Campbell pulls plug at Santa Gertrudis — Junior rethinks strategy after third-quarter loss

With no foreseeable sign of a turnaround in the weakened gold market, Campbell Resources (CCH-T) is suspending operations at its Santa Gertrudis mine in Sonora state, Mexico, in order to focus on exploration.

Campbell says it will cease mining activities at the open-pit, heap-leach project at the end of November. The company cites the low gold price and insufficient development of reserves as the main factors in its decision.

Activities are now being wrapped up at the Dora, El Toro and La Trinidad pits. Reserves at Dora and Toro will be depleted at the end of the month, though the mined material is expected to provide sufficient feed for leaching to continue at current gold prices for another six to 12 months.

During the third quarter, Campbell cranked out 10,790 oz. gold from Santa Gertrudis at an average cash cost of US$353 per oz., compared with 12,710 oz. at US$256 per oz. in the corresponding period in 1996. The company attributes the drop in production to high rainfall.

For the first nine months of 1997, the mine yielded 28,560 oz., compared with 44,150 oz. in the year-ago period. Cash costs during the two periods were US$341 and US$210 per oz., respectively.

Total gold production at Santa Gertrudis for the current year is now expected to fall between 38,000 and 40,000 oz., or 10,000 oz. less than previously expected.

Campbell will continue to test the 13 to 14 targets found elsewhere on the 225-sq.-km property. To date, the company has spent roughly 75% of its 1997 budget of $4.5 million.

Especially promising is the 15.6-sq.-km Greta target, 7 km southeast of the mine area. Drilling recently tested two zones in the area — Ontario and Tracy.

Results from the Ontario zone include:

* hole GR-246, which hit 4.5 metres (from 54 to 58.5 metres) grading 13.65 grams;

* hole 248, which yielded 5.16 grams over 4.5 metres (from 52.5 to 57 metres);

* hole 249, which returned 3.58 grams over 1.5 metres (from 78 to 79.5 metres);

* hole 250, which intersected three separate zones of 13.5 metres (from 6 to 19.5 metres) grading 1.87 grams, 6 metres (from 42 to 48 metres) grading 1.19 grams, and 3 metres (from 72 to 75 metres) grading 16.55 grams; and * hole 253, which averaged 11.15 grams over 3 metres (from 58.5 to 61.5 metres).

At the Tracy prospect, reverse-circulation (RC) hole TY-101 intersected 6 metres of 1.03 grams gold (from 37.5 to 43.5 metres), while RC hole TY-103 yielded 3.74 grams gold over 4.5 metres (from 52.5 to 57 metres). The former hole is collared 80 metres north of the later and was drilled to undercut a trench that assayed 3.3 grams gold over 46.55 metres.

To date, the Tracy prospect has been traced on surface over a length of 50 metres. Several grab samples, taken 10 metres south of hole 101, assayed between 12.4 and 32.6 grams gold, while preliminary sampling of two trenches excavated at the southernmost end of the zone yielded 7.76 grams gold over 3.2 metres.

The prospect lies in the central portion of the Gloria shear zone, a prominent south-trending lineament identified by airborne geophysics and radar satellite imagery. Geological mapping indicates the zone has a strike length in excess of 1 km, with widths varying from 20 to 100 metres.

Shearing is defined by sub-parallel structures filled with highly deformed and altered lamprophyre dykes and zones of tectonic breccia.

Elsewhere on the shear zone, several large bodies of skarn and hornfels mineralization returned gold values ranging from 1.10 to 2.35 grams.

Campbell is continuing its program of drilling and trenching at Greta. In addition, the company is considering joint-venturing the mine area for assessment of primary sulphide mineralization at depth.

“We’ve had expressions of interests from several companies that are familiar with the Carlin-type area,” says Steven Da1

wson, Campbell’s manager of investor relations. He adds that there are many geological similarities between Santa Gertrudis and Carlin-type deposits.

At the end of 1996, proven and probable reserves at Santa Gertrudis stood at 1.58 million tonnes grading 1.79 grams gold per tonne, while possible reserves were calculated at 1.14 million tonnes grading 1.99 grams gold.

.S

Other operations

Another project that may suffer from gold’s devaluation is Cerro Quema in Panama, where, earlier this year, development was put on hold.

A positive feasibility study in November 1996 concluded that mining of the project’s reserves of 8.8 million tonnes grading 1.16 grams gold would average US$180 per oz. However, the company determined that capital costs of US$32.8 million would add a further US$100 to $120 per oz. to those costs (T.N.M., April 7/97).

Meanwhile, at Campbell’s Joe Mann underground gold mine in northwestern Quebec, production is continuing apace.

For the first nine months of 1997, the mine yielded 53,020 oz. at a cash cost of US$268 per oz., compared with 54,620 oz. at US$265 per oz. in the corresponding period of 1996.

During the third quarter, 17,420 oz. were produced at US$250 per oz., which is 330 oz. and US$5 per oz. shy of figures reported a year ago.

A total of 177,082 tonnes of material passed through the mill during the first nine months of 1997, representing a drop of 8,618 tonnes from the corresponding period in 1996. Compensating for the lower feed was a 0.21-gram increase in head grade and a 0.5% rise in recovery rates.

The main production shaft is in the process of being deepened, and, as of Sept. 30, had reached a depth of 3,500 ft. below surface, leaving 264 ft. to be completed. In addition, stations on six new levels have been excavated, as has a development heading to explore the down-plunge potential of the West zone on the 1,650-ft. level. Headings on the 1,825-ft. and 2,000-ft.

levels are being driven.

Production from the West zone is targeted for startup in 1998, which the company says may lead to an incremental increase in production once the zone is fully delineated.

Although Joe Mann has stayed on course, Campbell’s bottom line has been adversely affected by the lackluster performance of Santa Gertrudis and by the low gold price.

In the first nine months of 1997, the company lost $7.9 million (or 5cents per share) on revenue of $38.8 million, compared with earnings of $8.2 million (6cents per share) on $53.3 million in the corresponding period of 1996.

For the recent third quarter, Campbell suffered a loss of $3.4 million (2cents per share) on $13 million, compared with earnings of $1.5 million (1cents per share) on $16.2 million in the year-ago period.

Campbell’s average realized price for gold sales was US$346 per oz. in the recent 9-month period, compared with US$395 per oz. a year ago. Average cash costs were US$290 per oz. in the third quarter and US$294 per oz. in the 9-month period.

Campbell has about a quarter of its 1997 production hedged at US$380 per oz.

Working capital as of Sept. 30 was $54.1 million, consisting primarily of $43.3 million in cash and short-term deposits.