Latest MD & A for CCH
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Expressed in Canadian dollars unless otherwise stated)
Montreal, August 10, 2007 – This report provides management’s point of view on events having impacted the
second quarter 2007 and presents the interim financial statements. These statements detail Campbell’s operating
results and financial situation for the six month period ending June 30, 2007, in accordance with Canadian
generally accepted accounting principles.
Production results are based using the imperial system and financial results are in Canadian dollars. Operating
results for the first six months of 2007 do not necessarily reflect expected results for the full twelve months of the
year. The 2006 Annual Report and the Form 20-F offer additional information and are available on both the
SEDAR web site at www.sedar.com and on the Company’s web site at www.campbellresources.com.
Campbell has concentrated its operations in the Chibougamau mining camp located in the North Central part of
the Province of Québec. The Company holds interests in gold and copper mining properties of which the Joe
Mann and Copper Rand mines and Copper Rand mill were in operation in the second quarter 2007. The Copper
Rand Mine was in the pre-production stage until December 31, 2006.
HIGHLIGHTS
During and subsequent to the second quarter, the Company:
• Raised $11 million in convertible debt and equity, including the final $4 million to finance completion of
development of the high-grade Corner Bay copper deposit.
• Awarded contract for Corner Bay development to CMAC-Thyssen, who began mine development in early
May and to date has completed approximately 350 metres of the 700 metre decline.
• Initiated dewatering and other preliminary work on the Merrill Pit copper deposit while waiting for the
granting of the environmental permit.
• Implemented the Alimak mining system to increase ore production and improve ground conditions at
Copper Rand with blasting of the first block and completion of the second Alimak raise in July.
• Increased gold production by 26%, copper production by 9% and silver production by 25% over the first
quarter of 2007.
The implementation of the Alimak mining system should increase ore availability, decrease waste and improve
ground control. This increased production, along with high grade ore from Corner Bay and the mining of the
Merrill Pit, will go a long way toward achieving our objecting of maximizing throughput at the Copper Rand mill,
decreasing unit costs and improving financial performance.
OVERVIEW
In June 2005 the Company placed itself under court protection from its creditors under the Company Creditors
Arrangement Act (“CCAA”). Since that time, management has worked towards settling its financial affairs with
its creditors and on June 26, 2006, the Company filed Plans of Arrangement which were approved by the creditors
and sanctioned by the Superior court of Quebec the following day.
On February 27, 2007, the Monitor appointed by the Superior Court of Québec issued a Certificate of Execution
with respect to the Plan of Arrangement for Campbell confirming that it has executed all of its obligations
pursuant to its plan of arrangement with its creditors. The Company also remitted to the Monitor all amounts
required for the payment in full of the claims made by the creditors of GéoNova Explorations Inc. (“GéoNova”).
The court subsequently granted extension of the CCAA protection to November 30, 2007 for subsidiaries MSV
Resources Inc. (“MSV”) and Meston Resources Inc. (“Meston”).
On April 19, 2007, Campbell closed a brokered private placement of 56,000,000 flow-through common shares for
proceeds of $7 million with a syndicate of agents lead by Cormark Securities Inc. and including Dundee
Securities Corporation and Octagon Capital Corporation (collectively, the "Agents"). As consideration for acting
as Agents, the Corporation has paid a cash commission of $420,000. In addition, the Agents received 3,360,000
broker warrants. Each broker warrant entitles its holder thereof to purchase one common share in the capital of the
Corporation at a price of $0.13 for a period of 18 months from the closing date of the private placement.
On July 20, 2007, Campbell closed the financing for completion of development of its high-grade Corner Bay
copper project near Chibougamau, Québec, with the issuance of $4.0 million of convertible debentures equally to
Nuinsco Resources Ltd. (“Nuinsco”) and Ocean Partners UK Limited (“OP”). Development of Corner Bay is well
underway, and the Corporation expects mining of an initial 42,000 tonne bulk sample at an average grade of 3.7%
copper to begin early in the fourth quarter of 2007.
OPERATING RESULTS
Effective January 1, 2007, results from the Copper Rand Mine are included in the consolidated operating results.
Results for prior year included results for the Joe Mann Mine only (Copper Rand mine was considered to be in
preproduction development stage and as such all costs, net of revenue from development ore, were deferred as
mine development costs).
Year to date results are also affected by the agreement effective January 1st, 2007 with OP for the sale of
concentrate; revenues can only be recognized when the ownership is passed on to the buyer. In 2007, the only
production reflected to date in revenues was the sale of gold to Royal Canadian Mint and final settlements on the
sales to Xstrata, which contract expired on December 31st, 2006.
For the second quarter of 2007, Campbell recorded a net loss of $4.3 million or $0.01 per share on net metal sales
of $1.2 million, compared with a net loss of $1.8 million or $0.02 per share on net metal sales of $3.5 million for
the same period in 2006. The weighted average number of common shares at the end of the second quarter of
2007 was 396.8 million shares compared to 108.2 million shares for the same period of last year. Cash used by
operating activities was $1.2 million in the second quarter of 2007 compared to $0.9 for the same period of 2006.
For the first six months of 2007, the net loss was $6.1 million or $0.02 per share on net metal sales of $2.8 million
compared to a net loss of $4.1 million of $0.04 per share on net metal sales of $5.9 million for the corresponding
period in 2006. For the first six months of 2007, the weighted average number of common shares was 372.9
million shares compared to 108.2 million shares for the same period of last year. Cash used in operating activities
was $2.7 million for the first six months of 2007 compared to $1.6 million for the same period in 2006.
Gross metal sales for the second quarter of 2007 were $1.5 million (1,719 ounces of gold and nil pounds of
copper) compared to $3.8 million (4,403 ounces of gold and 153,189 pounds of copper) for the comparable period
in 2006. The average market price for gold in the second quarter of 2007 was $732 (US$667) compared to $704
(US$628) for the same period of 2006. In the second quarter, the average sale price was $723 per ounce
compared to $679 in the same period of 2006.
A total of 3,815 ounces of gold and nil pound of copper were sold in the first six months of 2007 compared to
respectively 7,431 ounces of gold and 280,297 pounds of copper for the same period of 2006. Inventories as at
June 30, 2007 were 5,511 ounces of gold and 2,018,582 pounds of copper compared to 426 ounces of gold and
18,432 pounds of copper respectively for the same period of 2006.
Net metal sales for the second quarter of 2007 reached $1.2 million compared to $3.5 million for the same period
last year. For the first six months of 2007, net metal sales reached $2.8 million compared to $5.9 million for the
same period last year. In the first six months of 2006, $7.2 million of net sales of Copper Rand mine were
deferred in reduction of the mine development costs.
As at June 30, 2007, $8.5 million of inventory valued at lowest of cost and net realizable value was stored at Port
of Quebec and not reflected in the revenues. On this amount of inventory, provisional payments in the amount of
$7.6 million were received from OP.
Mining expenses for the second quarter 2007 were $4.5 million compared to $3.4 million recorded in the same
period of 2006. Mining expenses for the first six months of 2007 were $9.6 million compared to $6.2 million for
the corresponding period in 2006. For the first six months of 2007, total inventory value of finished goods of
$9.9 million (valued at lowest of cost and net realizable value) was presented in reduction of mining costs.
The increase in mining costs of $1.1 million in the second quarter of 2007 and the increase of $3.4 million for the
first six months are explained by additional mining expenses from the Copper Rand Mine. These mining
expenses had been capitalized for the same period of 2006. The mining expenses include the development of
Alimak raises at both mines, additional rehabilitation costs and development at the Copper Rand Mine, definition
drilling programs at both mines and training programs for new employees. All of these expenditures have been
incurred and should result in significant increases in production output for the remainder of the year. The first
blast of Alimak raise at Copper Rand mine was done on the last days of July. The blast of the Alimak raise at Joe
Mann mine is scheduled for the beginning of August. Production at Joe Mann mine should end at the end of
August.
Amortization, mainly for Copper Rand, in the second quarter of 2007 was $0.6 million, compared to $0.8 million
for the corresponding period of 2006. Amortization for the first six months of 2007 was $1.4 million compared to
$1.5 million for the same period of last year. At the end of 2006, the Joe Mann property was written down.
General administration expenses reached $0.6 million in the second quarter of 2007 compared to $0.7 million for
the same period of 2006. Total for the six month period of 2007 was $1.4 compared to $1.3 million for the
corresponding period of 2006.
Reorganisation and CCAA costs in the second quarter of 2007 were $0.1 million compared to $0.3 million for the
same period of 2006. Reorganisation and CCAA costs for the first six months of 2007 were $0.2 million
compared to $0.6 million for the same period of 2006.
Interest on short term loan in the second quarter of 2007 was $0.1 million unchanged from the same period in
2006. For the first six months of 2007, interest on short term loans of $0.2 million is also comparable to same
period of last year.
In the second quarter of 2007, the interest in long-term debt was $288,000 compared to $237,000 for the same
period of 2006, an increase of $51,000. Included in the 2007 result is an interest amount of $274,000 on the loan
from Investissement Québec for the Copper Rand Mine; in the same period of 2006, the interest in the amount of
$246,000 was capitalized to mine development cost. However, the increase is offset by a reduction in the interest
on long term debt following the repayment of the Exchangeable Capital Units; in the second quarter of 2006, the
interest and deferred charges were $223,000 compared to nil in 2007.
For the first six months of 2007, the interest on long-term debt was $568,000 compared to $436,000 for the same
period of 2006, an increase of $132,000. Included in the 2007 result is an interest amount of $541,000 on the loan
from Investissement Québec for the Copper Rand Mine; in the same period of 2006, the interest in the amount of
$468,000 was capitalized to mine development cost. However, the increase is offset by a reduction in the interest
on long term debt following the repayment of the Exchangeable Capital Units; in the second quarter of 2006, the
interest and deferred charges were $407,000 compared to nil in 2007. Interest on convertible debentures and other
also reduced by $0.2 million in the first six months of 2007 compare to same period of 2006.
Other income of $4.5 million, in the first six months of 2007, included a gain of $3.8 million realized from the
sale of the Eastmain property (including the reversal of the provision for asset retirement obligations in the
amount of $1.1 million), a gain of $0.3 million realized on the write offs of unclaimed accounts payable following
the payments by the Monitor to the creditors under LACC, a loss of $0.1 million on the sale of short-term
investments, a gain of $0.1 million on sale of property, plant and equipment and a gain of $0.4 million on foreign
exchange. In the first six months of 2006, other income of $0.4 million included a gain of $0.3 million realized on
sale of short-term investments and a gain of $0.1 million on foreign exchange
Joe Mann Mine
Production at the Joe Mann Mine, in the second quarter 2007, was 28,083 tons grading 0.171 Au oz/t (yielding
3,952 oz of gold), 0.23% Cu and 0.16 Ag oz/t with a recovery rate of 82.51% for gold, 95.15% for copper and
59.02% for silver.
For the first six months of 2007, the Joe Mann Mine produced 6,971 ounces of gold, 188,500 pounds of copper
and 4,234 ounces of silver compared to 7,729 ounces of gold, 282,829 pounds of copper and 5,701 ounces of
silver in the same period of 2006.
2nd. Q 1st Q 4th Q 3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q
2007 2007 2006 2006 2006 2006 2005 2005 2005
Tons of ore 28,083 16,744 18,269 16,808 23,006 22,556 25,678 31,685 39,810
Grade
Au(oz/t) 0.171 0.218 0.237 0.191 0.215 0.186 0.256 0.304 0.251
Cu (%) 0.23 0.21 0.23 0.25 0.33 0.32 0.39 0.38 0.33
Ag (oz/t) 0.161 0.157 0.167 0.139 0.185 0.177 0.259 0.273 0.217
Recovery
Au (%) 82.51 82.60 86.12 84.13 86.07 82.72 84.99 84.22 83.18
Cu (%) 95.15 92.86 93.30 95.56 96.24 96.79 96.03 95.83 93.86
Ag (%) 59.02 59.55 68.40 65.26 68.25 70.23 72.79 67.67 66.55
Metal produced
Au (oz) 3,952 3,019 3,722 2,695 4,265 3,464 5,577 8,125 8,319
Cu (lbs) 122,065 66,435 77,580 79,369 144,866 137,963 192,258 231,004 249,360
Ag (oz) 2,670 1,564 2,093 1,528 2,899 2,802 4,833 5,861 5,748
The forecasted recovery rate for gold in the second quarter was 84.58%. The actual recovery rate was 82.51%.
The milling cost for the first six months of 2007 was $17.18 per ton compared to $14.61 for the corresponding
period in 2006.
Total production costs for the first six months of 2007 were $163 per ton compared to $136 in the same period of
2006.
The cost per ounce for the first six months of 2007 was US$968 compared to US$622 for the same period of
2006.
Gold content was 0.171 Au oz/t compared to 0.215 Au oz/t for the corresponding period in 2006 or a reduction of
20%.
Copper Rand Mine
Production at the Copper Rand Mine, in the second quarter 2007, was 24,656 tons grading 0.048 Au oz/t, 1.92%
Cu (yielding 922,132 lbs of copper) and 0.15 Ag oz/t with a recovery rate of 82.17% for gold, 97.54% for copper
and 59.61% for silver.
For the first six months of 2007, Copper Rand produced 1,817,338 pounds of copper, 1,852 ounces of gold and
4,560 ounces of silver compared to 1,813,447 pounds of copper, 2,199 ounces of gold and 5,133 ounces of silver
for the corresponding period of 2006.
2nd Q 1st Q 4th Q 3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q
2007 2007 2006 2006 2006 2006 2005 2005 2005
Tons of ore 24,656 22,043 15,393 18,021 20,969 21,867 34,725 42,216 44,186
Grade
Au(oz/t) 0.048 0.047 0.064 0.044 0.061 0.061 0.066 0.056 0.053
Cu (%) 1.92 2.08 2.90 1.66 2.15 2.15 2.97 2.26 2.17
Ag (oz/t) 0.150 0.157 0.182 0.144 0.165 0.181 0.253 0.198 0.191
Recovery
Au (%) 82.17 85.38 85.62 85.02 86.01 82.73 83.62 83.70 85.75
Cu (%) 97.54 97.62 97.83 98.38 98.44 98.44 98.49 98.64 98.01
Ag (%) 59.61 67.81 70.51 66.08 68.75 69.64 73.25 72.47 72.89
Metal produced
Au (oz) 969 883 846 671 1,095 1,104 1,903 1,986 2,024
Cu (lbs) 922,132 895,206 874,761 587,038 886,229 927,218 2,031,577 1,879,496 1,875,477
Ag (oz) 2,210 2,350 1,980 1,709 2,373 2,760 6,428 6,059 6,142
The forecasted recovery rate for copper in the second quarter was 98.4%. The actual recovery rate was 97.54%.
The milling cost for the first six months of 2007 was $21.82 per ton compared to $14.27 per ton for the
corresponding period in 2006.
Production cost was $228 per ton in the second quarter of 2007 compared to $126 per ton for the corresponding
period in 2006.
The cost per pound of copper was US $5.90 compared to US $2.90 per pound for the corresponding period in
2006.
Copper content was 1.92% Cu compared to 2.15% Cu per ton for the corresponding period in 2006 or a reduction
of 11%.
BALANCE SHEET
As at June 30, 2007 the Company’s assets were $68.1 million, $47.0 million less than in December 31, 2006.
Current assets are $20.1 million or $21.6 million less than current liabilities. As at December 31, 2006, the current
assets were $68.0 million and $20.6 million less than current liabilities. The decrease in the amount of
$47.9 million in current assets is mainly due to:
- Release of the restricted deposits under exchange agreement for the repayment of the preferred shares
and debentures which became due in January 2007 at $50.0 million,
- Restricted cash decreased by $1.7 million,
- Increase in finished good inventory of $9.5 million,
- Decrease in settlements receivable of $5.4 million,
- Decrease in cash and cash equivalent of $0.7 million,
- Increase in receivables of $0.8 million,
- Decrease of $0.4 million in supply inventory and prepaids.
As at June 30, 2007, restricted cash was $2.3 million (representing $1.1 million as short term sent to Monitor
under CCAA for payments of creditors and $1.2 million as long term which represents deposits with Ministry of
Natural Resources for asset retirement obligation for Joe Mann Mine and Campbell Mill), a decrease of
$1.7 million compared to December 31, 2006. The reduction is explained by the following transactions:
- Increase of $2.5 million following the sale of the Eastmain property,
- Increase of $0.5 million following the sale of short-term investment,
- Decrease of $4.7 million following the distribution to Campbell and GéoNova creditors and partial
distribution to MSV creditors.
As at June 30, 2007, property, plant and equipment were $37.7 million, an increase of $0.6 million compared to
December 31, 2006. The increase is explained by the following transactions:
- Increase of $3.3 million representing capitalized development costs of $2.4 million at Corner Bay
Project and $0.9 million at Copper Rand Mine.
- Reduction of $1.4 million due to the depreciation,
- Reduction of $1.3 million following the sale of the Eastmain property.
Under current liabilities, $7.6 million of provisional payments for concentrate inventory shipped and not priced
represent the copper concentrate billed to and paid by OP which is stored in the warehouse in the Port of Québec.
As per the new contract for the sale of concentrate between Campbell and OP, revenues for concentrate inventory
shipped cannot be recognized since the ownership and risks are not fully passed to the buyer.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2007, cash and cash equivalent were $1.2 million compared to $2.0 million at December 31, 2006
and of $0.9 million at June 30, 2006.
The Company had a working capital deficiency of $21.6 million at the end of June, 2007 compared to
$20.6 million at the end of December 2006.
Operating activities used $7.5 million of cash and cash equivalents in the first six months of 2007 compared to
$2.4 million for the corresponding period of 2006.
Prior to December 31, 2006, settlements receivable from the sale of concentrate were financed through a short
term loan bearing interest at LIBOR plus 4%. This credit facility was totally repaid following the payment of the
settlements receivable in April 2007. Since January 1, 2007, an advance payment of 90% of the value of the
shipments is received the week following the shipment. As at June 30, 2007 settlements receivable reduced by
$5.4 million compared to December 31, 2006.
In the second quarter of 2007, no warrants were exercised. For the first six months of 2007, a total of 4.4 million
warrants at strike price of $0.15 per warrant were exercised representing $0.7 million.
RISK
The reader should refer to the 2006 Annual Report which details the risk factors facing the Company (also
included in Form 20-F).
ACCOUNTING PRINCIPLES
Accounting principles are stated in Note 3 of the Consolidated Financial Statements and Form 20-F for the year
ended December 31, 2006. The Company considers that the underlying estimates and assumptions have an
impact on the present financial statements.
On January 1, 2007, the Company adopted new accounting principles to be in compliance with Section 1530 of
the CICA Handbook, “Comprehensive Income”, Section 3855, “Financial instruments – recognition and
measurement”, Section 3250, “Surplus” and Section 3865, “Hedges” (see Note 4)
SUBSEQUENT EVENT
On July 20, 2007, Campbell closed the financing for completion of development of its high-grade Corner Bay
copper project near Chibougamau, Québec, with the issuance of $4.0 million of convertible debentures equally to
Nuinsco Resources Ltd. (“Nuinsco”) and Ocean Partners UK Limited. Development of Corner Bay is well
underway, and the Corporation expects mining of an initial 42,000 tonne bulk sample at an average grade of 3.7%
copper to begin early in the fourth quarter of 2007.
The convertible debentures bear interest at 11.5% per annum and are convertible into units of Campbell at a price
of $0.13 per unit, with each unit consisting of one common share and one-half of one common share purchase
warrant. Each whole warrant entitles the holder to purchase one additional common share of Campbell for $0.16
per share for a period of 24 months from closing. The convertible debentures mature in two years and are secured
by a first charge on Corner Bay.
OUTLOOK
The Company is forecasting a much improved second half of 2007 due to an expected increase in output at
Copper Rand, the start of mining at Corner Bay, and the delivery of the long-awaited certificate of authorization
by the Québec Ministry of Environment that will allow the start of mining at the Merrill Island open pit.
The first vessel carrying concentrate has left the Port of Québec City August 3rd, 2007 and at least two more shipments of a minimum of 5,000 tons of concentrate should be made before year end.
Copper Rand
In line with Campbell’s goal of increasing throughput at the Copper Rand Mill, Alimak stope preparation is
progressing well. In addition, the ramp to bypass the groundfall area will become operational by mid-August and
will facilitate access to levels 4500 and above. Development is also progressing towards the 01-1 East Extension
and the 44-4 veins. In addition, construction of the ramp to the 4870 level has begun, with the ore zone expected
to be reached by November, and stope preparation will be initiated shortly on level 3950 in order to access
additional ore.
Corner Bay
To date, the contractor CMAC-Thyssen has excavated more than 350 meters of ramp. One heading is approaching
the 55-meter level where ore is expected to be intersected by the end of August. The second heading is
progressing towards levels 85 and 100 from where a bulk sample of about 42,000 tonnes of development ore at an
expected grade of 3.70% Cu will be extracted. In total, about 700 meters of decline and 1,500 meters of horizontal
development on three levels will be done, and the milling of material from the bulk sample is scheduled to begin
in October of this year.
Following the extraction of the bulk sample, Campbell’s intends to continue the development of the project in
order to bring it to production stage. Exploration drilling has shown deep ore intersection at 1,250 meter below the
surface with a 6.3 meter intercept (true thickness) @ 9.27% Cu. To date, the Corner Bay project resources are
estimated at: measured: 181 000 T @ 5.07% Cu, indicated: 265 000 T @ 5.93% Cu, inferred: 1 441 000 T @
6.76% Cu (Ref.: GEOSTAT Technical Report, July 2006, available on SEDAR at www.sedar.com).
Merrill Pit
Site preparation at this former producer is progressing well, with dewatering of the pit and upgrading of the access
road underway. Engineering work has begun in order to begin mining as soon as the required environmental
permitting is granted.
Joe Mann
As previously announced, production at Joe Mann mine should end at the end of August. The Company still
intends to complete the previously announced drilling program to test the continuity of the Joe Mann orebody at
depth, however this has been delayed due to the shortage of diamond drill rigs. The property will be kept on care
and maintenance status until the drilling program is completed.
chipster |
