Directors’ Report to the Shareholders

Financial

A substantial reduction in sales took place as a result of a strike by Cassiar
employees. The strike stopped production at the mine and prevented the sale of fibre
from inventory in Vancouver.

The net income was reduced from $19,565,945 or $3.56 per share in 1977 to
$11,825,204 or $2.15 per share for 1978.

Net capital, waste removal and development costs for 1978 in the amount of
$25,865,757 are summarized as follows:

Vancouver, Whitehorse

Cassiar Mine Clinton Mine and Stewart
Plant and Equipment $14,401,111 $(1,211,181) $ 1,046,288
Waste Removal 10,374,869 478,532 —
Development 776,138 —_— —_

$25,552,118 $( 732,649) $ 1,046,288

Major capital expenditures at the Cassiar Mine were: $1,547,000 to complete the
mill air building, $1,099,287 for water and central sewage systems, $2,406,260 on
conveyor replacements, $3,017,078 on a fibre storage building and $1,265,388 for single
personnel accommodation. A barge facility and tank farm, at a capital cost of
$2,171,964, were constructed at Stewart, B.C.

In addition to the expenditures summarized above, $3,025,000 was paid in divi-
dends during the year.

The bank loan increased by $1,713,312 to $6,901,718 as a net result of the cost of
_ Operations, capital expenditures, waste removal costs and dividends paid.

The following table summarizes the relationship between net profit, cash gener-
ated, money spent and bank indebtedness:

(In millions of dollars) 1974 1975 1976 1977 1978
Net Profit: 7 1.4° 8.3 11.8 (19.6 11.8 —
Cash flow:

Cash Generated from Sales 51.6 84.9 82.7 116.2 95.5

Cash Required for:
(\) Capital Expenditure and

Waste Removal 21.6 29.0 31.0 31.7 25.9

(ii) Operating and Other 37.4 51.8 58.7 66.7 68.3
(ii) Dividends 7 8 a _ 3.0 — i
___ Total Cash Required - - — $98 80.8 89.7 101.4 97.2 |

Bank Indebtedness 17.1 13.0 20.0 5.2 6.9

*Before extraordinary adjustment