangements 10.1 The Corporation's Employee Incentive Plan (C) (Exhibit 4(i)) 10.2 Amended Employment agreement dated December 1, 1994 between the Corporation and John O. Kachmar (B) (Exhibit 10.2) 10.3 Amended Employment agreement dated December 1, 1994 between the Corporation and Lorna D. MacGillivray (B) (Exhibit 10.3) 10.4 Amended Employment agreement dated December 10, 1996 between the Corporation and Paul J. Ireland (H) (Exhibit 10.4) 10.5 Directors' Stock Option Plan (D) (Exhibit 10.8) Material Contracts 10.6 Royalty Agreement with Repadre Capital Corporation made as of April 23, 1993. (D) (Exhibit 10.14) 10.7 Stock Purchase Agreement dated July 6, 1994 between the Corporation, Sotula Gold Corp., Sonoran Mining Corporation and Compania Minera Zapata S. de R.L. de C.V. relating to the purchase of Santa Gertrudis (B) (Exhibit 10.11) 10.8 Bullion Dealing Master Agreement and Security Agreement between the Corporation and Citibank dated February 24, 1995 regarding forward gold sales (B) (Exhibit 10.12) 10.9 Purchase and Sale Agreement dated March 4, 1996 between Cyprus Exploration and Development Corporation, Campbell Resources Inc. and Compania de Exploracion Mineral, S.A. (E) (Exhibit 1.1) 13.1 Annual Report to the Shareholders for the year ended December 31, 1998 [Note: Such Annual Report, except for those portions thereof which are expressly incorporated by reference in this Report on Form 10-K, is furnished for the information of the Securities and Exchange Commission and is not deemed "filed" as part of the filing of this Report on Form 10-K.] 20.1 Notice and Proxy Circular dated March 22, 1999 in connection with the 1999 Annual and Special Meeting of Shareholders scheduled to be held on May 18, 1999 and Form of Proxy 21.1 Significant subsidiaries 23.1 Consent of KPMG LLP 27.1 Financial Data Schedule EX-13.1 2 ANNUAL REPORT TO SHAREHOLDERS 1 [LOGO] Campbell Resources Inc. 1998 Annual Report [PHOTO OMITTED] 2 [MAP OMITTED] Corporate Profile - -------------------------------------------------------------------------------- Campbell Resources Inc. is a gold mining and exploration company. In 1998, Campbell produced 82,400 ounces of gold from the Joe Mann Mine in Quebec, Canada, and the Santa Gertrudis Mine in Sonora, Mexico. The Santa Gertrudis Mine temporarily ceased mining in December 1997 and is now focussed on exploration. Campbell also owns the Cerro Quema development stage gold project in Panama, which is currently awaiting higher gold prices before development continues. Campbell operates in a financially responsible manner and as a consequence has maintained a strong balance sheet with cash and short-term deposits of $41.5 million and negligible debt. Continuing with this philosophy, Campbell is selectively developing its existing assets and continuing to search for quality gold investment opportunities. Campbell's common shares are listed on the New York, Toronto, and Montreal stock exchanges, trading under the symbol "CCH". - -------------------------------------------------------------------------------- Forward-Looking Statements Certain information contained in this report contains "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and is subject to certain risks and uncertainties, including those "Risk Factors" set forth in the Company's current Annual Report on Form 10-K for the year ended December 31, 1998. Such factors include, but are not limited to: differences between estimated and actual ore reserves; changes to exploration, development and mining plans due to prudent reaction of management to ongoing exploration results, engineering and financial concerns; and fluctuations in the gold price which affect the profitability and ore reserves of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect unanticipated events or developments. 3 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Highlights - ---------------- o Maintained a strong balance sheet with a cash position of $41.5 million and working capital of $45.7 million Joe Mann Mine - ------------------------------------------------------------------------------- o Produced 70,100 ounces at a cash operating cost of US$257 per ounce o Completed the shaft deepening project at a cost of $13.1 million compared to a budget of $14.5 million o Discovered new high grade ore zone that is open on strike and at depth o Implemented a new long-term mine plan that increases the number of mine work days per year by 45% and reduces the cash operating costs to US$245 per ounce Santa Gertrudis Mine - ------------------------------------------------------------------------------- o Discovered the 4.0 by 2.0 kilometre San Enrique gold-in-soil geochemical anomaly o Initiated acquisition of the Roca Roja property, a highly prospective area with a short-term potential to host at least 100,000 ounces
($in thousands except per share amounts) 1998 1997 1996 -------------------------------------------------------------------------------- Metal sales $ 36,388 52,635 67,180 Net income (loss) $ (20,848) (40,410) 9,012 Cash flow from operations $ 411 556 21,439 Exploration expenditures $ 2,803 4,659 7,220 -------------------------------------------------------------------------------- Working capital $ 45,689 49,008 65,520 Cash and short-term deposits $ 41,493 41,735 55,302 Total assets $ 102,777 123,882 165,298 Shareholders' equity $ 87,469 105,124 142,058 Shares outstanding (000's) 154,686 151,445 148,588 -------------------------------------------------------------------------------- Per share - Earnings (loss) $ (0.14) (0.27) 0.06 - Cash flow $ -- -- 0.15 -------------------------------------------------------------------------------- Gold Production (ounces) -------------------------------------------------------------------------------- Joe Mann 70,100 73,500 70,400 Santa Gertrudis 12,300 39,200 54,400 -------------------------------------------------------------------------------- Total gold production 82,400 112,700 124,800 -------------------------------------------------------------------------------- Cash operating cost per ounce (US$) $ 255 288 252 Gold revenue per ounce (US$) $ 304 336 396 --------------------------------------------------------------------------------
In this report, unless otherwise indicated, all monetary amounts are stated in Canadian dollars. 1 4 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Report TO THE Shareholders - ------------------------- Historically low gold prices continued to have a negative impact on the gold mining industry and Campbell Resources in 1998. The gold price averaged US$294 per ounce in 1998. A combination of speculative short selling and the continued perceived threat of central bank sales have dominated the markets. The gold price failed to respond to what would normally be considered bullish factors including the falling US dollar, the covering of hedge fund short positions and some renewed investor demand for gold. Surprisingly, these low gold prices have failed to stem world gold production, in fact it continues to increase. The biggest supply response will likely be in the future as reduced exploration and development budgets take effect. Many gold producers have been living off hedge positions established in better times and from a reduction in cash operating costs. Weak local currencies in Australia, South Africa and Canada have also helped maintain, to some extent, the gold price in those currencies. Campbell has responded to this environment by continuing to apply financial discipline in its operations. At the Joe Mann Mine this is evidenced by the completion of the shaft sinking project approximately $1.4 million under budget and by the new Mine Plan which has the mine operating seven days a week instead of the five days a week it has worked since start-up. The Santa Gertrudis Mine ceased uneconomic mining to focus on exploration and the Cerro Quema project was put on a care and maintenance basis awaiting higher gold prices. This discipline has enabled the Company to maintain its strong clean balance sheet with cash at the year end of $41.5 million. Financial and Operating Results In 1998, Campbell reported a loss from operations of $10.1 million and, after a $12.5 million writedown in the carrying value of its mining interests, a net loss of $20.8 million, or $0.14 per share compared to a loss of $40.4 million or $0.27 per share in 1997. Cash flow from operations was $0.4 million compared to $0.6 million in 1997. Gold production of 82,400 ounces in 1998 decreased from the 112,700 ounces produced in 1997 as a result of the cessation of mining operations at Santa Gertrudis in early December 1997. Cash operating costs in 1998 were US$255 per ounce of gold produced compared with US$288 per ounce a year earlier. Campbell's realized gold revenue of US$304 per ounce in 1998 is US$10 above the average COMEX market price for the year of US$294 as a result of hedging activities. This compares to realized gold revenue of US$336 per ounce in 1997. Joe Mann Mine - Quebec, Canada The Joe Mann Mine in northwestern Quebec experienced a number of significant developments during 1998. On the operating side, gold production was 70,100 ounces at a cash cost of US$257, down marginally from the 73,500 ounces at a cash cost of US$264 per ounce, produced in 1997. The lower gold production was primarily attributable to lower mill head grades which decreased from 0.300 ounces gold per ton in 1997 to 0.252 ounces gold per ton in 1998. Mill recoveries have however steadily increased reaching 94.3% in 1998 compared with 93.9% a year earlier. Since 1993, recoveries have improved by 3% resulting from circuit improvements to the mill process in 1994 and efforts by the mill technical staff. The project to deepen the No. 2 mine shaft by almost 1,100 feet was completed at a total cost of $13.1 million, approximately $1.4 million under budget. The shaft now extends to a depth of more than 3,700 feet below the surface. During the course of 1998, senior management and mine staff completed a re-evaluation of the long-term mine plan at Joe Mann. The new long-term mine plan calls for the immediate full development of six new levels between the 2350 level, currently the lowest level of mining, and the shaft bottom at 3,700 feet. This development will provide access to reserves of 1.8 million tons of ore at an average grade of 0.258 ounces gold per ton. Over the next six years, Joe Mann is expected to produce more than 425,000 ounces of gold. The cash operating cost is expected to average US$245 per ounce down from US$260 per ounce figure previously forecast. Similarly, the total cash cost, which includes all development and sustained capital expenditures, will also drop from US$285 per ounce to US$270 per ounce. This will likely be further reduced once the new ore zone is better defined and incorporated into the long-term mine plan. 2 5 The new ore zone is situated between the Main Zone and the North Zone, 1,000 feet east of the shaft and has, to date, been defined between the 2350 and 2575 levels. It has a strike length of 425 feet and a down-dip extension of at least 175 feet and remains open to the east and at depth. The initial crosscut driven to examine the zone intersected high-grade mineralization with a true width of 39.2 feet averaging 0.293 ounces gold per ton. Historically, mine widths at Joe Mann have been approximately 6 feet. Diamond drilling has continued to intersect high-grade mineralization over substantial widths. Management is confident that with this wider zone, we will be able to mine the zone with greater productivity thus lowering the cash operating costs further. In addition, excess hoist and mill capacities will enable us to increase annual gold production from the Joe Mann Mine. Production from the new zone will come on stream during the second half of 1999. Work is continuing to better define this new discovery and to test its extensions both down-dip and along strike. Santa Gertrudis Mine - Sonora, Mexico Through the continued leaching of the heaps, the Santa Gertrudis Mine produced approximately 12,300 ounces at a cash operating cost of US$242 per ounce in 1998. Santa Gertrudis is expected to produce a minimal amount of gold in the first quarter of 1999 from the current leaching process. Since mining was initiated at Santa Gertrudis, the property has produced approximately 300,000 ounces of gold and the potential to find additional oxide mineralization within the 227 square kilometre property is considered to be excellent. In the first half of 1998, exploration was focused on the Greta area situated approximately 7 kilometres southeast of the area of past mining. The Greta area presently has a geological resource of approximately 150,000 ounces; however, at current gold prices, this resource would be difficult to mine profitably. As a result Campbell's exploration team shifted its focus to other areas. In May 1998, Campbell became aware that the property adjoining the mine district was for sale. The majority of this property is underlain by the same favourable geology which hosts the deposits previously mined by Campbell at Santa Gertrudis. Given the promising geology and proximity to the existing infrastructure, Campbell has been in discussions with Minera Roca Roja and subsequently its trustee in bankruptcy. Discussions are continuing. Campbell has prepared a program of preliminary geological work and intends to carry out a drill program on several highly prospective targets on the Roca Roja property that are contiguous with, or extensions of, deposits previously mined at Santa Gertrudis as soon as an acquisition is completed. In addition to the extensions of previously mined deposits, structural mapping has identified a low angle fault which extends from the mine district to the northwest through the Roca Roja claims and back onto the Santa Gertrudis property. Current geological interpretation indicates that the block of ground which hosts the Santa Gertrudis deposits has moved to the southwest along this fault. By reconstructing the displacement along this fault, it may be possible to find the roots of the Santa Gertrudis deposits on the newly acquired ground. Similarly, it may be possible to find the upper portions of the deposits previously mined on the Roca Roja property. Other structural targets related to faulting and folding are also apparent and remain to be tested. Our knowledge of the geology of the mine district, coupled with our nearby existing infrastructure and the lack of any significant systematic exploration on these claims, makes them excellent targets for the development of 100,000 ounces of reserves in the near term. Significant potential exists to develop other reserves on the remainder of the purchased claims. Campbell's target, in the short term, is to delineate approximately two years worth of production, or 150,000 ounces of mineable reserves, before mining can recommence. Soil sampling in 1998 resulted in the discovery of the 4.0 by 2.0 kilometre San Enrique gold-in-soil geochemical anomaly situated approximately 7.0 kilometres south of the mine district. Gold-in-soil values ranged up to 10.0 grams gold per tonne while limited mapping and rock sampling returned values of up to 78.1 grams gold per tonne. The anomaly still remains open to the southwest. A significant exploration program involving mapping, trenching and drilling is scheduled to begin in April 1999, once surface access is secured through the issuance of a temporary occupation order by the Mexican government. 3 6 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Personnel and Acknowledgements Campbell's technical and management teams have once again demonstrated their abilities in improving the Company's performance. From the discovery of a new ore zone at the Joe Mann Mine, the development and implementation of a new long-term mine plan, through to the continuing improvement in recoveries at the mill, employees at the Joe Mann Mine are to be congratulated. We also wish to acknowledge the contribution made by Le Syndicat de Travailleurs-euses de la Mine Meston and Les Metallurgistes Unis d'Amerique who have supported the introduction of a seven day per week work schedule and agreed to extensions of the collective agreements until 2001. With these changes, necessitated by historically low gold prices, we believe Joe Mann Mine's operation is secure through this period of expected low gold prices. Exploration efforts by our geologists at the Santa Gertrudis property has been successful in delineating resources in the Greta area. Exploration is continuing in other areas and, with the increased understanding of the geology of the property. We are proud of our 300 employees, whose skills, dedication and enthusiasm not only provide the foundation for the Company but also determine the direction and growth of the Company in the future. We will continue to endeavour to add value to current and future mining projects and to conduct business responsibly in a manner designed to protect our employees and the natural environment. Outlook and Growth Strategy In 1999, Campbell will continue to operate in a financially responsible manner while developing its existing assets. We will also continue to examine and evaluate opportunities for acquisition and/or merger. The discovery of a significant new ore zone at the Joe Mann Mine and the adoption of the new long-term mine plan with its increased work schedule and labour agreements, will result in improved productivities and lower cash operating costs that will see the Joe Mann Mine operations continue beyond 2004. At the Santa Gertrudis Mine, we will focus on exploration programs to evaluate the immediate mine area and highly prospective Roca Roja property and the major San Enrique gold-in-soil geochemical anomaly. Management is confident that these programs will lead to the resumption of mining operations at Santa Gertrudis during the second half of1999. We are confident that a program of focused exploration, prudent capital and exploration expenditures and the ultimate acquisition of a compatible, high-quality asset will see Campbell grow to become an intermediate-sized, profitable gold producer. /s/ James C. McCartney James C. McCartney Chairman of the Board /s/ John O. Kachmar John O. Kachmar President & Chief Executive Officer Toronto, Ontario March 19, 1999 4 7 - -------------------- Review of Operations - -------------------- Joe Mann Mine QUEBEC, CANADA [PHOTO OMITTED] [MAP OMITTED] Overview The Joe Mann Mine is a high-grade underground gold mine located approximately 350 miles north of Montreal in the province of Quebec, Canada. The mine has been in continuous production since 1987. It has produced approximately 900,000 ounces of gold and currently has geological and mineable reserves of approximately 800,000 ounces and 500,000 ounces, respectively. The Joe Mann Mine is located within the Abitibi greenstone belt, which is one of the world's most prolific gold producing regions, hosting over 250 mines. Joe Mann is a vein-type deposit with gold-copper mineralization hosted by quartz veins within a number of laterally continuous shear systems. To date, the deposit has been mined along a 3,000 foot strike length, to depths of 2,350 feet. Once development of the six new levels below the 2350 level is completed, an additional 1,300 foot vertical extent of ore will be made accessible. Mineralization at the Joe Mann Mine remains open at depth. 5 8 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Mining is predominantly carried out using the shrinkage stope mining method. Ore is then processed at the Company's mill facilities, where gold is recovered through gravity and cyanidation circuits, and a gold and copper concentrate is produced from a flotation circuit. Operating Results Cash operating costs fell 2.7% from US$264 per ounce in 1997 to US$257 per ounce in 1998 while gold production decreased by 4.6% from 73,500 ounces in 1997 to 70,100 ounces in 1998. The decrease in production is primarily attributable to lower mill head grades which fell from 0.300 ounces gold per ton in 1997 to 0.252 ounces gold per ton in 1998. Mill recoveries increased to 94.3% in 1998 compared to 93.9% in 1997, which are above the
Production Statistics 1998 1997 1996 ================================================================================ Tons Milled 299,000 266,000 266,000 Gold Grade (oz./ton) 0.252 0.299 0.290 Copper Grade (%) 0.243 0.280 0.302 Gold Recovery (%) 94.3 93.9 93.2 Copper Recovery (%) 94.2 96.3 96.3 Gold Production (oz.) 70,100 73,500 70,400 Copper Production (000's lbs) 1,316 1,367 1,473 Cash Operating Cost per Ounce Gold (US$) 257 264 272 Reserves ================================================================================ Mineable Ore Reserves (1) - -------------------------------------------------------------------------------- Proven and Probable - tonnage 516,590 553,000 727,000 - gold grade (oz./ton) 0.229 0.238 0.268 - copper grade (%) 0.243 0.270 0.260 - contained oz. gold (2) 118,400 131,700 194,900 Possible (3) - tonnage 1,462,000 1,417,000 1,546,000 - gold grade (oz./ton) 0.255 0.267 0.273 - copper grade (%) 0.250 0.260 0.259 - contained oz. gold (2) 372,900 378,200 422,500 Diluted Geological Reserves - -------------------------------------------------------------------------------- Proven and Probable - tonnage 729,000 879,000 969,000 - gold grade (oz./ton) 0.210 0.225 0.249 - copper grade (%) 0.223 0.240 0.250 - contained oz. gold (2) 153,300 197,900 241,300 Possible (3) - tonnage 2,520,000 2,461,000 2,647,000 - gold grade (oz./ton) 0.261 0.264 0.259 - copper grade (%) 0.240 0.250 0.240 - contained oz. gold (2) 657,800 649,600 685,600
(1) Mineable reserves at December 31, 1998 have been calculated based on a gold price of US$325 per ounce. Mineable reserves at December 31, 1997 and 1996 were based on a gold price of US$375 per ounce. (2) Actual recovered ounces will depend on metallurgical recovery rates. (3) The possible category includes material based largely on assumed continuity or repetition for which there are reasonable geological indications but for which there are limited samples and measurements. industry average. Since 1993, the year before improvements to the mill were made, recoveries have increased from 91% to the current 94.3% level. The increase in recoveries was due to continuing mill circuit modifications and the work of the mill staff in fine-tuning the process. The Joe Mann Mine also produces copper and silver as a by-product. Production of copper in 1998 was 1.3 million pounds, slightly lower than the 1.4 million pounds produced in 1997. Silver production decreased to 24,200 ounces in 1998 compared to 27,500 ounces in 1997. Long-Term Mine Plan Following the successful completion of the shaft deepening program in July 1998 at a cost of $13.1 million, approximately $1.4 million less than budgeted, Campbell considered various alternatives for the further development of the mine. The long-term plan that was finally adopted calls for the immediate full development of all six levels between the 2350 level, which is currently being mined, and the shaft bottom at 3,700 feet. The plan is expected to have significant economic benefits for the Company including reduced cash operating costs. [GRAPHIC OMITTED] [The following table was depicted as a bar graph in the printed material.]
95 96 97 98 Gold Production 64.5 70.4 73.5 70.1 (thousands of ounces) Cash Operating Cost 284 272 264 257 (US$ per ounce) Gold Reserves 916.7 926.9 847.5 811.1 (thousands of ounces)
6 9 - -------------------- Review of Operations - -------------------- 3-D Model of the Joe Mann Mine [MAP OMITTED] The plan envisages mining approximately 1.8 million tons of ore at an average grade of 0.258 ounces gold per ton to produce more than 425,000 ounces of gold over the next 6 years. The average cash operating cost is forecast to decrease to US$245 per ounce, compared to a cash operating cost of US$260 as previously forecast. The total cash cost, including all development and sustained capital expenditures, will also decrease to US$270 per ounce from US$285 per ounce. Additional increases in gold production and lower cash operating costs are expected once the impact of the new ore zone, discussed in detail below, is taken into account. In addition to ore from the Main and South Zones, which are situated east of the production shaft, the plan includes initial production from the West Zone between the 1650 and 1825 levels of the mine. Further exploration and development in the West Zone is contemplated above the 2350 level with an expected increase in reserves. Results from three raises completed between the 1650 and 1300 levels indicate the continuous presence of additional ore above the 1650 level. A key component of the plan includes the adoption of a 7 day per week mining schedule as compared to the current 5 day per week schedule and the elimination of the 2 week summer shut-down. The net effect will be to increase the number of days of mining from 237 days per year to 347 days per year. Due to the excess mill capacity, the mill will operate an average of 260 days per year. The unions, representing the hourly mine and mill workers, support the implementation of the new work schedule and management has been successful in arranging extensions to the current labour agreements to December 2001. Exploration Results from the 2575 Level Early exploration on the 2575 level, initiated in the fall of 1998, encountered impressive results approximately 1,000 feet east of the shaft. A crosscut driven at 1100E to investigate results from three earlier holes drilled from the 2350 level intersected a zone of high-grade mineralization with a true width of 39.2 feet averaging 0.293 ounces gold per ton. Historically, mine widths at Joe Mann have been approximately 6.0 feet. This new ore zone is situated approximately 200 feet north of the Main Zone and approximately 40 feet south of the North Zone. Drilling to test a 475 foot section of the zone between 975E and 1450E and the 2350 and 2575 levels is ongoing. At present, it is thought that the mineralization of the new ore zone is spatially and genetically related to a large quartz-feldspar porphyry dyke. There are two limbs of high-grade ore mineralization which occur at the northern and southern contacts between the porphyry dyke and a sheared gabbro. 7 10 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ [PHOTO OMITTED] Mineralization within the new ore zone is similar to ore found in the Main Zone and contains up to 15% sulphides within quartz veins. In addition, there are numerous occurrences of visible gold. Development of the 2575 level is continuing to determine the eastern extent of mineralization of the new ore zone. In addition, crosscuts are also being driven on the 1100E and 1300E sections of the 2575 level to enable drilling to test the new zone below the 2575 level. While the extent and grade of the new ore zone are not fully known, early estimations indicate the zone contains a mineable reserve between the 2350 and 2575 levels of approximately 140,000 tons averaging 0.312 ounces gold per ton. Mine management expects to mine some of this reserve beginning in the second half of 1999 using cut and fill methods. It is estimated that the new zone will contribute approximately 8,000 ounces to this year's gold production, increasing thereafter. Lateral development is being carried out on the 2750, 2925 and 3100 levels and it is expected that within two months the 2750 level will have advanced to the projected depth of the new ore zone enabling further definition drilling of the zone. As a result of the discovery of the new ore zone, forecast gold production has been increased to 78,000 ounces in 1999, up from the previous projection of 70,000 ounces. Total cash operating costs are estimated to be US$250 per ounce. 8 11 - -------------------- Review of Operations - -------------------- Santa Gertrudis Mine SONORA, MEXICO [PHOTO OMITTED] [MAP OMITTED] Overview The Santa Gertrudis Mine is an open pit heap leach operation situated approximately 240 kilometres south of Tucson, Arizona in the state of Sonora, Mexico. The Santa Gertrudis Mine was in continuous production from 1991 until 1997 and produced approximately 300,000 ounces of gold during this time period. Since Campbell's acquisition of the property in mid-1994, it has produced more than 177,000 ounces at an average cash operating cost of US$249 per ounce. Ore deposits mined at Santa Gertrudis have strong geological similarities to the prolific gold mines found within the Carlin Trend in Nevada. The Santa Gertrudis orebodies are preferentially hosted by silty carbonate rocks, but have a strong element of structural control. The gold mineralization is finely disseminated with ore grades typically averaging 2.0 grams of gold per tonne (g/t gold). The ore is completely oxidized and amenable to the low-cost heap leach gold extraction method. 9 12 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Operating Results In 1998, Santa Gertrudis produced 12,300 ounces of gold at a cash cost of US$242 per ounce compared to the production of 39,200 ounces at a cash operating cost of US$333 per ounce in 1997. Gold production in 1998 was the result of continued application of solutions to the heaps on the leach pads. This process was completed in December 1998.
Production Statistics 1998 1997 ================================================================================ Tonnes mined (ore+waste) -- 7,432,000 Tonnes ore mined -- 1,021,000 Strip Ratio -- 6.28 Gold Grade (grams/metric tonne) -- 1.71 (oz./ton) -- 0.05 Gold Recovery (%) -- 69.5 Gold Production (oz.) 12,300 39,200 Cash Operating Cost per Ounce Gold (US$) 242 333 Mineral Resources ================================================================================ Possible (1) - -------------------------------------------------------------------------------- - tonnage (metric tonnes) 1,992,000 2,422,000 - gold grade (grams/metric tonne) 2.08 2.00 (oz./ton) 0.059 0.058 - indicated gold (oz.) 133,000 155,700
(1) Diluted geological resources - The possible category includes material based largely on assumed continuity or repetition for which there are reasonable geological indications but for which there are limited samples and measurements. Exploration In 1998, the Company continued to conduct exploration involving mapping, rock and soil geochemical sampling, trenching and drilling in an effort to define resources and reserves outside the area of past mining activity. This effort led to the delineation of a geological resource contained in five deposits within the Greta area, approximately 7 kilometres southeast of the mine district. Because the Greta area is situated some distance from the mine infrastructure and with gold prices at historic lows, this resource of 1.8 million tonnes averaging 2.4 g/t gold, or 150,000 ounces, is presently uneconomic. Should the gold price improve, exploration will resume in the area to establish mineable reserves. Ongoing regional exploration led to the discovery of the San Enrique anomaly, a large soil geochemical anomaly with great potential situated approximately 7 kilometres south of the mine district. In May 1998, Campbell commenced discussions to acquire the former gold producing Roca Roja property. Discussions are continuing with the trustee in bankruptcy of Minera Roca Roja. The Roca Roja property has the potential to host reserves which could be Location Map [MAP OMITTED] developed in the near term given its proximity to the existing mine infrastructure. Campbell is confident that exploration completed in the short-term will delineate mineable reserves that will sustain mining operations for at least two years. In 1998, $2.3 million was spent on exploration at Santa Gertrudis. The initial phase of exploration for 1999, covering the first 3 to 4 months, has been budgeted at $750,000. Additional funds will become available as results warrant. Efforts will focus on the Roca Roja property and the adjacent mine district, and the San Enrique soil geochemical anomaly. The Roca Roja Property and the Mine District Following the decision to re-focus exploration outside of the Greta area, Campbell began assessing the possibility of acquiring certain claims north, east and west of the Santa Gertrudis property. As a result of this assessment, Campbell initiated discussions with Minera Roca Roja, a former gold producer, to purchase its mineral claims totalling approximately 900 hectares. Preliminary investigations suggest the potential to find 100,000 ounces of reserves in the short-term on the Roca Roja property is excellent. The majority of the Roca Roja property is underlain by the same stratigraphy as that which hosts the deposits of the mine district. Many of the previously mined deposits extend north to the Santa Gertrudis property border and appear to extend into the claim 10 13 - -------------------- Review of Operations - -------------------- Geology of Santa Gertrudis Mine District and Roca Roja Property [MAP OMITTED] area. Recent geological investigations support this idea as it is apparent that the Lola-La Peque structure, a large shear zone discovered earlier, extends beyond the Santa Gertrudis property onto the Roca Roja property. This shear zone, now referred to as the La Peque-Escondida structure, has currently been identified over a strike length of 4 kilometres, of which the eastern 1.5 kilometres is called the Escondida target. Where it is exposed, the shear zone varies from 9.0 to 11.4 metres in width and one trench has returned a value of 1.7 g/t gold over 10.5 metres. Re-evaluation of the La Peque and Lola targets in conjunction with additional trenching and preliminary drilling at Escondida will be completed to examine the potential of this significant structure. Approximately 1 kilometre south of Escondida, limited mapping on the Roca Roja property has identified a southwest striking, southeast dipping structure, the Veronica shear, that bears similarities to the La Peque-Escondida structure. The Veronica shear, which hosts the Veronica target, has a strike length of at least 1 kilometre which represents the displaced extensions of the El Carmen-Mirador-Melissa Northwest zones. These zones are spatially associated with the Veronica shear, which represents a feeder structure. The Veronica target has been tested with two preliminary trenches spaced 60 metres apart. The first trench uncovered an altered limestone and siltstone package and returned a value of 1.86 g/t gold over 3.2 metres. A second trench, 60 metres southeast of the first, returned values of 1.09 g/t gold over 3.1 metres, and 1.54 g/t gold over 1.3 metres. A second structure parallel to bedding, the Veronica Northwest target, is situated approximately 750 metres northwest of the Veronica shear and is a high-priority exploration target. Grab samples from this target returned values ranging up to 5.29 g/t gold and follow-up channel sampling returned a value of 2.11 g/t gold over 2.3 metres. 11 14 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Approximately halfway between the La Peque-Escondida structure and the past producing pits of the mine district is the southeast trending Real Viejo shear. The shear consists of two sub-parallel, steeply dipping faults 35 metres apart which cut siltstones, sandstones and conglomerates. The faults are characterized by 10 metre wide zones of strong silica-hematite alteration with abundant quartz veining. Grab samples from the faults have assayed up to 2.046 g/t gold. Trenching is expected to begin shortly. During 1998 the potential acquisition of the Roca Roja ground resulted in a resurgence of exploration in and around former targets with remaining resources in the mine district. The Melissa Northwest target is one area of particular interest. It is an extension of the Hilario, a previously mined deposit. The Melissa Northwest target extends to Santa Gertrudis' property boundary and is likely to extend beyond into the newly acquired claims. Recent drilling from Melissa Northwest returned assays of 1.655 g/t gold over 6.0 metres including 2.099 g/t gold over 4.5 metres and a second interval which averaged 1.605 g/t gold over 22.5 metres. There is strong geological evidence that the structure which hosts Melissa Northwest could extend beyond the property boundary and be related to the El Carmen and Mirador targets on the Roca Roja property. In addition to the faults, shear zones and targets discussed above, recently completed structural mapping has identified a low angle normal fault, known as the El Carmen fault, which runs through the Santa Gertrudis property and the newly acquired claims. It is thought by reconstructing the displacement along the fault, it may be possible to find the roots of the Santa Gertrudis deposits on the Roca Roja property. Similarly, it may be possible to find the upper portions of the deposits previously mined on the Roca Roja property. Other structural targets on the Roca Roja property related to faulting and folding are also apparent and remain to be tested. San Enrique Soil Geochemical Anomaly In 1998, as part of an ongoing regional soil geochemical survey, a gold-in-soil geochemical anomaly was defined south of the mine district. Presently, the anomaly has a north-south strike length of 4.0 kilometres, is approximately 2.0 kilometres wide and remains open to the southwest. Within the San Enrique anomaly, four strongly anomalous zones are present. The core of the anomaly is a zone 750 metres in length with soil sample values ranging from 0.1 to 2.49 g/t gold. A second zone lies 1 kilometre north-northwest of the core of the anomaly and coincides with an area of quartz-pyrite veined felsic dykes. Rock samples returned values of up to 6.026 g/t gold over 0.8 metres. The third strongly anomalous zone is 150 metres north-northwest of the core of the anomaly and has soil sample values of up to 2.1 g/t gold. The fourth zone is situated approximately 2 kilometres south of the core of the anomaly with soil values greater than 10.0 g/t gold. Rock grab samples from the San Enrique anomaly have assayed up to 78.1 g/t gold. San Enrique Soil Geochemical Anomaly [MAP OMITTED] 12 15 - -------------------- Review of Operations - -------------------- Airborne geophysical interpretation of the area suggests the main core of the anomaly occurs within a northwest oriented zone of low magnetic intensity. The southern portion of the anomaly is situated over a relatively weak magnetic high, which reflects intrusive activity. The anomaly is cut by three northeast trending magnetic breaks, interpreted to be faults, and two northwest striking zones of weak electromagnetic conductivity. The combination of these geophysical features suggests the presence of several structural intersections. A strong potassium anomaly is coincident with the soil geochemical anomaly. The core of the anomaly is underlain by a 45 metre thick unit of decalcified and silicified siltstone and limestone with abundant quartz-pyrite veins. The eastern boundary of the geochemical anomaly coincides with a north trending faulted contact between the limestone and siltstone unit and the surrounding rocks. This further supports the correlation between the siltstone and limestone unit and the anomaly. Underlying this siltstone and limestone unit is a shallow dipping diorite sill that has potential to act as a trap for gold-bearing fluids. Following these initial investigations, exploration on the anomaly was delayed because of difficulties in concluding an agreement with the surface rights owner. As a result, Campbell filed an application for temporary occupation with the Government of Mexico. Campbell has been advised that the temporary occupation resolution was granted on March 17, 1999. A program of mapping, sampling trenching and drilling in order to fully evaluate the San Enrique anomaly will commence in early April 1999. Excellent exploration potential exists at the Santa Gertrudis property and efforts will be directed to explore the San Enrique geochemical anomaly south of the mine district. Immediately following acquisition, exploration efforts will commence on the Roca Roja property north of the mine district. The Company intends to recommence mining operations once two years' worth of mineable reserves have been established. - -------------------------------------------------------------------------------- Cerro Quema Project Los Santos, Panama The feasibility study previously completed by Campbell indicates that Cerro Quema has mineable reserves, based on a gold price of US$400 per ounce, of 8,772,000 tonnes averaging 1.16 g/t gold and projected cash operating costs of approximately US$180 per ounce. Capital costs associated with the project are in the order of US$100 to US$110 per ounce. Gold prices have remained in the US$270 to US$315 per ounce range for the last year and appear unlikely to materially increase during 1999. Campbell has therefore continued to keep the project on a care and maintenance basis pending an improvement in the price of gold. Should gold prices improve significantly, construction at Cerro Quema will recommence and once finished, the project will produce approximately 50,000 ounces of gold annually. The Company believes there is excellent exploration potential beyond the existing reserves on the property. Growth Strategy During the course of the year, senior management and operations personnel with assistance from industry consultants, continued to review opportunities with respect to mergers and acquisitions. While extensive due diligence was carried out on at least three operations located in the Americas and elsewhere, no transaction has been concluded due to various factors. These include poor results from the due diligence, assets burdened by excessive debt levels and an inability to reach a consensus on value. Management will continue this disciplined approach to evaluating opportunities in order to complete a transaction which is accretive to its shareholders. 13 16 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Management's Discussion and Analysis 15 - 18 Management's Responsibility for Financial Reporting Auditors' Report 19 Consolidated Balance Sheets 20 Consolidated Statements of Operations Consolidated Statements of Retained Earnings (Deficit) 21 Consolidated Statements of Cash Flows 22 Notes to the Consolidated Financial Statements 23 - 30 Five Year Comparative Summary Selected Quarterly Financial Data 31 Shareholder Information 32 Corporate Information Inside Back Cover 14 17 - ---------------- Financial Review - ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- SIGNIFICANT DEVELOPMENTS DURING 1998 Maintained a Strong Balance Sheet Campbell Resources and the gold industry as a whole have continued to experience historically low gold prices over the last year. During 1998, Campbell continued to operate in a cash preservation mode by reducing operating, overhead and capital costs wherever possible. As a result its treasury of $41.5 million at year end remains unchanged from the previous year. This financial strength will allow the Company to move forward in the current low gold price environment by selectively developing its existing assets and searching for gold property investment opportunities and possible merger candidates. Joe Mann Mine Development The production shaft deepening project at the Joe Mann Mine was completed during 1998 at a cost of $13.1 million compared to the original budget of $14.5 million. As a result of studies performed during the fall of 1998, a new mine plan was approved in early 1999 which will result in the full development of all six new levels accessible from the deepened shaft. The mine will begin operating 7 days per week compared to the current 5 days with no summer shutdown. As a result the average long-term cash operating cost at the mine is expected to decrease by approximately US$15 to US$245 per ounce of gold. This new plan is supported by the unions representing the hourly workers who have agreed to extend their labour contracts by a further two years. Santa Gertrudis Exploration The future of the Santa Gertrudis Mine is dependant on the success of the current exploration efforts at the site. As a result of work performed during 1998, the focus of the exploration effort will now be concentrated on two main targets, the significant geochemical soil anomaly measuring 4 kilometres by 2 kilometres discovered on its claims on the south western portion of the property, and the claims of the neighbouring former gold producer, Minera Roca Roja, which is in bankruptcy proceedings. The previously announced purchase of the Roca Roja claims was approved by the bankruptcy judge on February 23, 1999, with the final purchase price to be determined by appraisal. The Company is in the process of gaining access to the land containing the geochemical anomaly to commence drilling. Campbell has been advised that a Temporary Occupation Resolution was granted by the Mexican government on March 17, 1999. This Resolution was sought as a consequence of being unable to come to a satisfactory financial arrangement with the surface rights holder. Based on recent encouraging progress it is expected that access to both targets will be possible late in the first quarter of 1999. Average Market Gold Price of US$294 The gold price continued to disappoint gold producers and investors alike during 1998, averaging US$294 per ounce. The falling US dollar, the covering of some hedge fund short positions and renewed investment demand for gold have all failed to significantly rally the price. The continued perceived threat of central bank sales will likely continue to act as a cap on prices although many are forecasting a slight recovery during 1999. Campbell has incorporated these lower prices into its normal review of the carrying value of its mining interests. The Company compared the future estimated net revenues to be generated from its properties to their carrying amounts assuming gold prices of US$300 per ounce of gold for 1999, US$315 for 2000 and US$325, thereafter. As a result of this analysis the Company wrote down the carrying value of its Cerro Quema project in Panama by $10.2 million. During 1997 the Company wrote down the carrying amount for the Joe Mann Mine by $28 million. Also during 1998, the Company incurred a loss on the sale of surplus mining equipment of $2 million, wrote down obsolete supplies inventory at its Santa Gertrudis mine by $0.5 million and sold its interest in the Wildcat property in Nevada recognizing a gain of $0.2 million. FINANCIAL RESULTS For the year ended December 31, 1998, the Company recorded a loss of $20.8 million, or $0.14 per share, compared to a loss of $40.4 million ($0.27 per share) in 1997 and income of $9 million ($0.06 per share) in 1996. Excluding the writedown and loss on sale of mining interests of $12.5 million (1997 - $31.7 million; 1996 - $nil), there was a loss from operations of $10.1 million in 1998 compared to a loss from operations of $12.2 million in 1997 and income from operations of $6.7 million in 1996. The cessation of uneconomic mining operations in Mexico in December, 1997 contributed to the 1998 results. The loss from operations in 1997 compared to income in 1996 is principally due to lower gold prices, a decrease in gold production and higher mining costs and exploration expense at the Santa Gertrudis Mine. 15 18 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ REVENUE
Gold produced (ounces): 1998 1997 1996 Joe Mann Mine 70,100 73,500 70,400 Santa Gertrudis Mine 12,300 39,200 54,400 - -------------------------------------------------------------------------------- 82,400 112,700 124,800 - -------------------------------------------------------------------------------- Gold revenue per ounce US$304 US$336 US$396 Average market price US$294 US$331 US$388
Revenue from metal sales decreased in 1998 by 31% to $36.4 million compared to $52.6 million in 1997 and $67.2 million in 1996. The decrease in 1998 was attributable to a 10% reduction in the gold price realized during the year and a 27% decrease in gold production to 82,400 ounces compared to 112,700 ounces in 1997. This was offset to an extent by the weakening of the Canadian dollar by approximately 7%. The decrease in 1997 revenues relative to 1996 was largely due to lower gold prices and lower gold production attributable to lower grade material mined at the Santa Gertrudis Mine and the cessation of mining operations in early December, 1997. The average gold price realized compared to the average market price is disclosed in the table above. The difference between the price realized and the market price is primarily attributable to the Company's limited hedging activities. Campbell's general policy is to hedge a maximum of 50% of its gold production for up to two years, dependent on market conditions and planned capital expenditure commitments. The Company is currently considering longer-term hedging strategies for its Joe Mann Mine following the recently announced decision to fully develop all six levels below the 2350 level. With respect to gold price hedging, the Company may either sell gold forward in U.S. dollars or in Canadian dollars. With respect to the Joe Mann Mine in Canada, the Company may also enter into a U.S. / Canadian dollar forward sale agreement to fix the sale proceeds on anticipated gold sales in Canadian dollars and therefore fund the operating and capital expenses of the Canadian operation. As disclosed in the notes to the financial statements, under Canadian GAAP the Company recognizes the gain or loss on these financial instruments in sales revenue when the related production is delivered as they are considered hedges of future production revenue. Under U.S. GAAP foreign exchange forward contracts would be marked to market at the balance sheet date and any gains or losses included in income at that time (see note 12 to Consolidated Financial Statements). Revenues from copper production at the Joe Mann Mine accounted for 4.8% of total revenue in 1998 compared to 3.6% in 1997 and 3.1% in 1996. The increase is due to the reduction in total revenues as a result of the decrease in gold production from Santa Gertrudis. Copper production decreased to 1.3 million pounds compared to 1.4 million pounds in 1997 and 1.5 million pounds in 1996 as a result of lower copper grades. EXPENSES
Cash Cost per Ounce 1998 1997 1996 Joe Mann Mine US$257 US$264 US$272 Santa Gertrudis Mine US$242 US$333 US$227 - -------------------------------------------------------------------------------- Overall US$255 US$288 US$252
Mining expense decreased to $33.4 million in 1998 compared to $46.7 million in 1997 and $44.7 million in 1996 as a result of the cessation of mining operations at the Santa Gertrudis Mine in December, 1997. The increase in 1997 compared to 1996 was primarily due to mining ore at Santa Gertrudis with higher waste to ore ratios compared to 1996. Joe Mann Mine Production from the Joe Mann Mine decreased by 4.6% to 70,100 ounces of gold in 1998 compared to 73,500 ounces in 1997 and 70,400 ounces in 1996. The decrease is primarily attributable to lower mill head grades of 0.252 ounces of gold per ton in 1998 compared to 0.30 in 1997 and 0.29 in 1996. Mill recoveries increased to 94.3% in 1998 compared to 93.9% in 1997 and 93.2% in 1996. As noted in the third quarter, mill recoveries have been steadily increasing over the last few years from approximately 91% in 1993 to the current levels of 94.3%. This has been achieved as a result of the mill improvements in 1994 and the work of the mill staff in fine tuning the process. The tons of ore milled increased to 299,000 tons in 1998 compared to 266,000 tons in 1997 and 1996. The decrease in cash costs per ounce of gold produced in 1998 is largely a result of the weaker Canadian dollar and for 1997 is primarily attributable to higher gold production. For 1999 the Joe Mann Mine is expected to produce approximately 78,000 ounces of gold at a cash cost of US$250 per ounce which assumes that mining commences from the new ore zone on the 2500 level late in the second quarter. 16 19 - ---------------- Financial Review - ---------------- Santa Gertrudis Mine During 1998, the Santa Gertrudis Mine produced 12,300 ounces of gold as a result of the continued application of cyanide solutions to the heaps on the leach pads. This process was completed in December, 1998. The cash cost per ounce of US$242 per ounce of gold produced in 1998 is higher than it would otherwise be as it includes all overhead costs associated with keeping the mine infrastructure in place while the exploration effort is ongoing. The 1997 cash production cost per ounce of gold, excluding the severance and related closure costs, increased by 47% compared to 1996 as a result of the lower gold production and the fixed nature of a portion of the mine's costs. Depreciation and Amortization Depreciation and amortization expense was $6.2 million in 1998 and $9.6 million in 1997 and 1996. The amortization on a per ounce produced basis was $75 per ounce in 1998 compared to $85 in 1997 and $78 in 1996. The decrease in amortization per ounce in 1998 is primarily due to the impact of the writedown of the Joe Mann Mine in 1997. The increase in amortization per ounce in 1997 is due to a higher proportion of gold production being generated from the Joe Mann Mine which then had a higher depreciable base than the Santa Gertrudis Mine. Exploration Total exploration expenditures for 1998 were $2.8 million compared to $4.7 million in 1997 and $7.2 million in 1996. Of this amount, $0.5 million (1997 - $0.6 million; 1996 - $1.7 million) relates to the Joe Mann Mine and $2.3 million (1997 - $3.7 million; 1996 - $4.9 million) relates to the Santa Gertrudis Mine. The Santa Gertrudis expenditures for 1998 were expensed. The Santa Gertrudis expenditures for 1997 and 1996 and the Joe Mann expenditures for all three years have been capitalized to mining interests in accordance with the Company's accounting policies. In addition to the 1998 Santa Gertrudis exploration expenditures the expense for 1998 includes $2 million (1997 - $5 million; 1996 - $2.6 million) representing the write-off (1997 and 1996 write-off and amortization) of exploration costs at the Santa Gertrudis Mine that had been previously capitalized. The write-off is with respect to individual exploration target costs where economic mineralization was not identified and the amortization is with respect to production from the mine during the respective year. OTHER INCOME (EXPENSE) Other income was $2.4 million in 1998 compared to $2.1 million in 1997 and $3.6 million in 1996. The major component, interest income on short-term deposits, increased to $2 million from $1.8 million in 1997 and $3.2 million in 1996. The increase during 1998 was due to higher short-term interest rates. The decrease in 1997 was due to lower interest bearing balances as a result of the capital expenditure programs at the Cerro Quema project and Joe Mann Mine. Interest expense on the Company's convertible debentures was $0.5 million in 1998 compared to $0.6 million in 1997 and $0.7 million in 1996. The decrease is attributable to the continuing conversion of a portion of the debentures to common shares (see note 5 to Consolidated Financial Statements). INCOME TAXES The Company recorded income tax expense of $0.1 million in 1998 compared to a recovery of $2 million in 1997 and an expense of $0.6 million in 1996. Reference should be made to note 7 to the Consolidated Financial Statements for additional information on the reported tax provisions. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, the Company's working capital decreased to $45.7 million compared to $49 million in 1997 and includes cash and short-term deposits of $41.5 million in 1998 and $41.7 million in 1997. Cash flow from operations before the net change in non-cash operating working capital decreased to $0.4 million in 1998 compared to $0.6 million in 1997 and $21.4 million in 1996. Based on a US$300 per ounce average gold price for 1999 and the production estimates noted above, the Company believes it will achieve a modest positive operating cash flow in 1999. The main source of cash for the Company during 1998 was from the sale of surplus mining equipment and the Wildcat property in Nevada which yielded $3.7 million, and the reduction in operating working capital. The main source of cash during 1997 was the early termination of various gold hedging instruments totalling 118,100 ounces which resulted in cash proceeds of $9,679,000. Sources of cash in 1996, other than from operations, was the issuance of 18 million common share and purchase warrant units for net proceeds of $28.6 million. 17 20 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ Capital Expenditures Capital expenditures were as follows ($000's):
1998 1997 1996 Joe Mann Mine - sustaining $ 2,017 $ 2,360 $ 3,951 - shaft deepening 4,452 6,564 1,598 - -------------------------------------------------------------------------------- 6,469 8,924 5,549 Santa Gertrudis Mine 82 3,091 4,870 Cerro Quema Project 1,580 17,200 3,411 Other 10 68 138 - -------------------------------------------------------------------------------- $ 8,141 $29,283 $13,968 - --------------------------------------------------------------------------------
YEAR 2000 The Company has substantially completed the process of cataloguing all computer hardware and software as well as all other applications and processes which may be date sensitive, as it relates to the Company's corporate office and the Joe Mann Mine. Supplies and services provided by external suppliers are also being reviewed to obtain assurance they will not be interrupted as a result of Year 2000 issues. The Company has engaged external consultants to assist in identifying which individual personal computers need to be replaced or upgraded and which software packages need to be upgraded to ensure they are Year 2000 compliant. This process has largely been completed other than for the Mexican operations which will be evaluated as part of the feasibility for any future production decision. New equipment and software will be installed during the second quarter. To date the Company is not aware of any significant modifications required to the non-computer applications at the Joe Mann Mine. The cost to make the Company's operations Year 2000 compliant is not expected to be material. OUTLOOK For 1999, in addition to continuing to exercise financial discipline, Campbell will focus its efforts in three areas. First, implementing the new mine plan at the Joe Mann Mine which will now be expanded to include delineating the new ore zone. The new zone is known to contain over three hundred thousand tons of possible ore on the 2500 level and is still open at depth. Given its proximity to the shaft and the width of the new ore zone this could result in a significant increase in annual production at a reduced cash cost. Once the zone is better delineated the long-range mine plan will be updated. Second, at Santa Gertrudis the focus will be on completing the process of gaining access to the promising exploration targets in the two main areas of interest described earlier and initiating the drill program thereon. Campbell has budgeted US$500,000 for an initial work phase that will last for three to four months. Thereafter the results will be reviewed and a budget developed for the balance of the year. Third, Campbell will continue its search for acquisition or merger opportunities which are in the best interests of its shareholders. Significant management and consultant effort was expended again during 1998 conducting site due diligence on a number of properties. However, due to various factors ranging from poor results of the due diligence to the price none of these has resulted in a transaction. 18 21 Financial Review MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING - -------------------------------------------------------------------------------- The accompanying consolidated financial statements of the Company were prepared by management in accordance with accounting principles generally accepted in Canada, consistently applied and within the framework of the summary of significant accounting policies in these consolidated financial statements. Management is responsible for all information in the annual report. All financial and operating data in the annual report is consistent, where appropriate, with that contained in the consolidated financial statements. A system of internal accounting control is maintained in order to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. This system includes established policies and procedures, the selection and training of qualified personnel and an organization providing for appropriate delegation of authority and segregation of responsibilities. The Board of Directors discharges its responsibilities for the consolidated financial statements primarily through the activities of its Audit Committee composed of three directors, none of whom are members of management. This Committee meets with management to assure that it is performing its responsibility to maintain financial controls and systems and to approve the annual consolidated financial statements of the Company. The Audit Committee also meets with the independent auditors to discuss the results of their audit and their audit report prior to submitting the consolidated financial statements to the Board of Directors for approval. The consolidated financial statements have been audited on behalf of the shareholders by the Company's independent auditors, KPMG LLP, in accordance with generally accepted auditing standards. The auditors' report outlines the scope of their examination and their opinion on the consolidated financial statements. /s/ John O. Kachmar John O. Kachmar President and Chief Executive Officer /s/ Paul J. Ireland Paul J. Ireland Vice President, Finance and Chief Financial Officer AUDITORS' REPORT TO THE SHAREHOLDERS - -------------------------------------------------------------------------------- We have audited the consolidated balance sheets of Campbell Resources Inc. as at December 31, 1998 and 1997 and the consolidated statements of operations, retained earnings (deficit) and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1998 and 1997 and the results of its operations and the cash flows for each of the years in the three-year period ended December 31, 1998 in accordance with generally accepted accounting principles. /s/ KPMG LLP Chartered Accountants Toronto, Canada February 18, 1999 19 22 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- as at December 31, (Expressed in thousands of Canadian dollars)
1998 1997 ASSETS Current assets Cash and short-term deposits $ 41,493 $ 41,735 Receivables 2,653 4,805 Inventories (note 2) 4,538 7,250 Prepaids 474 995 - -------------------------------------------------------------------------------- Total current assets 49,158 54,785 - -------------------------------------------------------------------------------- Other assets (note 3) 502 986 Mining Interests (note 4) 53,117 68,111 - -------------------------------------------------------------------------------- Total assets $ 102,777 $ 123,882 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 2,254 $ 3,989 Accrued liabilities 1,215 1,788 - -------------------------------------------------------------------------------- Total current liabilities 3,469 5,777 - -------------------------------------------------------------------------------- Reclamation and other liabilities 2,571 1,442 Convertible debentures (note 5) 5,652 7,341 Deferred mining taxes 3,616 4,198 Shareholders' equity Capital stock (note 6) 123,632 121,425 Foreign currency translation adjustment 1,394 408 Deficit (37,557) (16,709) - -------------------------------------------------------------------------------- Total shareholders' equity 87,469 105,124 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 102,777 $ 123,882 ================================================================================
Commitments and contingencies (note 8) Approved by the Board /s/ James D. Beatty Director /s/ John O. Kachmar Director See accompanying notes to the consolidated financial statements. 20 23 - ---------------- Financial Review - ---------------- CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- for the years ended December 31, (Expressed in thousands of Canadian dollars except per share amounts)
1998 1997 1996 Metal sales $ 36,388 $ 52,635 $ 67,180 - --------------------------------------------------------------------------------------------------- Expenses Mining 33,449 46,681 44,667 General administration 2,648 3,203 3,064 Depreciation and amortization 6,211 9,587 9,604 Exploration 4,199 5,315 3,179 - --------------------------------------------------------------------------------------------------- 46,507 64,786 60,514 - --------------------------------------------------------------------------------------------------- Income (loss) from operations before writedown and loss on sale of mining interests (10,119) (12,151) 6,666 Writedown and loss on sale of mining interests (note 4) 12,508 31,684 - --------------------------------------------------------------------------------------------------- Income (loss) from operations (22,627) (43,835) 6,666 - --------------------------------------------------------------------------------------------------- Other income (expense) Other income 2,396 2,096 3,595 Convertible debenture interest expense (526) (639) (661) - --------------------------------------------------------------------------------------------------- 1,870 1,457 2,934 - --------------------------------------------------------------------------------------------------- Income (loss) before taxes (20,757) (42,378) 9,600 Income and mining taxes (recovery) (note 7) 91 (1,968) 588 - --------------------------------------------------------------------------------------------------- Net income (loss) $(20,848) $(40,410) $ 9,012 =================================================================================================== Earnings (loss) per share (note 6) $ (0.14) $ (0.27) $ 0.06 ===================================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT) - -------------------------------------------------------------------------------- for the years ended December 31, (Expressed in thousands of Canadian dollars)
1998 1997 1996 Balance at beginning of year $(16,709) $23,701 $14,689 Net income (loss) (20,848) (40,410) 9,012 - --------------------------------------------------------------------------------------------------- Balance at end of year $(37,557) $(16,709) $23,701 ===================================================================================================
See accompanying notes to the consolidated financial statements. 21 24 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- for the years ended December 31, (Expressed in thousands of Canadian dollars)
1998 1997 1996 Cash provided by (used in): Operating activities Net income (loss) $(20,848) $(40,410) $ 9,012 Items not involving cash Depreciation and amortization 6,211 9,587 9,604 Writedown and loss on sale of mining interests 12,508 30,239 Exploration amortized and written-off 1,980 4,998 2,599 Deferred mining taxes (recovery) (582) (2,569) 358 Other 1,142 (1,289) (134) - ---------------------------------------------------------------------------------------------------------- 411 556 21,439 Net change in non-cash operating working capital 2,551 2,945 (2,478) - ---------------------------------------------------------------------------------------------------------- 2,962 3,501 18,961 - ---------------------------------------------------------------------------------------------------------- Financing activities Issues of capital stock 2,207 2,820 33,565 Conversion of convertible debentures (2,030) (611) (3,006) - ---------------------------------------------------------------------------------------------------------- 177 2,209 30,559 - ---------------------------------------------------------------------------------------------------------- Investing activities Expenditures on mining interests (8,141) (29,283) (13,968) Proceeds on sale of assets 3,876 Termination of hedging contracts 9,679 Acquisition of Cerro Quema gold project (13,185) Mining tax credits received 669 Decrease in other assets 313 165 214 - ---------------------------------------------------------------------------------------------------------- (3,952) (19,439) (26,270) - ---------------------------------------------------------------------------------------------------------- Effect of exchange rate change on cash and short-term deposits 571 162 (219) - ---------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and short-term deposits (242) (13,567) 23,031 Cash and short-term deposits at beginning of year 41,735 55,302 32,271 - ---------------------------------------------------------------------------------------------------------- Cash and short-term deposits at end of year $ 41,493 $ 41,735 $ 55,302 ========================================================================================================== Changes in non-cash operating working capital Receivables $ 2,152 $ 3,465 $ (433) Inventories and prepaids 2,707 1,638 (2,997) Accounts payable (1,735) (1,515) 1,184 Accrued liabilities (573) (643) (232) - ---------------------------------------------------------------------------------------------------------- $ 2,551 $ 2,945 $ (2,478) ==========================================================================================================
See accompanying notes to the consolidated financial statements. 22 25 - ---------------- Financial Review - ---------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Tabular amount are expressed in thousands of Canadian dollars) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared by management in accordance with accounting principles generally accepted in Canada and, except as described in note 12, conform in all material respects with accounting principles generally accepted in the United States. The principal accounting policies followed by the Company, which have been consistently applied, are summarized as follows: Intercorporate Investments: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. Cash and Short-Term Deposits: Cash and short-term deposits includes short-term money market instruments which are highly liquid and intended to be held to maturity and are carried at amortized cost which approximates market. The Company's policy is to invest in highly rated instruments and to limit the amount of credit exposure to any one institution. Inventories: Mining and milling materials and supplies are valued at the lower of average cost and net replacement cost. Work-in-process is valued at the lower of average production cost or net realizable value. Production costs include direct labour, benefits, supplies and equipment operating costs and maintenance. Mining Interests: Plant and equipment are recorded at cost with depreciation generally provided either on the unit-of-production method over the estimated economic life of the mine to which they relate or on the straight-line method over their estimated useful lives. Mining properties and deferred mining expenditures are recorded at cost and are depleted on the unit-of-production method over the estimated economic life of the mine to which they relate. Development costs incurred to expand existing capacity, develop new ore bodies and develop property substantially in advance of production are capitalized. Exploration expenditures are charged to income in the period incurred except where these costs relate to specific properties for which economically recoverable reserves exist, in which case they are deferred. Significant property payments for active exploration properties are capitalized. If no mineable ore body is discovered, previously capitalized costs are expensed. Mining properties and deferred expenditures are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future net cash flows expected to result from the use of the properties and their eventual disposition are less than the carrying amount, then these properties are written down to their estimated recoverable amount determined on a non-discounted basis. Site Restoration: Provisions are established for estimated future costs of site restoration of mining properties, including the removal of production facilities at the end of their useful lives. Costs are based upon estimates of the anticipated method and extent of site restoration to meet current legal and industry standards. These standards are continually changing and the estimated provision is reviewed annually. The amount of the provision is amortized over the estimated life of the underlying asset and the annual charge, determined on the same basis as the amortization of the underlying asset, is included in mining costs. Recognition of Metals Revenue: Gold and copper revenues are recognized at the time of production. Receivables include gold and gold concentrate settled subsequent to year end, which are recorded at estimated net realizable value. Commodity and Foreign Exchange Contracts: The Company uses forward and option contracts to hedge the effect of exchange rate changes on foreign currency exposures, and forward and option contracts to hedge the effect of price changes on a portion of the commodities it sells. Gains and losses on hedging instruments that effectively establish prices for future production are not recognized in income until reflected in sales revenue when the related production is delivered. From time to time, the Company has entered into options contracts for the sale of commodities not designated as hedges. These contracts are carried at quoted market values and gains and losses arising from the changes in the market values of these contracts are recognized in earnings in the period in which the changes occur. Currency Translation: The U.S. dollar is considered to be the functional currency of the Company's Mexican operations as most of those activities are conducted in U.S. dollars. Accordingly, the Mexican operations are translated from Mexican pesos into U.S. dollars using the temporal method whereby monetary assets and liabilities are translated at the year end rate of exchange and non-monetary assets and liabilities are translated at historical rates of exchange. Exchange gains or losses are included in the determination of earnings. 23 26 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ The U.S. dollar financial statements of the Mexican operations are translated into Canadian dollars at the year end rate of exchange for the balance sheet and the average rate of exchange for the year for the statement of income. Exchange gains or losses are included as a separate component of shareholders' equity. The Panamanian operations are translated into Canadian dollars using the temporal method. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expense during the period. Actual results could differ from estimates. During the fiscal periods presented, management has made a number of significant estimates and valuation assumptions, including estimates of the net realizable value of accounts receivable, inventory, the useful lives of capital assets, the recoverability of net resource properties, the future costs associated with environmental and site restoration matters, and the fair value of financial assets and liabilities. These estimates and valuation assumptions are based on current information and management's planned course of action, as well as assumptions about future business and economic conditions. Should the underlying valuation assumptions and estimates change, the recorded amounts could change by a material amount. Comparative Figures: Certain comparative figures have been reclassified to conform with the current financial statement presentation. 2 INVENTORIES
1998 1997 Materials and supplies $4,538 $5,519 Work-in-process 1,731 - -------------------------------------------------------------------------------- $4,538 $7,250 ================================================================================
3 OTHER ASSETS
1998 1997 Advances $ 257 $ 590 Deferred financing costs 434 603 - -------------------------------------------------------------------------------- 691 1,193 Accumulated amortization 189 207 - -------------------------------------------------------------------------------- $ 502 $ 986 ================================================================================
4 MINING INTERESTS
1998 1997 Accumulated Accumulated Depreciation and Depreciation and Cost Amortization Net Cost Amortization Net ------------------------------------------ ------------------------------------------ Property, plant & equipment $ 24,850 $ 16,138 $ 8,712 $ 29,239 $ 14,639 $ 14,600 Mining properties and deferred expenditures 149,016 104,611 44,405 122,495 87,506 34,989 Construction in progress 18,522 18,522 - ----------------------------------------------------------------------------------------------------------------------- $173,866 $120,749 $ 53,117 $170,256 $102,145 $ 68,111 =======================================================================================================================
During 1998, as part of its periodic evaluation of the carrying value of its mining interests, the Company wrote down the carrying value of its Cerro Quema project in Panama by $10,200,000. In 1997 the Company wrote down the carrying value of the Joe Mann Mine by $28,000,000. During 1992, the Company entered into agreements under which the Societe Quebecoise d'Exploration Miniere ("Soquem") could earn a 50% interest in the Joe Mann property (excluding the Joe Mann Mine) and in the Company's other properties in the Chibougamau area by incurring specified amounts on exploration on those properties. To July 1, 1997, Soquem had incurred total qualifying expenditures under the previous agreements of $2,548,000 on the Joe Mann property and $2,431,000 on the Chibougamau property. Effective July 2, 1997, the agreements were modified to provide that Soquem spend an additional $1,600,000 on the Joe Mann property and an additional $750,000 on the Chibougamau property from the effective date until June 1, 2002 to earn a 50% interest in each of the properties. To December 31, 1998, Soquem had incurred total qualifying expenditures under the new amendment of approximately $83,000 on the Joe Mann property and $31,000 on the Chibougamau area property. On January 26, 1996 the Company purchased the right of first refusal to acquire a 100% interest in the shares of Minera Cerro Quema, SA, whose primary asset is the Cerro Quema gold project in Panama. Concurrently the Company exercised the right of first refusal and purchased the shares for US$8,372,000 cash closing on March 4, 1996. The Company paid the former holder of the right of first refusal ("CEMSA") US$250,000 cash and issued 730,000 common shares on closing and an additional US$250,000 cash and 730,000 common shares on February 21, 1997 following approval by the Board of Directors of a positive feasibility study for the Cerro Quema gold project. The aggregate cost of the acquisition, including the cost of reducing the royalty payable to CEMSA from 3.5% to 2% through the issuance of 1,040,000 common shares, and expenses, amounted to $15,598,000 and has been included in mining interests. 24 27 - ---------------- Financial Review - ---------------- 5 CONVERTIBLE DEBENTURES In July 1994, the Company issued US$11,005,000 of 7.5% Convertible Subordinated Debentures. The debentures are unsecured, bear interest at 7.5% payable in arrears on June 1 and December 1 each year and mature on July 21, 2004. The debentures are convertible at the option of the holder into common shares of the Company at any time prior to maturity at a conversion of US$0.50 per common share. The debentures are redeemable for cash at any time after the fifth anniversary of the date of issue or, at the Company's option, may be redeemed in common shares on the basis of one common share for each US$0.50 of debenture principal being redeemed. The right of the Company to redeem the debentures for cash or common shares is conditional on the average price of the Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to notice of redemption. The Company may, at its option, repay the debenture at maturity by issuing common shares of the Company at the conversion price of US$0.50 per common share. During 1998, debenture holders converted US$1,444,000 (1997 - US$454,000; 1996 - US$2,307,000) of debenture principal into 2,888,000 (1997 - 908,000; 1996 - 4,614,000) common shares of the Company resulting in a balance outstanding at December 31, 1998 of US$3,693,000 (1997 - US$5,137,000; 1996 - US$5,591,000). 6 CAPITAL STOCK a) Authorized shares Preference shares - unlimited, issuable in series, without par value Common shares - unlimited b) Issued and outstanding shares (in thousands)
1998 1997 1996 Shares Amount Shares Amount Shares Amount Common shares: Balance at beginning of period 151,445 $121,425 148,588 $118,605 124,466 $ 85,040 Issued: Conversion of convertible debentures 2,888 2,030 908 611 4,614 3,006 Public issue for cash 18,000 28,585 Issued to CEMSA (note 4) 1,770 2,071 730 1,256 Employee Incentive Plan and Directors' Stock Option Plan 353 177 179 138 778 718 - ------------------------------------------------------------------------------------------------------------- 154,686 $123,632 151,445 $121,425 148,588 $118,605 =============================================================================================================
c) Employee Incentive Plan The Employee Incentive Plan comprises a Share Option Plan, a Share Purchase Plan, a Share Bonus Plan and a Share Loan Plan. The Share Purchase Plan calls for Company contributions of an amount equal to 50 per cent of the employees' contributions, which can amount to a maximum of 5 per cent of their basic annual salaries or wages. The common shares are issued on a quarterly basis at market value. Under the Share Bonus Plan, shares can be issued to full-time salaried employees as a bonus in recognition of services as determined by the Compensation Committee or the Board of Directors. The Share Loan Plan provides the Compensation Committee or the Board of Directors the discretion to make loans to full time employees to enable them to acquire shares in the Company. No loans are outstanding under this plan. Options granted under the Directors' and Employee share option plans expire not later than five years from the date on which they were granted and all current options expire on or before August 18, 2003. Changes in the share option plans are as follows (in thousands):
1998 1997 1996 Balance at beginning of year 7,250 7,175 5,090 Granted 2,325 450 2,900 Exercised (19) (790) Expired (2,550) (356) (25) - -------------------------------------------------------------------------------- Balance at end of year 7,025 7,250 7,175 ================================================================================ Average option price at end of year $ 0.93 $ 1.15 $ 1.18 ================================================================================ Options exercisable at end of year 5,994 6,037 5,319 ================================================================================ Average price for options exercised during year $ n/a $ 0.57 $ 0.82 ================================================================================
d) Common share purchase warrants As part of a public offering of units consisting of common shares and warrants in February, 1996, the Company issued 9,000,000 warrants which entitled the holder to purchase one common share of the Company for US$1.50 on or before February 26, 1999. All of the warrants expired unexercised. e) Earnings (loss) per share The weighted average number of common shares outstanding during the year ended December 31, 1998 used to calculate the earnings (loss) per common share amounted to 153,532,000 (1997 - 150,548,000; 1996 - 145,907,000). Outstanding warrants and options were not dilutive to earnings (loss) per share in any of the periods presented. 25 28 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ 7 INCOME AND MINING TAXES a) Geographic components The geographic components of income (loss) before taxes is as follows:
1998 1997 1996 Canada $ (6,562) $(32,729) $ 3,089 Mexico (3,855) (9,101) 6,511 Panama (10,340) (548) - -------------------------------------------------------------------------------- $(20,757) $(42,378) $ 9,600 ================================================================================
The geographic components of income and mining taxes is as follows:
1998 1997 1996 Current income tax expense: Canada $ 55 $ 220 $ 229 Mexico 618 381 1 - -------------------------------------------------------------------------------- 673 601 230 Deferred mining tax expense (recovery) - Canada (582) (2,569) 358 - -------------------------------------------------------------------------------- $ 91 $(1,968) $ 588 ================================================================================
b) Deferred mining taxes The payment of certain mining taxes is deferred due to the recognition of amounts for tax purposes in different periods than for accounting purposes. The principal timing difference is depreciation and amortization. c) Loss carry forwards At December 31, 1998, the Company and its subsidiaries had operating losses for income tax purposes in Canada approximating $640,000 and in Mexico approximating $19,100,000 which are available to reduce taxes in future years and expire over the period to the year 2007. In addition, the Company and its subsidiaries had net capital losses for income tax purposes in Canada of approximately $15,100,000 available to apply against future taxable capital gains. The Company's subsidiary has an additional $17,200,000 of net capital loss carry forwards which have not been accepted by the tax authorities. The Company is objecting to the tax authorities' position. The Company also had unclaimed deductions for Canadian Federal income tax purposes in excess of carrying values for financial statement purposes of approximately $61,000,000 in Canada and $12,500,000 in its foreign subsidiaries. The potential future benefit of these tax losses and deductions has not been recognized in these financial statements. d) Effective tax rate The provision for (recovery of) income taxes varies from the amounts that would be computed by applying the Canadian federal and provincial statutory tax rates of approximately 40% to income before taxes as follows:
1998 1997 1996 Expected income tax provision (recovery) using statutory income tax rates $ (8,341) $(16,785) $ 4,173 Resource allowance (67) (167) (1,800) Mining taxes (recovery) (582) (2,569) 358 Tax benefit of losses not currently recognized 7,541 16,952 1,235 Non-deductible expenses 867 Utilization of prior year losses carried forward (2,922) Foreign earnings subject to different tax rates (687) Other 673 601 231 - -------------------------------------------------------------------------------- Income and mining tax provision (recovery) $ 91 $ (1,968) $ 588 ================================================================================
8 COMMITMENTS AND CONTINGENCIES a) At December 31, 1998 the Company had sold calls for 33,200 ounces of gold in 2001 and 20,000 ounces of gold in 2002 at approximately US$350 per ounce. b) At December 31, 1998, the Company had sold forward US$7,000,000 to purchase Canadian dollars during 1999 at an average rate of Cdn$1.4473 to the US dollar. c) The Company's Joe Mann Mine is subject to a graduated net smelter return royalty increasing from 1.8% up to a gold price of Canadian $512 per ounce to 3.6% at a gold price of Canadian $625 per ounce. d) During 1996, the Company's Mexican subsidiary received import duty assessments following an audit claiming the subsidiary's interest in certain pieces of machinery and equipment with an approximate value of US$2,200,000 and levying taxes, penalties, interest and inflationary adjustments for a further Mexican pesos 9,200,000. On May 26, 1997, the Company received notice that it was successful in its appeal against the assessments and that the Mexican pesos 9,200,000 was not payable. The charge against the assets will be released when the final tax assessment covering this matter is issued in favour of the Company by the tax authorities. 26 29 - ---------------- Financial Review - ---------------- On May 6, 1998, the tax authorities issued a tax assessment identical to that issued in 1996 except that the amounts claimed have increased to Mexican pesos 18,000,000 as a result of inflation and additional interest. The Company has been advised that this assessment is improper as it completely ignores the earlier ruling. Accordingly the Company has filed a new appeal before the Federal Tax Court to nullify the assessment. No provision has been made in the financial statements for the amounts assessed on the basis of the earlier ruling and the legal advice received. e) During 1991, a subsidiary of the Company entered into a corporate restructuring and financing arrangement ("Arrangement") in which it issued to a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate Debentures and Notes ("Debentures") and $12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares ("Preferred Shares"). The Debentures are unsecured, subordinate to all existing non-trade debt and future senior debt, bear interest at varying rates, are repayable upon maturity in 2007, and cannot be prepaid. The Preferred Shares are redeemable at any time at an amount of $240,000 per Preferred Share, rank equally and parri passu with the common shares for dividends when declared, and are retractable in 2007. In order to secure the performance of the Debentures and Preferred Shares the Company's subsidiary entered into an Interest Rate and Currency Exchange Swap Agreement ("Swap Agreement") with a major international bank. The Swap Agreement provides for the conversion of one floating rate interest basis to another and for differences in the timing of payments so as to match the interest payment requirements under the Debentures, repay the Debentures upon maturity and retract the Preferred Shares. All payments are denominated in Canadian dollars. The Company's subsidiary placed Canadian dollar deposits with the counter party to the Swap agreement which deposits have been charged to secure the performance under the Swap Agreement. These deposits earn interest at Canadian Bankers Acceptance rates. The Swap Agreement was irrevocably assigned directly to the investors. Accordingly the bank is the primary obligor under the Arrangement. f) The Company is from time to time involved in various claims, legal proceedings and reassessments for income, mining and other taxes, arising in the ordinary course of business. The Company's current and proposed mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect its employees, the general public and the environment and, to the best of its knowledge, believes its operations are in compliance with all applicable laws and regulations, in all material respects. The Company has made, and expects to make in the future, submissions and expenditures to comply with such laws and regulations. Where estimated reclamation and closure costs are reasonably determinable, the Company has recorded a provision for environmental liabilities based on management's estimate of these costs. Such estimates are subject to adjustment based on changes in laws and regulations and as new information becomes available. g) The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. Although the Company is addressing this issue, it is not possible to be certain that all aspects of the Year 2000 Issue affecting the entity, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. 9 PENSION PLAN The Company maintains a defined benefit pension plan for certain employees which provides benefits based on length of service and remuneration. The most recent actuarial valuation of the plan was as at December 31, 1996. As at December 31, 1998, the estimated projected benefit obligation was approximately $2,754,000 (1997 - $2,659,000) and the market value of assets aggregated $3,508,000 (1997 - $3,410,000). 27 30 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ 10 SEGMENTED DATA The Company's operations consist principally of the exploration, development, mining and processing of precious metals in Canada, Mexico and Panama. The following is a summary of the Company's operations by geographic area:
1998 1997 1996 Revenue: Canada $31,030 $35,443 $38,226 Mexico 5,358 17,192 28,954 - -------------------------------------------------------------------------------- $36,388 $52,635 $67,180 ================================================================================
Revenues are attributed to countries based on the source of the production. During 1998 the Company sold approximately 35% (1997- 28%; 1996 - 24%) of its product to one smelter.
1998 1997 1996 Mining interests: Canada $33,054 $32,688 $59,821 Mexico 10,963 12,182 13,472 Panama 9,100 22,632 16,596 Other 609 683 - -------------------------------------------------------------------------------- $53,117 $68,111 $90,572 ================================================================================
11 FAIR VALUE AND CREDIT RISK DISCLOSURES At December 31, 1998 the fair value of the Company's convertible debentures was estimated to be $5,840,000 (1997 - $8,810,000) compared to the carrying amount of $5,652,000 (1997 - $7,341,000) based on a quoted price. The carrying amount of cash and short-term deposits, receivables and accounts payable in the consolidated balance sheets approximates fair value based on their short-term maturities. The fair value of the Company's foreign currency hedging contracts is a loss of approximately $576,000 (1997 - $505,000). The Company is exposed to credit-related losses in the event of non-performance by counter parties to financial instruments but does not expect any counter parties to fail to meet their obligations. The Company deals with only highly rated counter parties, normally major financial institutions including banks. The credit risk exposure of derivative instruments is represented by the fair value of contracts with a positive fair value at the reporting date. The credit risk represents the maximum amount that would be at risk if the counter parties failed completely to perform under the contracts. 12 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The reconciliation of net income (loss) determined in accordance with generally accepted accounting principles in Canada to net income (loss) determined under accounting principles which are generally accepted in the United States is as follows:
1998 1997 1996 Net income (loss) for year as reported $(20,848) $(40,410) $ 9,012 Depreciation and amortization (a) (9,389) 19,061 (1,513) Deferred income taxes (b) 285 (6,083) (158) Foreign exchange contracts (f) (576) - -------------------------------------------------------------------------------- Net income (loss) for the year in accordance with United States accounting principles $(30,528) $(27,432) $ 7,341 - -------------------------------------------------------------------------------- Other comprehensive income (loss): Foreign currency translation adjustments 986 656 (73) - -------------------------------------------------------------------------------- Comprehensive income (loss) for the year in accordance with United States accounting principles $(29,542) $(26,776) $ 7,268 ================================================================================ Earnings (loss) per share for the year in accordance with United States accounting principles Basic and fully diluted $ (0.20) $ (0.18) $ 0.05 ================================================================================
Differences between Canadian and United States accounting principles as they affect the Company's financial statements are as follows: a) Depreciation and Amortization Under Canadian accounting principles, depreciation and amortization may be calculated on the unit-of-production method based upon the estimated mine life, whereas under United States accounting principles the calculations are made based upon proven and probable mineable reserves. Under Canadian accounting principles capital assets should be written down to the net recoverable amount if this exceeds the carrying amount, whereas under United States accounting principles if the future net cash flows is less than the carrying amount the capital asset should be written down to its fair value. 28 31 - ---------------- Financial Review - ---------------- b) Deferred Income Taxes Under Canadian accounting principles income and mining taxes may be accounted for under the deferral method. Under United States accounting principles the asset and liability method (FAS 109) is used, whereby deferred tax assets and liabilities are recognized for the deferred taxes attributable to differences between book value and the tax basis of the Company's assets and liabilities. Significant components of the Company's deferred tax assets and liabilities under United States accounting principles are as follows:
1998 1997 Noncurrent deferred tax assets: Mining interests $ 37,956 $ 32,136 Operating loss carry forwards 6,745 6,309 Other 1,676 1,352 - -------------------------------------------------------------------------------- 46,377 39,797 Valuation allowance 45,281 38,057 - -------------------------------------------------------------------------------- $ 1,096 $ 1,740 - -------------------------------------------------------------------------------- Current deferred tax liabilities: Inventory $ 987 $ 1,679 Noncurrent deferred tax liabilities: Mining interests 869 1,736 Other 109 61 - -------------------------------------------------------------------------------- $ 1,965 $ 3,476 Net deferred tax liabilities $ (869) $ (1,736) ================================================================================
The tax loss carry forwards disclosed in note 7(c) and other temporary differences giving rise to deferred taxes have been tax effected for purposes of the above disclosure at the tax rate effective in the applicable jurisdiction, that is, 40% for Canada, 34% for Mexico. c) Stock Options Beginning in 1996, United States accounting principles allow, but do not require companies to record compensation cost for stock option plans at fair value. The Company has chosen to continue to account for stock options using the intrinsic value method as permitted under Canadian and United States accounting principles. The United States accounting pronouncement does, however, require the disclosure of pro forma net income and earnings per share information as if the Company had accounted for its employee stock options issued in prior years under the fair value method. Accordingly, the fair value of these options has been estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for each year; risk free interest rates for 1998 of 5.50% (1997 - 5.15-6.30%; 1996 - 5.25-5.70%); dividend yields of 0%; volatility factors of the expected market price of the Company's common shares of 55%; and a weighted average expected life of the options of four years. The weighted average grant date fair values of options issued in 1998, 1997 and 1996 were $0.21, $0.43 and $0.72, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is expensed over the options' vesting period, which is three years in the case of employees and immediately in the case of Directors. For the year ended December 31, 1998, the Company's pro forma net income (loss) and earnings (loss) per share in accordance with United States accounting principles are a net loss of $31,432,000 (1997 - net loss $27,951,000; 1996 net income of $6,385,000) and a loss of $0.20 (1997 loss of $0.19; 1996 earnings of $0.04). d) Statements of Cash Flows Under Canadian accounting principles, the issuance of common shares on the conversion of convertible debentures and as part of the purchase consideration for the acquisition of the Cerro Quema project has been reflected as a financing activity in the consolidated statements of cash flows. Under United States accounting principles, these non-cash transactions would have been excluded from financing activities and separately disclosed in the notes to the consolidated financial statements. Included in cash and short-term deposits at December 31, 1998 are investments of $nil (1997 - $28,097,000; 1996 - $49,427,000) with maturities on acquisition of greater than 90 days. Under United States accounting principles these investments would not be included in cash and short-term deposits. For the year ended December 31, 1998, under United States accounting principles the sources of cash from financing activities would be $177,000 (1997 - $138,000; 1996 - $29,303,000) the sources of cash from investing activities would be $24,145,000 (1997 - source of $3,962,000; 1996 - use of $74,441,000) and there would be a increase in cash and short-term deposits of $27,855,000 (1997 - increase of $7,763,000; 1996 - decrease of $26,396,000). The following additional disclosures are also required:
1998 1997 1996 Cash taxes paid $770 $695 $565 Cash interest paid $502 $616 $596
29 32 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ e) Contingent Liability Under United States accounting principles the contingent liability disclosed in note 8 (e) would be reflected in the balance sheet. Accordingly, under United States accounting principles total assets and liabilities would increase by $50 million. The increase in assets represents investments (non-current) comprising Canadian dollar payments under the Swap Agreement and Canadian dollar deposits with the counter party to the Swap Agreement. The liabilities (non-current) represent the Guaranteed Subordinate Debentures and Notes of $38 million and the Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares of $12 million which would be included outside of shareholders' equity. f) Foreign Exchange Contracts In accordance with Canadian accounting principles, certain long-term foreign exchange contracts are considered to be hedges of sales revenue denominated in foreign currencies or the cost of goods to be purchased in foreign currencies. Gains and losses related to changes in market values of such contracts are deferred and recognized when the contract is settled as part of sales revenue or the cost of purchased goods as appropriate. Under United States accounting principles, changes in the market value of the contracts would be included in current earnings. g) Balance Sheets The cumulative effect of the application of United States accounting principles, noted in (a) to (f) above, on the consolidated balance sheets of the Company as at December 31, 1998 and 1997 would be to decrease cash and short-term deposits and increase short-term investments each by $nil (1997 - $28,097,000), decrease mining interests by $23,403,000 (1997 - $14,014,000), increase other liabilities by $576,000 (1997 $nil), increase long-term investments by $50,000,000 (1997 - $50,000,000), increase long-term liabilities by $38,000,000 (1997 - $38,000,000), decrease deferred mining taxes by $2,747,000 (1997 - $2,462,000), increase preferred shares by $12,000,000 (1997 - $12,000,000) and reduce shareholders equity by $21,232,000 (1997 - $11,552,000). h) Other Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. The Company will be required to implement SFAS No. 133 for its fiscal year ending December 31, 2000. The Company has not yet determined the impact, if any, of the adoption of SFAS No. 133 on its reported financial position, results of operations or cash flows. 30 33 - ---------------- Financial Review - ---------------- FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- Year Ended December 31 1998 1997 1996 1995 1994 Operating results (in thousands): Metal sales $ 36,388 52,635 67,180 67,418 46,940 Net income (loss) $ (20,848) (40,410) 9,012 10,461 5,307 Cash flow from operations (before change in non-cash operating working capital) $ 411 556 21,439 18,703 5,970 Capital Expenditures $ 8,141 29,283 13,968 7,934 6,889 Financial position (in thousands): Cash and short-term deposits $ 41,493 41,735 55,302 32,271 23,172 Total assets $ 102,777 123,882 165,298 123,703 113,780 Long-term debt $ 5,652 7,341 7,657 10,782 15,438 Shareholders' equity $ 87,469 105,124 142,058 99,554 84,800 Per share data: Net income (loss) per share $ (0.14) (0.27) 0.06 0.09 0.05 Book value per share $ 0.57 0.69 0.96 0.80 0.72 Operational statistics: Gold production - ounces 82,400 112,700 124,800 120,100 81,300 Gold revenue per ounce - US dollars $ 304 336 396 402 410 Cash cost per ounce - US dollars $ 255 288 252 247 293 Shares outstanding (in thousands): At year end 154,686 151,445 148,588 124,466 117,528 Weighted average during year 153,532 150,548 145,907 121,214 117,274 Foreign exchange rate - US dollars: Year end/average $0.65/0.67 0.70/0.73 0.73/0.73 0.73/0.73 0.71/0.73 High/low $0.71/0.63 0.75/0.69 0.75/0.72 0.75/0.70 0.76/0.71
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, 1998 Metal sales $ 10,281 9,241 8,847 8,019 Loss from operations $ (2,151) (2,551) (3,575) (14,350) Net loss $ (1,730) (2,003) (3,190) (13,925) Net loss per share $ (0.01) (0.01) (0.02) (0.09) Year ended December 31, 1997 Metal sales $ 12,289 13,569 12,979 13,798 Loss from operations $ (3,260) (1,773) (3,650) (35,152) Net loss $ (2,782) (1,771) (3,368) (32,489) Net loss per share $ (0.02) (0.01) (0.02) (0.21)
31 34 - ------------------------------ [LOGO] Campbell Resources Inc. - ------------------------------ SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- Campbell Resources Inc. common shares are listed on the New York, Toronto and Montreal stock exchanges and trade under the symbol "CCH". Quarterly Trading Statistics
Common Share Prices - ---------------------------------------------------------------------------------------------- Toronto Stock Exchange New York Stock Exchange (Cdn$) (US$) - ---------------------------------------------------------------------------------------------- High Low Volume High Low Volume - ---------------------------------------------------------------------------------------------- 1998 4th Quarter 0.65 0.34 1,416,133 0.47 0.22 18,271,600 3rd Quarter 0.56 0.35 1,171,353 0.41 0.25 16,252,500 2nd Quarter 0.70 0.46 2,599,624 0.50 0.31 21,353,109 1st Quarter 0.80 0.50 2,496,000 0.63 0.34 24,880,500 - ---------------------------------------------------------------------------------------------- 1997 - ---------------------------------------------------------------------------------------------- 4th Quarter 1.02 0.51 2,311,854 0.75 0.34 34,417,134 3rd Quarter 1.00 0.68 2,348,237 0.81 0.50 15,816,900 2nd Quarter 1.12 0.85 3,595,200 0.81 0.56 14,138,200 1st Quarter 1.30 1.01 3,589,700 1.00 0.75 21,623,200 - ----------------------------------------------------------------------------------------------
[GRAPHIC OMITTED] CCH.TO Closing Closing Bid Spot Share Price Gold Price <<>> 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 - --------------------- Corporate Information - --------------------- BOARD OF DIRECTORS James D. Beatty (2,3) Chief Executive Officer Trinity Capital Corporation Graham G. Clow President & Chief Executive Officer Manhattan Minerals Corporation Rod P. Douglas (2) Mining Engineer John O. Kachmar (1) President & Chief Executive Officer Campbell Resources Inc. James C. McCartney, Q.C. (1,3) Partner, Law Firm of McCarthy Tetrault Donald R. Murphy (2) President, Societe de developpement de la Baie James Francis S. O'Kelly Mining Engineer G.E. 'Kurt' Pralle (3) Mining Engineer James D. Raymond (1) Private Investor (1) Member of Executive Committee (2) Member of Audit Committee (3) Member of Compensation Committee LEGAL COUNSEL McCarthy Tetrault Toronto, Ontario AUDITORS KPMG LLP Toronto, Ontario PRINCIPAL SUBSIDIARIES Meston Resources Inc. (Quebec, Canada) Oro de Sotula, S.A. de C.V. (Mexico) Dr. Guillermo Salas Piza, Chairman Minera Cerro Quema, S.A. (Panama) OFFICERS AND SENIOR MANAGEMENT James C. McCartney, Q.C. Chairman of the Board John O. Kachmar President & Chief Executive Officer Paul J. Ireland Vice President, Finance & Chief Financial Officer Lorna D. MacGillivray Vice President, Secretary & General Counsel William S. Hamilton Manager, Exploration Santa Gertrudis Steven Dawson Manager, Investor Relations OPERATIONS Joe Mann Mine Meston Resources Inc. Phone: (418) 745-2537 Fax: (418) 745-3238 Alain Coulombe, General Manager Santa Gertrudis Mine Oro de Sotula S.A. de C.V. Phone: (52-631) 76668 Fax: (52-631) 76668 Dave Loder, General Manager Cerro Quema Project Minera Cerro Quema, S.A. Phone: (507) 996-9978 Fax: (507) 996-2780 George J. Simchuk, Vice President & General Manager CORPORATE HEAD OFFICE Campbell Resources Inc. 120 Adelaide Street West Suite 1910 Toronto, Ontario Canada M5H 1T1 Phone: (416) 366-5201 Fax: (416) 367-3294 e-mail: invest@campbellresources.com Production: Walter J. Mishko & Co. Inc. Design: Kirkwood Communications Inc. Printed in Canada on re-cycled paper using vegetable based inks 36 Campbell Resources Inc. 120 Adelaide Street West, Suite 1910 Toronto, Ontario, Canada M5H 1T1 Telephone: (416) 366-5201 Fax: (416) 367-3294 EX-20.1 3 NOTICE AND PROXY CIRCULAR 1 CAMPBELL RESOURCES INC. Suite 1910, 120 Adelaide Street West Toronto, Ontario M5H 1T1 NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS NOTICE is hereby given that the Annual and Special Meeting of Shareholders of Campbell Resources Inc. (the "Corporation") will be held at the Toronto Board of Trade, Room "Ketchum", 3rd floor, Adelaide Street Entrance, 1 First Canadian Place, Toronto, Ontario on Tuesday, May 18th, 1999 at 10:00 A.M. (Eastern Daylight Saving Time) for the following purposes: 1. to receive the Consolidated Financial Statements of the Corporation and Auditors' Report thereon for the fiscal year ended December 31, 1998; 2. to elect directors for the ensuing year; 3. to consider and, if deemed advisable, to approve an increase in the maximum number of Common Shares that may be issued and reserved for issuance pursuant to the Employee Incentive Plan; 4. to appoint auditors for the ensuing year and to authorize the Directors to fix their remuneration; and 5. to transact such other business as may properly come before the Meeting or any adjournment or adjournments thereof. The Board of Directors of the Corporation has fixed the close of business on March 29, 1999 as the record date for the determination of shareholders entitled to notice of and to vote at the Meeting and any adjournment thereof. If you do not expect to be present at the Meeting, please sign, date and fill in the enclosed form of proxy and return it by mail in the enclosed addressed envelope. All instruments appointing proxies to be used at the Meeting must be deposited with the Secretary of the Corporation at the Corporation's office in Toronto, or at the office of the Corporation's transfer agent, Montreal Trust Company, in Toronto not later than 5:00 p.m. (Eastern Daylight Saving Time) on Friday, May 14, 1999. Shares represented by instruments appointing proxies that are not so deposited will not be voted at the Meeting. By Order of the Board of Directors Lorna D. MacGillivray Vice President, Secretary and General Counsel Dated: March 22, 1999. 2 CAMPBELL RESOURCES INC. PROXY CIRCULAR ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS THIS PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE MANAGEMENT AND BOARD OF DIRECTORS OF CAMPBELL RESOURCES INC. (THE "CORPORATION" OR "CAMPBELL") OF PROXIES TO BE VOTED AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS (THE "MEETING") TO BE HELD ON MAY 18, 1999 AT THE TORONTO BOARD OF TRADE, ROOM "KETCHUM", 3RD FLOOR, ADELAIDE STREET ENTRANCE, 1 FIRST CANADIAN PLACE, TORONTO, ONTARIO. The record date for determination of shareholders entitled to receive notice of the Meeting is March 29, 1999. If a person has acquired ownership of shares since that date he may, in accordance with the provisions of the Canada Business Corporations Act, produce properly endorsed share certificates or otherwise establish that he owns such shares and demand, not later than the close of business on May 10, 1999, to be included in the list of shareholders entitled to vote at the Meeting, in which case the transferee is entitled to vote his shares at the Meeting. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON, WHO NEED NOT BE A SHAREHOLDER, OTHER THAN THE PERSONS SPECIFIED IN THE ENCLOSED FORM OF PROXY TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING. SUCH RIGHT MAY BE EXERCISED BY STRIKING OUT THE NAMES OF MANAGEMENT'S NOMINEES IN THE ENCLOSED FORM OF PROXY AND INSERTING THE NAME OF THE PERSON TO BE APPOINTED IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY, SIGNING THE FORM OF PROXY AND RETURNING IT IN THE REPLY ENVELOPE PROVIDED. Any person giving a proxy may revoke it by depositing an instrument in writing executed by him or by his attorney authorized in writing at the registered office of the Corporation at any time up to the close of business on the last business day preceding the Meeting or any adjournment thereof or with the Chairman at the Meeting or in any other manner permitted by law. ALL PROPERLY EXECUTED PROXIES, NOT THERETOFORE REVOKED, WILL BE VOTED ON ANY POLL TAKEN AT THE MEETING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED THEREIN. IF NO INSTRUCTIONS ARE GIVEN WITH RESPECT TO ANY PARTICULAR MATTER, THE PROXY AUTHORIZES A VOTE IN FAVOUR OF SUCH MATTER AND IT WILL BY VOTED ACCORDINGLY. Proxies must be received by the Corporation not later than 5:00 p.m. (Eastern Daylight Saving Time) on Friday, May 14, 1999. All dollar amounts contained in this Proxy Circular are expressed in Canadian dollars unless specifically stated otherwise. As of March 22, 1999, the Noon Buying Rate in New York City for Canadian dollars was U.S.$0.6632. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF As of March 22, 1999, the Corporation had outstanding 155,486,121 Common Shares entitled to be voted at the Meeting. Each Common Share is entitled to one vote. 1 3 To the knowledge of the Corporation, as of March 22, 1999, the following are the only parties who beneficially owned or exercised control or direction over more than 5% of the Common Shares of the Corporation:
Name and Address Number of Common Shares Percentage of Class - ---------------- ----------------------- ------------------- Heartland Advisors, Inc. 12,000,000(1) 7.8% 790 North Milwaukee Street Milwaukee, WI 53202 David A. Rocker 8,698,000(2) 5.6% Rocker Partners, L.P. Suite 1759, 45 Rockefeller Plaza New York, New York 10111
1. Based on U.S. Securities and Exchange Commission Schedule 13G filing dated January 13, 1999. 2. Based on U.S. Securities and Exchange Commission Schedule 13G filing dated January 27, 1999. Includes: (i) 6,880,800 shares of Campbell Resources Inc. common stock owned by Rocker Partners, L.P., a New York limited partnership and (ii) 1,817,200 shares of Campbell Resources Inc. common stock owned by Compass Holdings, Ltd., a corporation organized under the International Business Companies Ordinance of the British Virgin Islands. David A. Rocker has sole voting and dispositive power over such 8,698,000 shares by virtue of his position as the sole managing partner of Rocker Partners, L.P. and, through Rocker Offshore Management Company, Inc. as investment adviser to Compass Holdings, Ltd. ELECTION OF DIRECTORS (ITEM NO. 2 OF NOTICE OF MEETING) Shareholders will be asked to elect nine directors to serve, subject to the Corporation's by-laws, until the next annual meeting of shareholders or until their respective successors have been duly elected or appointed. IT IS THE INTENTION OF THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY TO VOTE AT THE MEETING FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED BELOW. IF ANY SUCH NOMINEE SHOULD BE UNABLE TO SERVE, AN EVENT NOT CURRENTLY ANTICIPATED, PROXIES WILL BE VOTED FOR SUCH PERSON AS SHALL BE DESIGNATED BY THE BOARD OF DIRECTORS OF THE CORPORATION TO REPLACE SUCH NOMINEE. The following table sets forth certain information concerning the persons to be nominated for election as directors of the Corporation, including their beneficial ownership of Common Shares of the Corporation as of March 22, 1999. Unless otherwise indicated, each nominee holds sole voting and investment power over his shares.
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 54 2,500(1) * Toronto, Ontario Capital Corporation, Toronto, Ontario, investment company.
2 4
Number of Name & Municipality of Principal Occupation Director Common Percent Residence and Business Experience Since Age Shares of Class - --------- ----------------------- ----- --- ------ -------- Graham G. Clow Mining Engineer; President & Chief 1996 48 2,500(2) * North Vancouver, BC Executive Officer, Manhattan Minerals Corp., Vancouver, BC; prior to June, 1998, Senior Vice President, Operations, Breakwater Resources Ltd., President, CanZinco Ltd., Toronto, Ontario; prior to June, 1996, President, Granduc Mining Corporation; Toronto, Ontario, mining companies. Roderick P. Douglas Mining Engineer; Director of 1994 73 10,000(3) * Vancouver, BC Ashton Mining of Canada Inc., Vancouver, BC, mining company. John O. Kachmar President and Chief Executive 1992 62 190,000(4) * Toronto, Ontario Officer of the Corporation. James C. McCartney Q.C. Chairman of the Corporation; 1993 61 75,000(5) * Toronto, Ontario Partner, McCarthy Tetrault, Barristers & Solicitors, Toronto, Ontario; Director of Algoma Steel Inc., Sault Ste Marie, Ontario, steel company. Donald R. Murphy President, Societe de developpement 1987 55 nil(1)(6) - Rouyn/Noranda, Quebec de la Baie James, Matagami, Quebec, government owned corporation; Director of MSV Resources Inc., Montreal, Quebec; and Espalau Mining Corporation, Val d'Or, Quebec; mining companies. Francis S. O'Kelly Mining Engineer; Director of 1993 57 5,000(7) * New York, New York Glamis Gold Ltd., Vancouver, BC; mining company. G. E. "Kurt" Pralle Mining and Metallurgical 1993 64 100,000(7) * Ramsey, New Jersey Consultant.
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 73 10,000(8) * Montreal, Quebec Director of Cineplex Odeon Corporation, Toronto, Ontario, entertainment company; Canadian 88 Energy Corporation, Calgary, Alberta, oil and gas company; Denbridge Capital Corporation, Toronto, Ontario, manufacturers - radar and electronics.
Notes: (1) Excludes 500,000 Common Shares subject to option. (2) Excludes 250,000 Common Shares subject to option. (3) Excludes 350,000 Common Shares subject to option. (4) Excludes 1,350,000 Common Shares subject to option. (5) Excludes 800,000 Common Shares subject to option. (6) Excludes 26,110 Common Shares held by Societe de developpement de la Baie James of which Mr. Murphy is President. (7) Excludes 400,000 Common Shares subject to option. (8) Excludes 600,000 Common Shares subject to option. * Less than 1% of the outstanding Common Shares. As of March 22, 1999, the directors and officers of the Corporation as a group beneficially owned 493,184 Common Shares representing approximately 0.3% of the outstanding Common Shares of the Corporation excluding 5,925,000 Common Shares subject to option. The information as to Common Shares beneficially owned or over which control or direction is exercised, not being within the knowledge of the Corporation, has been furnished by the respective directors and officers individually. COMMITTEES OF THE BOARD OF DIRECTORS The Executive Committee of the Board of Directors consists of three directors, Messrs. Kachmar, McCartney and Raymond and has substantially all of the powers of the Board of Directors, except those required by law to be exercised by the Board of Directors. The Audit Committee of the Board of Directors consists of three directors, Messrs. Beatty, Douglas and Murphy. The Audit Committee reviews the Corporation's financial statements and audit procedures and reports thereon to the Board of Directors. The Compensation Committee consists of three directors, Messrs. Beatty, McCartney and Pralle. The Compensation Committee considers and approves compensation, remuneration and incentive arrangements for officers and senior employees of Campbell. The Corporation does not have a nominating committee. 4 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 $125,250 to the 9 incumbent directors in their capacities as such during the fiscal period ended December 31, 1998. In 1998, the Corporation purchased directors' and officers' liability insurance with a liability limit of $20,000,000 for which the Corporation paid an annual premium of $74,000 in 1998. The policy contains a deductible clause of $250,000 payable by the Corporation. In 1998, Mr. Francis S. O'Kelly, a director of the Corporation, provided consulting services to the Corporation for an aggregate of US$3,000. In 1998, the Corporation continued to engage the law firm McCarthy Tetrault of which James C. McCartney, Q. C., a director and chairman of the Corporation, is a senior partner to provide legal advice to the Corporation. An aggregate of $71,594 was paid to McCarthy Tetrault for legal services in 1998. DIRECTORS' STOCK OPTION PLAN At December 31, 1998, options to acquire an aggregate of 3,900,000 Common Shares were outstanding under the Directors' Stock Option Plan. During 1998, options to acquire an aggregate of 1,600,000 common shares at $0.44 were granted, primarily to replace options to acquire 1,400,000 common shares which expired on August 17, 1998, in accordance with their terms. These options expire on August 18, 2003. No options were exercised by the Directors during 1998. EXECUTIVE COMPENSATION The following table (presented in accordance with the regulation (the "Regulation") made under the Securities Act (Ontario)) sets forth all annual and long-term compensation for services in all capacities to the Corporation and its subsidiaries for the fiscal years ended December 31, 1998, 1997 and 1996 (to the extent required by the Regulation) in respect of the individuals who were at December 31, 1998, the Chief Executive Officer and the other most highly compensated individuals who were serving as executive officers of the Corporation and whose total salary and bonus exceeded $100,000 (the" Named Executive Officers"): 7 9 SUMMARY COMPENSATION TABLE
================================================================================================================================ Annual Compensation Long-Term Compensation --------------------------------------------------------------------------- Awards Payouts --------------------------------- Securities Under Restricted Other Options/ Shares or Annual SARs Restricted LTIP All Other Name and Salary Bonus Compensation granted Share Units Payouts Compensation Principal Position Year ($) ($) ($)(2) (#) ($) ($) ($) - -------------------------------------------------------------------------------------------------------------------------------- John O. Kachmar 1998 285,000 -- - 600,000 Nil Nil 17,250(3) President & Chief 1997 285,000 70,000(1) - -- Nil Nil 18,000(3) Executive Officer 1996 225,000 200,000 - 450,000 Nil Nil 18,000(3) - -------------------------------------------------------------------------------------------------------------------------------- Lorna D. MacGillivray 1998 130,000 -- - 150,000 Nil Nil Nil Vice President, 1997 130,000 15,000 - -- Nil Nil Nil Secretary & General 1996 115,000 56,500 - 150,000 Nil Nil 3,000(3) Counsel - -------------------------------------------------------------------------------------------------------------------------------- Paul J. Ireland 1998 130,000 -- - 75,000 Nil Nil Nil Vice President, Finance 1997 130,000 15,000 - -- Nil Nil Nil & Chief Financial 1996 115,000 56,500 - 150,000 Nil Nil Nil Officer ================================================================================================================================
Notes: (1) Of the $70,000 bonus paid to Mr. Kachmar, $15,000 was paid in cash, $27,500 was paid through the issuance of 50,000 Common Shares issued net of tax. (2) Perquisites and other personal benefits for the Named Executive Officers did not exceed the lesser of $50,000 and 10% of total annual salary and bonus. (3) Represents director's fees. OPTION/SAR GRANTS IN LAST FISCAL YEAR
==================================================================================================================================== % of Total Market Value of Options/SARs Securities Underlying Securities Under Granted to Exercise Options/SARs on Options/SARs Employees or Base Price Date of Grant Expiration Name Granted($)(1) in Fiscal Year ($/Security)(3) ($/Security) Date - ------------------------------------------------------------------------------------------------------------------------------------ John O. Kachmar 400,000(1)(2) 55.2% .44 .44 18/08/2003 President & CEO - ------------------------------------------------------------------------------------------------------------------------------------ Lorna D. MacGillivray 150,000(1) 20.7% .44 .44 18/08/2003 Vice President, Secretary & General Counsel - ------------------------------------------------------------------------------------------------------------------------------------ Paul J. Ireland 75,000(1) 10.4% .44 .44 18/08/2003 Vice President, Finance & Chief Financial Officer ====================================================================================================================================
8 10 Notes: (1) These options were granted on August 18, 1998, are for a term of 5 years and are accompanied by SARs. The options are exercisable as to 25% immediately with 25% becoming exercisable cumulatively on each of the first, second and third anniversary date of the grant. (2) Excludes options to acquire 200,000 Common Shares granted during 1998 under the Directors' Stock Option Plan which are also for a 5 year term and are fully exercisable at $0.44 per Common Share. (3) The exercise price represents the average of the closing prices of the Corporation's Common Shares on The Toronto Stock Exchange during the five days prior to the date of grant. The following table (presented in accordance with the Regulation) sets forth information concerning the exercise of stock options and SAR's by Named Executive Officers in 1998 and the number and the unrealized value of exercisable and unexercisable stock options held by Named Executive Officers at December 31, 1998. AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
=============================================================================================================================== Securities, Aggregate Unexercised Acquired Value Options/SARs at Value of Unexercised in- on Exercise Realized FY-End (#) the-Money Options/SARs at FY- Name (#) ($) Exercisable/Unexercisable End ($) Exercisable/Unexercisable - ------------------------------------------------------------------------------------------------------------------------------- John O. Kachmar Nil Nil 962,500(1)/387,500 NIL/NIL President & CEO - ------------------------------------------------------------------------------------------------------------------------------- Lorna D. MacGillivray Nil Nil 250,000/150,000 NIL/NIL Vice President, Secretary & General Counsel - ------------------------------------------------------------------------------------------------------------------------------- Paul J. Ireland Nil Nil 281,250/93,750 NIL/NIL Vice President, Finance & Chief Financial Officer ===============================================================================================================================
Note: (1) Includes options granted under the Directors' Stock Option Plan to acquire 200,000 Common Shares exercisable at $0.44 share, 100,000 Common Shares at $0.57 per share and 100,000 Common Shares at $1.48 per share. 9 11 EMPLOYEE INCENTIVE PLAN The Corporation maintains an Employee Incentive Plan consisting of the Share Purchase Plan, the Share Option Plan, the Share Bonus Plan and the Share Loan Plan. Directors who are not officers do not participate in the Employee Incentive Plan. SHARE OPTION PLAN The Share Option Plan is intended to promote the interests of Campbell and its shareholders by making provisions for stock options as an additional incentive to attract, retain and motivate officers and salaried employees. Grants are made at the discretion of the Board of Directors or a committee of the board comprised of members, a majority of whom are not eligible to participate in the Plan (the "Compensation Committee"). The Board of Directors or the Compensation Committee may, in its discretion, determine which officers or employees will be granted options, the number of Common Shares to be the subject of each option, the purchase price of such shares and the duration of the options, which may not exceed five years. The Board of Directors or the Compensation Committee may also impose other terms and conditions respecting any option granted as it may consider appropriate or necessary. Freestanding "SARs" are not provided for under the Share Option Plan. The options may, at the discretion of the Board of Directors or the Compensation Committee, be accompanied by SARs which entitle the holder to elect to terminate his or her options, in whole or in part and, in lieu of receiving the Common Shares ("Option Shares") to which the terminated options relate, elect to receive that number of Common Shares, disregarding fractions, which have a total value equal to the product of the number of Option Shares times the difference between the fair value (at the date of such election) and the option price per share of the Option Shares, less any amount withheld on account of income taxes, which income taxes will be remitted on the employee's behalf by the Corporation. All currently outstanding options are accompanied by SARs. During 1998, options to purchase 625,000 Common Shares were granted under the Share Option Plan to Named Executive Officers and options to purchase 100,000 Common Shares were granted to employees who are not Named Executive Officers. These options were granted primarily to replace options to acquire 575,000 Common Shares which expired on August 17, 1998, in accordance with their terms. These options are exercisable at $0.44 per share and are exercisable as to 25% immediately, with a further 25% becoming exercisable cumulatively on each of the first, second and third anniversary dates and are accompanied by SARs. All of the options were granted for a term of five years. As at December 31, 1998, a total of 3,125,000 Common Shares were issuable upon exercise of options under the Share Option Plan including 1,675,000 Common Shares issuable upon exercise of options held by the three Named Executive Officers. Such options are exercisable at exercise prices ranging from $0.44 to $1.48 per share. These options expire between August 10, 1999 and August 18, 2003. 10 12 SHARE PURCHASE PLAN The Share Purchase Plan is designed to encourage employees of Campbell to purchase Common Shares on a regular basis. Employees of Campbell who have been continuously employed by Campbell for at least one year, or less at the discretion of the Compensation Committee or the Board of Directors, are eligible each January 1 to participate in the Share Purchase Plan. Each eligible employee may contribute up to 5% of his or her basic salary to the Share Purchase Plan through monthly deductions. On a quarterly basis, Campbell will contribute an amount equal to 50% of the employee's contributions to such date and each participating employee will then be issued Common Shares having a value equal to the aggregate amounts contributed by such employee and Campbell. In 1998, 17,606 Common Shares were issued to Lorna D. MacGillivray in respect of which Campbell contributed $2,875 and 285,654 Common Shares were issued to employees who are not Named Executive Officers in respect of which Campbell contributed $47,066 pursuant to the Share Purchase Plan. This plan has been suspended pending the approval of issuance of additional Common Shares pursuant to Item No. 3 of the Notice of Meeting. SHARE BONUS PLAN The Share Bonus Plan is intended to promote the interests of Campbell and its shareholders by permitting the Board of Directors or the Compensation Committee, in its discretion, to issue Campbell Common Shares to full-time salaried employees of Campbell as a bonus in recognition of services provided to Campbell by such employee. The issue of Common Shares to such employee may be subject to such terms and conditions as are determined by the Board of Directors or the Compensation Committee. During 1998, no Common Shares were issued pursuant to the Share Bonus Plan. SHARE LOAN PLAN The Share Loan Plan is intended to provide an additional incentive to motivate full time officers who will make important contributions to the success of Campbell by assisting such persons to acquire shares of the Corporation. The Compensation Committee may in its discretion make loans to full time officers of the Corporation. Such loans shall be subject to such terms and conditions including rates of interest, if any, as the Compensation Committee may consider appropriate. During 1998, no loans were granted and no loans are outstanding under the Share Loan Plan. INDEBTEDNESS OF DIRECTORS AND OFFICERS No directors or officers of the Corporation are indebted to the Corporation. 11 13 PENSION PLAN The Corporation has a defined benefit pension plan (the "Pension Plan") available on a voluntary basis to all employees of the Corporation and its subsidiaries other than those who are subject to the provisions of a collective agreement. The Pension Plan provides a pension equal to 2% of the average annual salary not including bonuses and other compensation during the three most highly paid years for each year of credited service subject to the maximum benefit limitation applicable to registered pension plans under the Income Tax Act (Canada). Benefits under the Pension Plan vest after two years. Early retirement is permitted after age 55, subject to reductions. The Pension Plan also provides that certain members may be designated as "Class A" non-contributory members. Head office and certain senior employees have been designated as "Class A" non-contributory members. The following table sets forth the benefits calculated under the Pension Plan at various salary levels and years of employment on the assumption such benefits become payable upon retirement at age sixty-five. Benefits under the Pension Plan are not reduced by social security or other offset amounts. The payment of such benefits is subject to the maximum benefit limitation applicable to registered pension plans under the Income Tax Act (Canada) which currently is $1,722 for each year of service. PENSION PLAN TABLE
======================================================================================================================= 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 8 years of credited services, Ms. MacGillivray had 5.4 years of credited service and Mr. Ireland had 2 years of credited service under the Pension Plan at December 31, 1998. EMPLOYMENT CONTRACTS On December 1, 1994, the Corporation entered into an employment agreement with Mr. Kachmar as President and Chief Executive Officer. The agreement stipulates, among other things, a base salary of $285,000 per annum effective January 1, 1997 and provides that in the event that Mr. Kachmar's employment is terminated, he will be entitled to be paid up to thirty-six months' salary and benefits. In the event of a change of control, as defined, Mr. Kachmar will be entitled to resign within six months thereof and be paid thirty-six months' salary and benefits. The agreement also provides that in the event of resignation or termination, options held by Mr. Kachmar will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. 12 14 On December 1, 1994, the Corporation entered into an employment agreement with Ms. MacGillivray as Vice President, Secretary and General Counsel. The agreement stipulates among other things, a base salary of $130,000 per annum effective January 1, 1997 and provides that in the event that Ms. MacGillivray's employment is terminated, she will be entitled to be paid up to twenty-four months' salary and benefits. In the event of a change of control, as defined, Ms. MacGillivray will be entitled to resign within six months thereof and be paid twenty-four months' salary and benefits. The agreement also provides that in the event of resignation or termination, options held by Ms. MacGillivray will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. On December 10, 1996, the Corporation entered into an employment agreement with Mr. Paul J. Ireland as Vice President, Finance and Chief Financial Officer. The agreement stipulates a base salary of $130,000 effective January 1, 1997 and provides that in the event that his employment is terminated, he will be entitled to be paid up to twenty-four months' salary and benefits. In the event of a change of control, as defined, Mr. Ireland will be entitled to resign within six months thereof and be paid twenty-four months' salary and benefits. The agreement also provides that in the event of resignation or termination, options held by Mr. Ireland will immediately become fully exercisable. Such options will expire ninety days after resignation or termination. COMPOSITION OF THE COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors considers and approves compensation, remuneration and incentive arrangements for directors, officers and senior employees of the Corporation. The members of the Compensation Committee are James C. McCartney, Q.C. (Chairman), James D. Beatty and G. E. "Kurt" Pralle. Mr. McCartney is Chairman of the Corporation and he is also Chairman of the Compensation Committee. Mr. McCartney is a senior partner with the law firm McCarthy Tetrault which provides legal advice to the Corporation. Neither Mr. Beatty nor Mr. Pralle is, nor was, at any time, an officer or employee of the Corporation or any of its subsidiaries. In 1994, the Committee established an executive compensation philosophy and policy to be followed in its future consideration of executive compensation and incentive arrangements. EXECUTIVE COMPENSATION PHILOSOPHY AND POLICY The Corporation's Executive Compensation Policy is primarily based on a pay for performance philosophy. The main objective of the policy is the alignment of all financial reward systems with shareholder interests. The compensation structure must also reflect the Corporation's current financial position and the scope of its operations. As a consequence, a heavy emphasis is placed on the long-term business objectives of creating wealth, decreasing risk by expanding operations, and providing returns to the Corporation's shareholders. The particular elements of the executive compensation program for senior executives of the Corporation, designed to encourage, compensate and reward employees on the basis of individual and corporate performance, may be summarized as follows: 13 15 - BASE SALARY The program is designed to attract and retain executive officers by delivering a competitive rate of base pay. Market competitive rates will be determined by comparison with average compensation levels of comparable mining companies. It is believed that the average pay of these companies is a reasonable reference point from which to target and manage base pay, while recognizing the need for executive level experience and skills in the current phase which will further the Corporation's achievement of its growth objectives. - ANNUAL INCENTIVE COMPENSATION The Corporation currently does not offer a short-term variable pay or incentive plan but may in future implement an annual incentive plan. The Corporation's Employee Incentive Plan has a Share Bonus Plan component which may be used to provide annual incentive compensation. The use of this plan can combine both short and longer term incentives and, through increased share holding, would also align the interests of executive officers with those of the Corporation's shareholders. Grants of annual bonuses would be based on the employee's contribution towards the Corporation's success in meeting its goals. - STOCK OPTION PROGRAMS The Corporation strongly believes that by providing those persons who have substantial responsibility for the management and growth of the Corporation with an opportunity to acquire the Corporation's stock, the interests of shareholders and executives will be increasingly aligned. The number of stock options that will be granted to executive officers will be based on competitive practices of comparable mining companies and will reflect an emphasis on long-term performance awards. Options will generally become exercisable gradually over their term and will generally be for a five-year term. REPORT ON EXECUTIVE COMPENSATION In August, 1998, the Compensation Committee considered the long term incentive arrangements of the Corporation. The level of outstanding and expiring stock options under the Employee Incentive Plan were reviewed. The Committee considered the recommendation of the Chief Executive Officer that only replacement stock options and a limited number of new options to one Named Executive Officer and one senior employee who is not a Named Executive Officer be granted. In approving the grant of options, the Committee took into account the number, terms and pricing of previously outstanding options. Consideration was also given to the employee's level of responsibility and potential contribution to the Corporation achieving its long-term goals. The Committee also considered and determined to replace expiring options to directors under the Directors' Stock Option Plan at its August meeting. Given the historical low gold prices, it was determined that base salary and annual incentive compensation of senior executives should not be reviewed. 14 16 Base salaries including that of the Chief Executive Officer were maintained at existing levels and no annual incentive awards were awarded to reflect the difficult circumstances facing the Corporation at sustained lower gold prices. Cash compensation of executive officers was maintained in the lower half of the peer group levels. March 22, 1999 COMPENSATION COMMITTEE James D. Beatty James C. McCartney, Q.C. G. E. "Kurt" Pralle SHAREHOLDER RETURN PERFORMANCE GRAPH The chart below (as required by the Regulation) compares the yearly percentage change in the cumulative total shareholder return on the Corporation's Common Shares against the cumulative total shareholder return of The TSE 300 Stock Index and the TSE Gold and Precious Metals Index for the five fiscal year periods commencing December 31, 1993 and ending December 31, 1998. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* BETWEEN CAMPBELL RESOURCES INC., THE TSE 300 INDEX AND TSE GOLD AND PRECIOUS METALS INDEX
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1993 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- ---- CCH Stock 100 87.50 150.00 142.05 60.23 40.91 TSE 300 Composite 100 99.82 114.33 146.73 168.71 166.03 Gold and Precious Metals 100 90.23 98.74 107.78 61.27 57.26
*$100 INVESTED ON 12/31/93 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF DIVIDENDS. 15 17 APPROVAL OF ISSUANCE OF ADDITIONAL SHARES PURSUANT TO THE EMPLOYEE INCENTIVE PLAN (ITEM NO. 3 OF NOTICE OF MEETING) A maximum of 6,760,000 Common Shares are currently available under the Employee Incentive Plan (including all Common Shares issued since inception of the Plan in 1989). This number, together with 5,000,000 available under the Directors' Stock Option Plan, was based on 10% of the issued and outstanding Common Shares in December, 1994 when the limits were set in accordance with the Regulations of The Toronto Stock Exchange. It is proposed that approval be given for an additional 3,500,000 Common Shares for use under the Employee Incentive Plan. No change is proposed to the number of Common Shares available under the Directors' Stock Option Plan. This would bring the aggregate number reserved under both the Employee Incentive Plan and the Directors' Stock Option Plan to 10% of the number of Common Shares currently issued and outstanding. Prior to 1995, the maximum number of Common Shares available for use under the Plan was set at 10% of the number of Common Shares issued and outstanding at the previous year end. Since 1989, 2,217,801 Common Shares have been issued pursuant to the Share Option Plan, 1,122,760 Common Shares have been issued pursuant to the Share Purchase Plan and 207,900 Common Shares have been issued under the Share Bonus Plan. In addition, 3,125,000 Common Shares are reserved for issuance pursuant to outstanding stock options. As a consequence, all Common Shares available under the Employee Incentive Plan have been issued or reserved for issuance. The Corporation has discontinued offering its Share Purchase Plan to employees until additional Common Shares are approved for issuance under the Employee Incentive Plan by the shareholders. During 1998, approximately one Named Executive Officer and 44 employees who are not Named Executive Officers participated in the Share Purchase Plan. In addition, three Named Executive Officers and eight employees who are not Named Executive Officers hold stock options. The Board of Directors believes that it is in the best interests of the Corporation to be able to offer the Share Purchase Plan and encourage regular purchases of the Corporation's Common Shares by employees. In addition, the Corporation needs the ability to use the Share Option Plan to offer long term incentives to senior employees. Approval of the increase of an additional 3,500,000 Common Shares for use under the Employee Incentive Plan will require the favourable votes of a majority of the votes cast thereon at the Meeting, excluding Common Shares held by those eligible to participate in the Employee Incentive Plan, and also the approval of the regulatory authorities having jurisdiction over the Common Shares of the Corporation. UNLESS SUCH AUTHORIZATION IS WITHHELD, THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE AT THE MEETING FOR THE APPROVAL OF ADDITIONAL SHARES TO BE ISSUED AND RESERVED FOR ISSUANCE PURSUANT TO THE EMPLOYEE INCENTIVE PLAN. 16 18 APPOINTMENT OF AUDITORS (ITEM NO. 4 OF NOTICE OF MEETING) UNLESS SUCH AUTHORIZATION IS WITHHELD, THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE AT THE MEETING FOR THE RE-APPOINTMENT OF KPMG LLP, CHARTERED ACCOUNTANTS, AS AUDITORS OF THE CORPORATION TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND TO AUTHORIZE THE BOARD OF DIRECTORS TO FIX THEIR REMUNERATION. Representatives of KPMG LLP are expected to be present at the Meeting and will have the opportunity to make statements if they so desire and will be available to respond to appropriate questions. OTHER MATTERS WHICH MAY COME BEFORE THE MEETING Management does not know of any matters to be presented to the Meeting other than those specifically set forth in the Notice of Annual and Special Meeting of Shareholders. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING AND ARE SUBMITTED TO A VOTE, ALL PROXIES WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS NAMED THEREIN. PROPOSALS BY SHAREHOLDERS Pursuant to the Canada Business Corporations Act (the "Act"), resolutions intended to be presented by shareholders for action at the 2000 Annual Meeting must comply with the provisions of the Act and be deposited at the Corporation's head office not later than February 18, 2000 in order to be included in the Proxy Circular and form of proxy relating to such Meeting. SOLICITATION OF PROXIES The Corporation will bear the cost of this proxy solicitation. The Corporation will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to beneficial owners of Common Shares and requesting authority to execute proxies. In addition to the use of the mails, proxies may be solicited by telephone or facsimile and in person, by the directors, officers and regular employees of the Corporation, none of whom will receive any extra compensation therefor. In addition, the Corporation has retained D.F. King & Co. Inc. to assist in the solicitation of proxies for a fee of US$2,500 plus reimbursement of reasonable out-of-pocket expenses. 17 19 MISCELLANEOUS The Corporation files with the United States Securities and Exchange Commission an annual report on Form 10-K containing certain information with respect to the Corporation and its business and properties, including financial statements and related schedules. A copy of this Form 10-K will be filed with Canadian securities commissions in lieu of an Annual Information Form. Upon the written request of any beneficial owner of the Corporation's Common Shares, the Corporation will mail to such owner, without charge, a copy of its Form 10-K for the fiscal year ended December 31, 1998. Requests for copies of the Form 10-K should be addressed to: Manager, Investor Relations Campbell Resources Inc. 120 Adelaide Street West, Suite 1910 Toronto, Ontario, Canada M5H 1T1 APPROVAL BY DIRECTORS The Board of Directors of the Corporation has approved the contents of this Proxy Circular and has approved its being sent to shareholders. By Order of the Board of Directors Lorna D. MacGillivray Vice President, Secretary and General Counsel Dated: March 22, 1999 18 20 FORM OF PROXY CAMPBELL RESOURCES INC. THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON TUESDAY, MAY 18, 1999. The undersigned shareholder of CAMPBELL RESOURCES INC. (the "Corporation") hereby nominates, constitutes and appoints James C. McCartney or, failing him, John O. Kachmar, or failing him, Lorna D. MacGillivray, or, instead of any of them __________________________________________________________ lawful attorney and proxy of the undersigned, with full power of substitution to vote in respect of all common shares held by the undersigned at the above noted meeting or any and all adjournments thereof in the following manner: 1. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the election of the directors. 2. FOR [ ] AGAINST [ ] WITHOLD FROM VOTING [ ] in respect of approval to increase the maximum number of Common Shares that may be issued and reserved for issuance pursuant to the Employee Incentive Plan. 3. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the appointment of KPMG as auditors for the coming year and authorizing the directors to fix remuneration. 4. Upon such other matters (none known at the time of solicitation of this proxy) as may properly be brought before the Meeting or any and all adjournments thereof. The shares represented by this proxy will be voted as directed by the shareholder. IF NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AS DIRECTORS, FOR THE APPROVAL OF AN INCREASE IN THE MAXIMUM NUMBER OF COMMON SHARES THAT MAY BE ISSUED AND RESERVED FOR ISSUANCE PURSUANT TO THE EMPLOYEE INCENTIVE PLAN AND FOR THE APPOINTMENT OF KPMG AS AUDITORS. THE PROXY CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO AMENDMENTS OR VARIATIONS TO THE MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING. YOU HAVE THE RIGHT TO APPOINT ANY PERSON (WHO NEED NOT BE A SHAREHOLDER) TO ATTEND AND ACT ON YOUR BEHALF AT THE MEETING. IF YOU DESIRE TO EXERCISE SUCH RIGHT, STRIKE OUT THE NAMES OF THE BOARD'S NOMINEES AND INSERT THE NAME OF SUCH OTHER PERSON IN THE BLANK SPACE PROVIDED. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and the Proxy Circular. Dated this day of , 1999. --------------------------------------------------------------------- Signature of Holder This form of proxy must be dated and signed exactly as your name appears herein. When signing in a fiduciary or representative capacity, please give full title as such. In the case of joint shareholders, each must sign. Proxies from a corporation must be signed under corporate seal by an officer thereof, or by an attorney thereof duly authorized in writing. If this proxy is not dated in the space above, it will be deemed to bear the date on which it is mailed by management. PRINTED IN CANADA EX-21.1 4 SIGNIFICANT SUBSIDIARIES 1 EXHIBIT 21.1 CAMPBELL RESOURCES INC. SIGNIFICANT SUBSIDIARIES December 31, 1998 The following significant subsidiaries are consolidated in the financial statements submitted as a part of this report:
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 Mexico 100% (ii) Sotula Gold Corp. Oro de Sotula, S.A. de C.V. Controlled by Meston Resources Inc. Minera Cerro Quema, S.A. Panama 100%
EX-23.1 5 CONSENT OF KPMG LLP 1 Securities and Exchange Commission 450 Fifth St. N.W. Washington, DC 20259 USA CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS We hereby consent to the inclusion in the Annual Report on Form 10-K of Campbell Resources Inc. (the "Corporation") for the year ended December 31, 1998 of our report dated February 18, 1999 which appears under Item 14 of the aforementioned Annual Report on Form 10-K. We also consent to the incorporation by reference of our report in the Registration Statements on Form S-8 (Registration Nos. 33-28296 and 33-91824) pertaining to the Corporation's Employee Incentive Plan and Directors' Stock Option Plan and to the reference to our firm under the caption "Experts" in the prospectuses related to these Registration Statements. KPMG LLP Chartered Accountants March 26, 1999 Toronto, Canada EX-27.1 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows and is qualified in its entirety by reference to such financial statements. CANADIAN YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 0.65 41,493 0 2,653 0 4,538 49,158 173,866 120,749 102,777 3,469 5,652 0 0 123,632 (36,163) 102,777 36,388 36,388 43,859 43,859 12,508 0 526 (20,757) 91 (20,848) 0 0 0 (20,848) (0.14) (0.14)
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