Campbell cutting costs Henderson may close, Joe Mann shaping up

The Henderson II mine owned by Campbell Resources (TSE) is living on borrowed time and could be shut down if a $500,000 exploration program fails to increase the operations gold reserves.

Proven reserves of 150,000 tons grading 0.063 oz gold and 1.70% copper are sufficient to carry the Chibougamau, Que., mine for about 12 months and Campbell may wind down the operation, which produced 8,516 oz gold and 2.5 million lb copper in 1987, as part of its cost reduction strategy.

Campbell’s average operating costs of $348 per oz are high by industry standards and far from satisfactory, said Chief Executive Officer John Kearney who promised to prune them down to around $250 per oz by next year.

As president of Northgate Exploration (TSE), which bought a 20% equity stake in Campbell recently, Kearney is overseeing a gold-based growth strategy designed to address the company’s poor earnings performance.

In a bid to reduce costs and cut losses reported at $11.2 million or 30 cents per share in 1987, Campbell has already written off its United States coal investments and Henderson II could be next on the chopping block.

“While it is always difficult to walk away from a mine with a long and proud production history, decisions must be made in light of current economic realities,” said Kearney at Campbell’s recent annual meeting in Toronto. Limited reserves

“The Henderson II has limited economic reserves at current prices and has been a major contributor to the high production costs of the Chibougamau operations,” he said.

However, even if the current Henderson exploration program proves unsuccessful, the mine’s 80 employees are expected to be re-absorbed at the company’s Cedar Bay operation.

The combination of an $11.4- million cash injection from Northgate and some encouraging exploration results at the Joe Mann mine in Chibougamau would also soften the blow of a mine closure.

After two new mines — the Joe Mann and S-3 — boosted production to 52,000 oz gold and 5.3 million lb copper in 1987, from 20,000 oz gold and 5.7 million lb copper in 1986, the beleaguered company is planning to produce 60,000 oz gold this year.

Much of that output is expected to come from the Joe Mann where a $30-million production shaft and on-site mill is contemplated. A decision, expected to be made by late summer, will be based on results of a $1.8-million drill program designed to explore a new mineralized zone east of the mine. It is currently under way. Joe Mann

Campbell has already blocked out 88,000 tons grading 0.287 oz gold in proven reserves and an additional 1.05 million tons grading 0.287 oz of possible drill-indicated reserves has also been identified.

“This zone is not yet totally blocked out and is also open laterally and at depth,” said Kearney.

Regarded as the company’s key asset, the Joe Mann has a reserve base of at least 2.3 million tons grading 0.260 oz gold which is sufficient to increase the current 32,000 oz per year production rate.

In a bid to increase Campbell’s Cedar Bay mine reserves which stand at 238,000 tons grading 0.128 oz gold and 1.07% copper proven/ probable, the company is spending $7.5 million on a shaft deepening program.

After taking the shaft down to 3,215 ft next month, Campbell plans to access an additional 725 ft of potentially economic mineralization below the deepest levels currently operating in the mine, Kearney said.

Exploration is also continuing at the S-3 mine near Lake Chibougamau where production — at a rate of 12,500 oz annually — began in January, 1987. Due to the complicated nature of the ore lenses, costs are higher than expected and the operation must be reviewed continually, said Kearney. Decline ramp

To provide access to an additional 150 ft of mineralization, Campbell is installing a 3,000-ft decline ramp.

In the first three months of 1988, Campbell’s losses from continuing operations were $372,000 or 1 cents per share compared to $44,000 in the same period last year.

Kearney attributed the first quarter loss to the high costs of Campbell’s Chibouamau operations compounded by a 5-day work stoppage at the Cedar Bay, S-3 and Henderson II mines.

The Campbell issue was trading recently on the Toronto Stock Exchange at $1.80 in a 52-week range of $4.00 and $1.70.