1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8488
CAMPBELL RESOURCES INC.
(Exact Name of registrant as specified in its charter)
Under the Canada Business Corporations Act
(Jurisdiction of Incorporation)
I.R.S. Employer Identification No - Not Applicable
1155 UNIVERSITY, SUITE 1405
MONTREAL, QUEBEC H3B 3A7 CANADA
TELEPHONE - (514) 875-9033
(Address, including zip code, and telephone number including area code of
registrants principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
---- ----
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Shares Outstanding as of May 14, 2001, 15,788,628 Common Shares,
without par value
2
CAMPBELL RESOURCES INC.
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited) as at March 31, 2001 and
December 31, 2000 ..................................................................... 3
Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 2001 and 2000 ......................................................... 4
Consolidated Statements of Deficit (Unaudited) for the Three Months Ended March
31, 2001 and 2000 ..................................................................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March
31, 2001 and 2000 ..................................................................... 5
Notes to the Consolidated Financial Statements (Unaudited) ............................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................. 11
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings ..................................................................... 13
ITEM 2. Changes in Securities ................................................................. 13
ITEM 3. Defaults Upon Senior Securities ....................................................... 13
ITEM 4. Submission of Matters to a Vote
of Security Holders ................................................................... 13
ITEM 5. Other Information ..................................................................... 13
ITEM 6. Exhibits and Reports on Form 8-K ...................................................... 13
SIGNATURES ............................................................................ 14
2
3
CAMPBELL RESOURCES INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Expressed in thousands of Canadian dollars)
MARCH 31 December 31
2001 2000
---- ----
ASSETS $ $
CURRENT ASSETS
Cash and short-term deposits 3,091 4,548
Receivables 1,269 1,684
Restricted cash 883 840
Inventories (note 3) 4,383 4,420
Prepaids 390 539
-------- --------
Total current assets 10,016 12,031
-------- --------
OTHER ASSETS 620 628
FUTURE INCOME TAX ASSET 1,742 1,742
MINING INTERESTS 188,492 186,937
less accumulated depreciation and amortization (173,279) (171,738)
-------- --------
15,213 15,199
-------- --------
Total assets 27,591 29,600
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 2,015 2,195
Accrued liabilities 1,372 1,590
Future income tax liability 886 886
-------- --------
Total current liabilities 4,273 4,671
-------- --------
ACCRUED RECLAMATION 6,571 6,513
CONVERTIBLE DEBENTURES (NOTE 4) 4,021 3,864
FUTURE INCOME AND MINING TAX LIABILITY 856 856
OTHER LIABILITIES 312 228
SHAREHOLDERS' EQUITY
Capital stock (note 5) 125,392 125,355
Foreign currency translation adjustment 1,342 1,258
Deficit (115,176) (113,145)
-------- --------
Total shareholders' equity 11,558 13,468
-------- --------
Total liabilities and shareholders' equity 27,591 29,600
======== ========
Commitments and contingencies (note 7)
3
4
CAMPBELL RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(Expressed in thousands of Canadian dollars except per share amounts)
2001 2000
---- ----
$ $
METAL SALES -- 1,256
------- -------
EXPENSES
Mining -- 1,472
General administration 488 709
Depreciation and amortization 6 289
Exploration -- 694
Care and maintenance 1,331 137
------- -------
1,825 3,301
------- -------
Loss from operations (1,825) (2,045)
------- -------
Other income (expense)
Other income 16 358
Other Income-sales adjustment (118) --
Convertible debenture interest expense (73) (77)
------- -------
(175) 281
------- -------
Loss before taxes (2,000) (1,764)
Income and mining tax recovery (expense) (31) (32)
------- -------
NET LOSS (2,031) (1,796)
======= =======
LOSS PER SHARE 0.13 0.11
======= =======
CAMPBELL RESOURCES INC.
CONSOLIDATED STATEMENTS OF DEFICIT (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(Expressed in thousands of Canadian
dollars)
2001 2000
-------- --------
$ $
Balance at beginning of period (113,145) (50,259)
Change in accounting policy (note 2) -- 684
Net loss (2,031) (1,796)
-------- --------
Balance at end of period (115,176) (51,371)
======== ========
4
5
CAMPBELL RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(Expressed in thousands of Canadian
dollars)
CASH PROVIDED BY (USED IN):
2001 2000
------- -------
$ $
OPERATING ACTIVITIES
Net loss (2,031) (1,796)
Items not involving cash
Depreciation and amortization 6 289
Future mining taxes recovery -- --
Other 257 (107)
------- -------
(1,768) (1,614)
Net change in non-cash operating working capital 201 500
------- -------
(1,567) (1,114)
------- -------
FINANCING ACTIVITIES
Issues of capital stock -- 19
------- -------
INVESTING ACTIVITIES
Expenditures on mining interests -- (5,003)
Money market instruments -- 8,000
------- -------
-- 2,997
------- -------
Effect of exchange rate change on cash
and short-term deposits 110 55
------- -------
Increase (decrease) in cash and short-term deposits (1,457) 1,957
Cash and short-term deposits at beginning of period 4,548 18,219
------- -------
Cash and short-term deposits at end of period 3,091 20,176
======= =======
CHANGES IN NON-CASH OPERATING WORKING CAPITAL
Receivables 414 (752)
Inventories and prepaids 186 (370)
Accounts payable and accrued liabilities (399) 1,622
------- -------
201 500
======= =======
5
6
CAMPBELL RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED
MARCH 31, 2001 (Tabular amounts are expressed in thousands of Canadian dollars)
1 -- GENERAL
The Company is incorporated under the Canada Business Corporations Act and is
engaged in the exploration, development, mining and processing of precious
metals in Canada, Mexico and Panama.
These unaudited consolidated financial statements reflect all adjustments that
are, in the opinion of management, necessary for a fair statement of results for
the interim period presented. The unaudited financial statements presented
herein have been prepared in accordance with the instructions to Form 10-Q and
do not include all the information and note disclosures required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the financial statements and related footnotes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
The financial statements are prepared in accordance with accounting principles
generally accepted in Canada and, except as described in note 8, conform in all
material respects with accounting principles generally accepted in the United
States.
The results of operations for the first three months of the year are not
necessarily indicative of the results to be expected for the full year.
2 -- INVENTORIES
2001 2000
------ ------
Materials and supplies $4,383 $4,333
Work-in-process -- 890
------ ------
$4,383 $5,223
====== ======
4 -- 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
6
7
the Company at any time prior to maturity at a conversion of US$5.00 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$5.00 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$5.00 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$5.00 per
common share.
During the three months ended March 31, 2001, debenture holders converted
US$25,000 (2000 - US$nil) of debenture principal into 5,000 (2000 - nil) common
shares of the Company resulting in a balance outstanding at March 31, 2001 of
US$2,551,000 (December 31, 2000 - US$2,576,000).
5 -- CAPITAL STOCK
Changes in the issued and outstanding common shares for the three months are as
follows (in thousands):
2001 2000
------------------ ----------------
Shares Amount Shares Amount
------ ------ ------ ------
Common shares:
Balance at beginning of period 15,784 $125,355 15,715 $125,339
Issued:
Conversion of convertible debentures 5 37 -- --
Employee Incentive Plan and
Directors' Stock Option Plan -- -- 7 19
-------- -------- -------- --------
Balance at March 31 15,789 $125,392 15,722 $125,358
======== ======== ======== ========
Loss per share has been calculated using the weighted average number of shares
outstanding during the three months which was 15,788,000 (2000 - 15,716,000).
6 -- STATEMENTS OF CASH FLOWS
Additional disclosures with respect to the Statements of Cash Flows are as
follows:
Three months ended March 31
2001 2000
---- ----
Cash taxes paid $ 12 $ 38
Cash interest paid $ -- $ --
7 -- COMMITMENTS AND CONTINGENCIES
a) At March 31, 2001 the Company has outstanding calls for 24,900 ounces
of gold in 2001 at US $350
7
8
per ounce subject to floating gold lease rates.
b) 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.
c) 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. 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.
d) During 1991, a subsidiary of the Company entered into a corporate
restructuring and financing arrangement ("Arrangement") in which it
issued to a group of Canadian financial institutions $38,000,000 of
Guaranteed Subordinate Debentures and Notes ("Debentures") and
$12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable
Preferred Shares ("Preferred Shares"). The Debentures are unsecured,
subordinate to all existing non-trade debt and future senior debt, bear
interest at varying rates, are repayable upon maturity in 2007, and
cannot be prepaid. The Preferred Shares are redeemable at any time at
an amount of $240,000 per Preferred Share, rank equally and pari passu
with the common shares for dividends when declared, and are retractable
in 2007. In order to secure the performance of the Debentures and
Preferred Shares the Company's subsidiary entered into an Interest Rate
and Currency Exchange Swap Agreement ("Swap Agreement") with a major
international bank. The Swap Agreement provides for the conversion of
one floating rate interest basis to another and for differences in the
timing of payments so as to match the interest payment requirements
under the Debentures, repay the Debentures upon maturity and retract
the Preferred Shares. All payments are denominated in Canadian dollars.
The Company's subsidiary placed Canadian dollar deposits with the
counter party to the Swap agreement which deposits have been charged to
secure the performance under the Swap agreement. These deposits earn
interest at Canadian Bankers Acceptance rates. The Swap Agreement was
irrevocably assigned directly to the investors. Accordingly the bank is
the primary obligor under the Arrangement.
e) 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.
8
9
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.
8 -- DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The reconciliation of net loss determined in accordance with generally accepted
accounting principles in Canada to net loss determined under accounting
principles which are generally accepted in the United States is as follows:
Three months ended March 31
2001 2000
------- -------
Net loss for period as reported $(2,031) $(1,796)
Depreciation and amortization (a) -- (208)
Deferred income taxes (b) -- --
------- -------
Net loss for the year in accordance
with United States accounting principles $(2,031) $(2,004)
------- -------
Other comprehensive income (loss):
Foreign currency translation adjustments -- 108
------- -------
Comprehensive loss for the year in accordance
with United States accounting principles $(2,031) $(1,896)
------- -------
Loss per share for the year in accordance
with United States accounting principles
Basic and fully diluted $ (0.13) $ (0.12)
------- -------
Differences between Canadian and United States accounting principles as they
affect the Company's financial statements are as follows:
a) Depreciation and Amortization - Under Canadian accounting principles,
depreciation and amortization may be calculated on the
unit-of-production method based upon the estimated mine life, whereas
under United States accounting principles the calculations are made
based upon proven and probable mineable reserves.
b) Deferred Income Taxes - Effective January 1, 2000 the Company adopted
the liability method of accounting for income taxes in accordance with
Canadian accounting principles (see note 2) which is now substantially
consistent with accounting for income taxes in accordance with United
States accounting principles. For Canadian accounting principles the
Company did not restate prior period financial statements.
c) Contingent Liability - Under United States accounting principles the
contingent liability disclosed in note 6(d) would be reflected in the
balance sheet. Accordingly, for United States accounting principles
total assets and liabilities would increase by $50 million. The
increase in assets represents
9
10
investments (non-current) comprising Canadian dollar payments under the
Swap agreement and Canadian dollar deposits with the counter party to
the Swap agreement. The liabilities (non-current) represent the
Guaranteed Subordinate Debentures and Notes of $38 million and the
Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares of
$12 million which would be included outside of shareholders' equity.
d) Foreign Exchange Contracts - In accordance with Canadian accounting
principles, certain long-term foreign exchange contracts are considered
to be hedges of sales revenue denominated in foreign currencies. Gains
and losses related to changes in market values of such contracts are
deferred and recognized when the contract is settled as part of sales
revenue. Under United States accounting principles, changes in the
market value of the contracts would be included in current earnings.
e) Balance Sheets - The cumulative effect of the application of United
States accounting principles, noted in (a) to (d) above, on the
consolidated balance sheets of the Company as at March 31, 2001 and
December 31, 2000 would be to decrease mining interests by $ 1,957,000
(2000 - $1,957,000), increase long-term investments by $50,000,000
(2000 - $50,000,000), increase long-term liabilities by $38,000,000
(2000 - $38,000,000), increase future tax assets, non-current by $nil
(2000 - $nil), increase future taxes, current liabilities by $nil (2000
- $nil), decrease future income and mining taxes, non-current
liabilities by $ nil (2000 - $nil), increase preferred shares by
$12,000,000 (2000 - $12,000,000) and reduce shareholders equity by $
nil (2000 - $1,957,000).
f) 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, 2001. 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.
During 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 reflects the SEC staff's interpretation of basic
principles of revenue recognition in existing United States generally
accepted accounting principles. There was no impact of adopting SAB 101
during the first quarter 2001.
10
11
CAMPBELL RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MARCH 31, 2001
(all dollars are Canadian unless noted otherwise)
FORWARD-LOOKING STATEMENTS
This report contains certain Forward-Looking Statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and is subject to certain
risks and uncertainties, including those Risk Factors set forth in the Company's
current Annual Report on Form 10-K for the year ended December 31, 2000. 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.
OVERVIEW
During the first quarter of 2001 Campbell focused its efforts in four areas:
completing the analysis and the documentation and approval in principle of
theismerger with MSV Resources inc. and GeoNova Explorations inc.; the
different studies on the Joe Mann Mine to enable resumption of operations;
identifying an investor for the Santa Gertrudis Property and pursuing the sale
of its investment in Cerro Quema.
On March 28, 2001, Campbell jointly announced, with MSV Resources Inc. and
GeoNova Explorations Inc. approval in principle of the merger of the three
companies. On April 25, 2001 the Boards of Directors of the three companies gave
final approval to the merger. The merger is subject to approval by the
shareholders of the companies as well as final regulatory and court approval.
Also pursuant to the merger, Campbell will issue 800,000 common shares to
Repadre Capital Corporation in exchange for a reduction in the Repadre royalty
described in note 7 b) of this report . The reduced royalty will provide for the
payment of a royalty of 1.5% at a gold price of US$325 ($494) per ounce
increasing to 1.75% at a gold price of US$350 ($535) and 2% at a gold price of
US$375 ($570) or higher. This amended royalty will be payable up to a maximum of
$500,000, after payment of which, the royalty will reduce to 1% payable so long
as gold is at least US$350 ($535) per ounce. The Joint Management Proxy Circular
is expected to be mailed on May 16, 2001 to shareholders of the three companies
and the meetings of shareholders are scheduled to be held on June 13, 2001.
During the first quarter of 2001, all the properties were on a care and
maintenance basis and the Company recorded a loss of $2.0 million or $0.13 per
share compared to a loss of $1.8 million or $0.11 per share in the comparable
period of 2000. There was negative cash flow from operations before the change
in operating working capital of $ 1.8 million in the quarter compared to
negative cash flow of $1.6 in the first quarter of 2000.
OTHER
Due to the care and maintenance status of all properties, no depreciation and
amortization have been accounted except for the head office assets. The
depreciation and amortization of the first quarter of 2000 is related to the
Santa Gertrudis Mine.
In the first quarter of 2001, no exploration work was performed compared to $0.7
million for the same period
11
12
of 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company's cash and short-term deposits decreased to $3.1
million compared to $4,5 million at December 31, 2000. Working capital also
decreased to $5.7 million compared to $7.4 million at December 31, 2000. The
decrease is attributable to the general administration expenses and the care and
maintenance expenses of the sites.
The Company's principal sources of liquidity are the future cash flows from the
Joe Mann Mine and the Company's working capital that amounted to $5.7 million at
March 31, 2001. The Company is subject to the normal risks and uncertainties
associated with mining, including fluctuations in gold prices, the relative
U.S./ Mexican/ Canadian exchange rates, the ability of the Company to raise
necessary financing to complete the exploration and development program that
would permit resumption of mining operations at the Joe Mann Mine on certain
assumptions and any unforeseen environmental problems.
12
13
PART II.
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not Applicable
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
13
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMPBELL RESOURCES INC.
/s/ Lucie Brun
-------------------------------------------
Lucie Brun
Vice President, Finance
(Principal Financial and Accounting Officer
and authorized signatory)
Montreal, Quebec
May 14, 2001
14