Nuinsco financing for Campbell (May 22, 2006)

A $15.5-million deal to take Campbell Resources (CCH-T, CBLRF-O) out of creditor protection has been agreed to by Nuinsco Resources (NWI-T, NUIRF-O) and investment house Sprott Securities.

The deal will see Nuinsco, an aspiring nickel producer in Manitoba, take up a 12% interest in Campbell and hold warrants that, if exercised, would give it a 27% interest. Nuinsco also takes over management of Campbell’s Joe Mann gold mine and Copper Rand copper mine and a development project, the Corner Bay copper deposit, all in the Chibougamau area of north-central Quebec.

Nuinsco’s investment is part of a larger refinancing package for Campbell, which had been in creditor protection since June 2005. In the financing, Campbell will sell 125 million special warrants at 8 each in a brokered private placement through Sprott Securities, a financing that will gross $10 million.

Campbell and Sprott had initially agreed to a 100-million-unit offering for $8 million, but that was increased. Sprott gets a 6% commission and its own pack of broker warrants equal to 6% of the number of units sold in the placement.

Nuinsco will take an additional 31.25 million units for $2.5 million and a rights offering of 62.5 million units to Canadian shareholders would provide up to $5 million more. Nuinsco and Sprott will have the option to take up any of that rights offering that shareholders leave behind. (To avoid foreign regulatory hurdles, particularly registration or exemption in the United States, Campbell is not offering the rights to foreign shareholders, although it hopes to work around that.)

The units will consist of a share and half a warrant for another share exercisable at 15, expiring in two years. Sprott’s broker warrants have the same terms. Campbell can call in the warrants after a year if its shares stay above 30 for 20 consecutive trading days. A forced exercise would provide $22 million that Campbell’s president Andr Fortier said would “allow us to do all of the things that we’ve always wanted to do but were always short of doing.”

The financing agreements all have the condition that Campbell can come to a plan of arrangement with its creditors. Fortier told the conference call that he expected to be able to submit a plan to Campbell’s creditors later in May. That would allow a vote of the creditors in early June; ratification would require the approval of the courts and there is a 21-day period to appeal that approval.

Fortier was optimistic that the plan would pass a creditors’ vote. About $4 million of the refinancing is earmarked for debt retirement, a carrot for creditors that would not be available if they turned down the plan. The plan is largely a direct settlement of the debt, rather than an equity-for-debt swap. Fortier said: “we are expecting to resolve the plan of arrangement with minimal . . . shares involved.”

The financing is scheduled to close around May 24.

The financing comes with an agreement for Nuinsco to take over operation of the Joe Mann gold mine, about 60 km south of Chibougamau, and the Copper Rand mine 7 km east of town. Under the agreement, Nuinsco gets 3 million shares and a monthly fee of $25,000 and 200,000 shares, plus warrants equating to a 20% shareholding in Campbell.

Joe Mann, which sends ore to the Copper Rand mill, produced 29,000 oz. gold and 407 tonnes copper in 2005, at a cost of US$412 per oz. Copper Rand produced 3,000 tonnes copper and 7,000 oz. gold in 2005; production continued although development of new workings was stopped to conserve cash in the last quarter of the year. A measure of the pace of production from the two mines is that the 2,700-tonne-per-day Copper Rand mill was operating only three-and-a-half days per week.

In the first quarter Campbell posted a $2.3-million loss — 2 per share — on sales of $2.6 million. Joe Mann produced about 20,000 tonnes grading 6.4 grams gold per tonne and Copper Rand just under 20,000 tonnes grading 2.15% copper, 2.1 grams gold and 6.4 grams silver per tonne. Production at Joe Mann was suspended for 10 days in the quarter to solve stoping difficulties in one area of the mine.

Calling Campbell’s situation in Chibougamau “a classic case of undercapitalization,” chief executive Warren Holmes of Nuinsco said he expected the operations to turn around under Nuinsco’s tutelage. Copper Rand’s last published resource estimate was 1.7 million tonnes grading 1.55% copper and 3.3 grams gold per tonne, although Holmes mentioned combined reserves and resources of 2.5 million tonnes grading 1.8% copper and 2.9 grams gold per tonne. Campbell’s capital shortage has precluded both drilling and development at the deposit.

Similarly, Joe Mann has a partly drilled West zone that both companies think can be turned into a reserve.

Nuinsco’s agreement also gives it a presumptive 50% interest in the Corner Bay copper deposit, 55 km south of Chibougamau, which it can earn by arranging a non-recourse project loan of up to $4 million to develop the deposit. Corner Bay has a measured and indicated resource of 967,000 tonnes grading 5.25% copper, plus an inferred 793,000 tonnes grading 6.6%.

The project has its permits and Nuinsco will complete a feasibility study, which Holmes expects to have in about four months.