On June 30th 2005, Campbell Resources Inc. ("Campbell") and its subsidiaries - MSV Resources Inc. ("MSV"), Meston Resources Inc. ("Meston") and GéoNova Explorations Inc. ("GéoNova"), announced that the Superior Court of Québec (Commercial Division) has granted an initial order under the Companies' Creditors Arrangement Act ("CCAA").
Initial difficulties in the start-up of the Copper Rand mine and a shortage of capital have combined to create a situation where the operations could not generate enough cash to allow the Company to carry on without a financial restructuring under the Act. Difficulties encountered at Copper Rand included unstable ground conditions in the development of a critical ventilation raise, reduced ore and waste hoisting capacity during repairs to a section of the shaft, and, more importantly, mine equipment problems. These difficulties have resulted in development of stopes and workplaces below planned levels and, consequently, lower levels of production.
Under the law, actions by creditors to collect indebtedness owed by the Company prior to June 30, 2005 (pre-petition) are stayed and certain other pre-petition contractual obligations may not be enforced against the Company.
Pre-petition accounts payable and accrued liabilities total $12,167,385 as at December 31, 2006 ($11,782,646 as at December 31, 2005), $9,952,960 of which are subject to final settlement under the plans of arrangement ($9,568,221 as at December 31, 2005). Pre-petition long-term debts total $15,265,741 as at December 31, 2006 ($18,215,587 as at December 31, 2005), $940,915 of which are subject to final settlement under the plans of arrangement ($888,915 as at December 31, 2005).
Specifically, Campbell has and expects to continue exploring, developing, mining and processing precious and base metals, paying vendors for inventory, parts and services received during the reorganization process and providing employees with uninterrupted wages, healthcare coverage, vacation and sick leave.
On June 27, 2006, the Superior Court of Québec sanctioned the plans of arrangement that had previously been approved at a meeting of creditors of the Company and its subsidiaries, held on June 26, 2006.
In order to achieve its plans of arrangement, financial restructuring and reorganization, the Company has completed three equity financings (Note 14), initiated and completed various business transactions, including the sale of exploration and mining properties (Note 9), and entered into an Operating Consulting Agreement with Nuinsco Resources Limited ("Nuinsco").
The net proceeds of the equity financing of $16,619,000 (Note 14), was used to repay the Exchangeable Capital Units of $4,000,000 (Note 13), fund further development at the Copper Rand mine, finance development of the Corner Bay deposit and for general working capital.
Under the Operating Consulting Agreement, Nuinsco provides consulting services for the Company's development and mining activities, including development to increase production at the Copper Rand mine, development of the Corner Bay deposit and mining plan at the Joe Mann mine. For their services, Nuinsco has or will receive:
- 2 million common shares of the Company upon commencement of the provision of services;
- 1 million common shares of the Company upon completion of the equity financing; and
- $25,000 plus 200,000 common shares of the Company per month, in advance (up to a maximum of 4 million common shares).
Nuinsco will facilitate the access to a non-recourse project loan in an amount of up to $4 million and/or other financing sufficient to develop and bring the Corner Bay deposit into commercial production. Nuinsco shall be entitled to a 50% interest in the Corner Bay property.
Also, in consideration of Nuinsco assisting the Company in obtaining funding to complete its reorganization and upon closing of the equity financing, Nuinsco has received share purchase warrants (Note 14) of the Company equal to 20% of the number of outstanding common shares after the equity funding.
On February 27, 2007, the Monitor has presented a Certificate of Execution with respect to the Plan of Arrangement of Campbell confirming that it has executed all of its obligations pursuant to its Plan of Arrangement with its creditors. The amount of pre-petition liabilities for Campbell (non-consolidated) was $812,878 as at December 31, 2006. Campbell has also remitted to the Monitor all amounts required for the payment in full of the claims made by the creditors of GéoNova. The amount of pre-petition liabilities for GéoNova was $5,449 as at December 31, 2006. The court has granted an extension of the CCAA protection for MSV and Meston to June 15, 2007.
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. If the going concern basis is not appropriate, adjustments may be necessary in the carrying amounts and/or classification of assets and liabilities in these consolidated financial statements. While under the protection of the CCAA, the Company may sell or otherwise dispose of assets, and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements. Additionally, the amounts reported on the consolidated balance sheets could materially change because of changes in business strategies and the effects of any proposed reorganization plan.
The Company's continuation as a going concern is dependent upon, amongst other things, the continuing support of its lenders and shareholders, attaining a satisfactory revenue level, a return to profitable operations, the ability to obtain sufficient cash from operations and additional financing. These matters are dependent on a number of items outside of the Company's control and there is uncertainty about the Company's ability to successfully execute its plans.
Although management of the Company is confident that the implementation of the plans of arrangement and reorganization, including the ability to obtain additional financing, should enable the Company to continue as a going concern, because of the ongoing nature of the current proceedings, there can, however, be no assurance that such actions and plans described above will be sufficient to continue to operate as a going concern.
