-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KiSi+Vf4M6lUIp8CcsYH4+IxC2w5Zonm2Lmxgmj6XM3KtI3X+rg5TaAK6DyMsC00 grltevYOeKtpahCmSzQunA== 0000927356-98-001313.txt : 19980813 0000927356-98-001313.hdr.sgml : 19980813 ACCESSION NUMBER: 0000927356-98-001313 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APEX SILVER MINES LTD CENTRAL INDEX KEY: 0001011509 STANDARD INDUSTRIAL CLASSIFICATION: SILVER ORES [1044] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-34685 FILM NUMBER: 98683948 BUSINESS ADDRESS: STREET 1: CALEDONIAN HOUSE GROUND FL GEORGETOWN CITY: GRAND CAYMAN CAYMAN STATE: E9 BUSINESS PHONE: 3499490050 MAIL ADDRESS: STREET 1: CALEDONIAN HOUSE MARY STREET STREET 2: GEORGE TOWN GRAND CAYMAN ISLAND BWI 10-Q 1 APEX SILVER FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30,1998. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________TO________. COMMISSION FILE NUMBER 1-13627 APEX SILVER MINES LIMITED ------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) CALEDONIAN HOUSE GROUND FLOOR, MARY STREET GEORGETOWN, GRAND CAYMAN CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE - -------------------------------------------------------------------------------- (ADDRESS PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (345) 949-0050 - -------------------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO ------ ----- AT AUGUST 3, 1998, 26,213,297 ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, WERE ISSUED AND OUTSTANDING. APEX SILVER MINES LIMITED FORM 10-Q QUARTER ENDED JUNE 30, 1998 INDEX PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS................................. 3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 7 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................... 9 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS.................................... 10 ITEM 2. CHANGES IN SECURITIES................................ 10 ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................... 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 10 ITEM 5. OTHER INFORMATION.................................... 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................... 10 SIGNATURES .................................................... 11 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) CONSOLIDATED BALANCE SHEET (EXPRESSED IN UNITED STATES DOLLARS)
June 30, December 31, 1998 1997 ---------------- --------------- (Unaudited) Assets Current assets Cash and cash equivalents........................................................ $ 37,786,981 $ 57,033,193 Amounts due from affiliate ..................................................... -- 722,717 Prepaid expenses and other assets .............................................. 1,713,537 1,070,462 ------------ ------------ Total current assets ......................................................... 39,500,518 58,826,372 Mining properties and development costs .......................................... 24,540,321 11,888,258 Plant, buildings and equipment (net) ............................................. 2,197,547 1,149,842 Value Added Tax recoverable ...................................................... 2,677,463 1,351,004 Other non-current assets........................................................... 366,193 113,183 ------------ ------------ Total assets ................................................................. $ 69,282,042 $ 73,328,659 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accrued salaries, wages and benefits............................................. $ 102,751 $ 40,736 Accounts payable and other accrued liabilities ................................. 1,672,418 553,130 Current portion of long-term debt................................................ 172,000 412,408 ------------ ------------ Total current liabilities .................................................... 1,947,169 1,006,274 Long-term debt ................................................................... 2,182,400 3,093,788 Shareholders' equity Ordinary shares, $.01 par value, 75,000,000 shares authorized; 19,906,602 and 19,124,916 shares issued and outstanding, respectively ................... 199,066 191,249 Contributed surplus ............................................................ 97,812,152 97,819,969 Accumulated deficit ............................................................ (32,858,745) (28,782,621) ------------ ------------ Total shareholders' equity ................................................... 65,152,473 69,228,597 ------------ ------------ Total liabilities and shareholders' equity ................................... $ 69,282,042 $ 73,328,659 ============ ============
The accompanying notes form an integral part of these consolidated financial statements. 3 APEX SILVER MINES LIMITED (Successor to Apex Silver Mines LDC) CONSOLIDATED STATEMENT OF OPERATIONS (Expressed in United States dollars) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------- ----------------------------- 1998 1997 1998 1997 -------------- --------------- ------------- -------------- Income Interest income ..................... $ 661,614 $ 282,103 $ 1,393,996 $ 475,298 -------------- --------------- ------------- -------------- Total income ..................... 661,614 282,103 1,393,996 475,298 Expenses Exploration ......................... 1,699,675 3,492,854 2,336,386 7,961,583 Administrative ...................... 1,467,669 1,511,712 1,765,412 2,414,831 Consulting .......................... 492,653 888,924 825,632 1,059,669 Professional fees ................... 309,761 739,736 458,649 775,863 Amortization and depreciation ....... 57,816 27,050 84,041 41,198 -------------- --------------- ------------- -------------- Total expenses ................... 4,027,574 6,660,276 5,470,120 12,253,144 -------------- --------------- ------------- -------------- Net loss ......................... $(3,365,960) $(6,378,173) $(4,076,124) $(11,777,846) ============== =============== ============= ============== Net loss per ordinary share Basic and diluted/(1)/.............................. $(0.13) $(0.31) $(0.16) $(0.58) ============== =============== ============= ============== Weighted average ordinary shares outstanding............................... 26,203,922 20,271,460 26,203,922 20,271,460 ============== =============== ============= ==============
(1) Diluted earnings per share were antidilutive for all periods presented. The accompanying notes form an integral part of these consolidated financial statements. 4 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) CONSOLIDATED STATEMENT OF CASH FLOWS (EXPRESSED IN UNITED STATES DOLLARS) (UNAUDITED)
Six Months Ended June 30, --------------------------------------- 1998 1997 ------------------ ------------------- Cash flows from operating activities: Net cash used in operating activities............................................ $ (4,057,598) $(12,981,766) Cash flows from investing activities: Purchase of short-term investments.................... -- (9,000,000) Mining properties and development costs............... (13,252,063) -- Purchases of plant, buildings and equipment........... (1,103,450) (51,322) Other................................................. (281,305) -- ------------ ------------ Net cash used in investing activities............. (14,636,818) (9,051,322) ------------ ------------ Cash flows from financing activities: Net cash provided by (used in) financing activities....... (551,796) 171,659 ------------ ------------ Net decrease in cash and cash equivalents................. (19,246,212) (21,861,429) Cash and cash equivalents beginning of period............. 57,033,193 25,949,771 ------------ ------------ Cash and cash equivalents end of period................... $ 37,786,981 $ 4,088,342 ============ ============ SUPPLEMENTAL NON-CASH TRANSACTION: Capitalization of depreciation expense related to San Cristobal assets.................. $ 109,853 $ __
The accompanying notes form an integral part of these consolidated financial statements. 5 APEX SILVER MINES LIMITED (Successor to Apex Silver Mines LDC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States dollars) 1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS These unaudited interim consolidated financial statements of Apex Silver Mines Limited (the "Company") and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP so long as such omissions do not render the financial statements misleading. In the opinion of management, these financial statements reflect all adjustments which are necessary for a fair statement of the results for the periods presented. All adjustments were of a normal recurring nature. These interim financial statements should be read in conjunction with the annual financial statements of the Company included in its 1997 Annual Report on Form 10-K. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities (the "Standard"). This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in fair value of a derivative will depend upon the intended use of the derivative and the resulting designation. Currently, the Company has no derivative instruments to which SFAS No. 133 would apply; however, any instruments acquired by the Company to which the Standard would apply will be accounted for in accordance with the Standard from its effective date of January 1, 2000. 3. VALUE ADDED TAX RECOVERABLE The Company has recorded all value added tax (''VAT'') paid by ASC Bolivia LDC ("ASC Bolivia"), ASC Peru LDC ("ASC Peru") and Minera de Cordilleras, S. de R.L. de C.V. ("Cordilleras Mexico") as recoverable assets. The VAT paid by ASC Bolivia and ASC Peru is expected to be recovered through the sale of mine production and the VAT paid by Cordilleras Mexico is recoverable upon application to local authorities. As of June 30, 1998, the VAT recorded by ASC Bolivia, ASC Peru and Cordilleras Mexico was $2,376,397, $167,669 and $133,397, respectively. 4. PLANT, BUILDINGS AND EQUIPMENT The components of plant, buildings and equipment were as follows: JUNE 30, DECEMBER 31, 1998 1997 ------------------- ------------------- (Unaudited) Buildings........................... $ 807,000 $ 410,639 Mining equipment.................... 754,799 728,313 Other furniture and equipment....... 894,986 104,529 ---------- ---------- 2,456,785 1,243,481 Less: Accumulated depreciation...... (259,238) (93,639) ---------- ---------- $2,197,547 $1,149,842 ========== ========== 6 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis summarizes the results of operations of Apex Silver Mines Limited for the three months ended June 30, 1998 and 1997 and for the six months ended June 30, 1998 and 1997 and changes in its financial condition from December 31, 1997. This discussion should be read in conjunction with the Management's Discussion and Analysis included in the Company's 1997 Annual Report on Form 10-K. The Company is a mining exploration and development company that holds a portfolio of silver exploration and development properties in South America, Central America and Central Asia. None of these properties are in production and, consequently, the Company has no current operating income or cash flow. The sole source of income for the Company since inception is interest income. The Company's policy is to invest all excess cash in liquid, high credit quality, short-term financial instruments. Mineral exploration expenditures are expensed as incurred prior to the determination of the feasibility of mining operations. Once it has been determined that a mineral property has proven and probable ore reserves, subsequent development and exploration expenses are capitalized. Through June 30, 1998, all acquisition and exploration costs have been expensed as incurred, except those pertaining to the San Cristobal Project. Since September 1, 1997, the Company has capitalized exploration and development costs associated with the San Cristobal Project and will continue to do so in the future. Apex Silver Mines Corporation ("Apex Corporation"), the Company's U.S. management services company, is subject to U.S. income taxes. Otherwise the Company pays no income tax in the U.S. since the Company is incorporated in the Cayman Islands and conducts no business that currently generates U.S. taxable income. There is currently no corporate taxation imposed by the Cayman Islands. If any form of taxation were to be enacted in the Cayman Islands, the Company has been granted exemption until January 16, 2015. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 Interest Income. Interest income for the second quarter of 1998 was $661,614 compared to $282,103 for the second quarter of 1997. The increase in interest income for the comparative periods was due to the additional cash raised in the November 1997 initial public offering. Exploration. Exploration expenses were $1,699,675 for the second quarter of 1998 compared to $3,492,854 for the second quarter of 1997. The decreased exploration expenses in 1998 compared to 1997 were due to the capitalization of exploration and development activity at the San Cristobal Project in 1998. Consulting. Consulting fees were $492,653 for the second quarter of 1998 compared to $888,924 for the second quarter of 1997. The decrease in 1998 versus 1997 is primarily due to a decrease in expenses associated with retaining third party consultants to prepare technical studies on exploration stage properties. Professional Fees. Professional fees were $309,761 for the second quarter of 1998 compared to $739,736 for the second quarter of 1997. The decrease in 1998 over 1997 was primarily due to higher legal and accounting fees in preparation of the November 1997 initial public offering. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 Interest Income. Interest income for the six months ended June 30, 1998 was $1,393,996 compared to $475,298 for the six months ended June 30, 1997. The increase in interest income for the comparative periods was due to the additional cash raised in the November 1997 initial public offering. 7 Exploration. Exploration expenses were $2,336,386 for the six months ended June 30, 1998 compared to $7,961,583 for the six months ended June 30, 1997. The decreased exploration expenses in 1998 compared to 1997 were due to the capitalization of exploration and development activity at the San Cristobal Project in 1998. Administrative. Administrative expenses were $1,765,412 for the six months ended June 30, 1998, compared to $2,414,831 for the six months ended June 30, 1997. The decrease in 1998 versus 1997 is primarily related to the capitalization of administrative activity related to the San Cristobal Project beginning September 1, 1997. Consulting. Consulting fees were $825,632 for the six months ended June 30, 1998 compared to $1,059,669 for the six months ended June 30, 1997. The decrease in 1998 versus 1997 is primarily due to a decrease in expenses associated with retaining third party consultants to prepare technical studies on exploration stage properties and the capitalization of consulting activity related to the San Cristobal Project in 1998. Professional Fees. Professional fees were $458,649 for the six months ended June 30, 1998 compared to $775,863 for the six months ended June 30, 1997. The decrease in 1998 over 1997 was primarily due to higher legal and accounting fees in preparation of the November 1997 initial public offering. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, the Company had cash and cash equivalents of $37,786,981 compared to $57,033,193 at December 31, 1997. The decrease was due primarily to costs incurred on the San Cristobal Project. The Company is currently assessing available sources of capital that would allow for the development and construction of the San Cristobal Project. While the Company believes that it will be able to secure the required financing, no assurance can be given that it will be able to do so. The Company is subject to a series of obligations with respect to its mineral properties; the failure to meet any of these commitments could result in the loss or forfeiture of one or more of the Company's properties. These obligations consist of government mineral patent fees and commissions, work commitments, lease payments and advance royalties. In addition, a number of the Company's property interests derive from contractual purchase options. In order to acquire such properties, the Company will be obliged to make certain payments to the registered concession holders and others who have interests in the properties. RECENT DEVELOPMENTS The Company is currently conducting a bankable feasibility study on its San Cristobal Project, which it expects to complete in early 1999. Based on drill results through the end of March 1998, the Company announced a 70 percent increase in proven and probable reserves on May 7, 1998. A second reserve update is planned for the third quarter once results from the completed drill program have been analyzed. Proven and probable reserves now total 208.7 million tonnes of ore grading 1.64 ounces per tonne of silver, 1.34 percent zinc and 0.45 percent lead. Assumptions used to develop these reserves are the same as in the 1997 first phase feasibility study, including market prices of $5.00 per ounce silver, $0.55 per pound of zinc and $0.30 per pound of lead. Updated reserves now contain 341 million ounces of silver, 2.8 million tonnes of zinc and 0.9 million tonnes of lead. Apex's 1997 first phase feasibility study incorporated two separate pits, Tesorera and Jayula. 1998 drilling confirms sufficient ore continuity between Tesorera and Jayula to create one large open pit. The result is a significantly lower strip ratio of 1.26:1 (tonnes of waste per tonne of ore) versus a first phase feasibility strip ratio of 1.66:1. 1998 drilling has extended the mine life from 11.5 years to 19.3 years using 8 the production rate of 30,000 tonnes per day. Higher mining rates are also being considered as part of the bankable feasibility study. OTHER MATTERS In April 1998, the Company retired $900,000 of long-term debt, originally acquired in exchange for certain mineral property related to the San Cristobal Project, for a cash payment of $300,000. This debt was to be retired through a 5% net smelter return royalty in the first year of production. The $600,000 difference between the $900,000 principal amount and the $300,000 effectively represents a purchase price adjustment and has therefore been reflected as a reduction of mining properties. In August 1998, the Company purchased Silver Holdings LDC's ("Silver Holdings") 24 percent minority interest in Apex Silver Mines LDC ("Apex LDC"), the Company's primary operating subsidiary. The Company purchased the minority interest with 6,297,321 of its ordinary shares in accordance with the terms of a 1996 buy-sell agreement amongst the Company and minority shareholders in Apex LDC. With completion of the purchase, the Company now owns 100 percent of Apex LDC. As Silver Holdings' ownership in Apex LDC converted on a one-for-one basis to the Company's ordinary shares, this transaction does not effect the beneficial or economic interest in Apex LDC attributable to the Company's shareholders. YEAR 2000 DATE CONVERSION The inability of computer programs to correctly interpret the century from a date that consists of two-year digits does not appear to be a significant problem to the Company. As of June 30, 1998, the Company has no mainframe or central database. In addition, personal computers and software direct the Company's accounting system. Although minor adjustments may be required on the software applications, these costs will be immaterial. To further mitigate the risk of loss of data, the Company intends to perform regular tape backups of all files, contact software manufacturers about updates to their products and keep informed of the latest developments concerning year 2000 issues. FORWARD-LOOKING STATEMENTS This filing contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, included in this filing which address activities, events or developments that the Company expects, believes, intends or anticipates will or may occur in the future, including such matters as future investments in existing development projects and the acquisition of new mineral properties (including the amount and nature thereof), business strategies and the future need for additional funds from outside sources, are forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements therein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Currently, the Company's major principal cash balances are held in U.S. dollars. Subsidiary cash balances in foreign currencies are held to minimum balances and therefore have a minimum risk to currency fluctuations. There are currently no hedge positions against foreign currencies. The Company currently does not hedge commodity and base metals price risks. However, the Company anticipates that as its mineral properties are brought into production and it begins to derive revenue from the production, sale and exchange of commodity and base metals, the Company may utilize various price hedging techniques to lock in forward delivery prices on a portion of its production, and thereby mitigate some of the risks associated with fluctuations in the prices of the metals it produces. The Company may also engage in hedging activities to hedge the risk of exposure to currency fluctuations as a result of its operations in several foreign countries. There can be no assurance that the use of hedging techniques will always benefit the Company. 9 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During the period covered by this report, there were no legal proceedings instituted that are reportable. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on May 14, 1998. At the meeting the following directors were elected to serve until the 2001 Annual Meeting of Shareholders: Director Number of Common Shares Voted -------- ----------------------------- Affirmative Withhold Authority Broker Non-Votes ----------- ------------------ ---------------- Harry Conger 9,559,238 103,343 0 Michael Comninos 9,659,081 3,500 0 Richard Katz 9,659,081 3,500 0 The directors continuing in office until 1999 are Ove Hoegh, Keith Hulley and Paul Soros. The directors continuing in office until 2000 are Thomas S. Kaplan, Eduardo S. Elsztain and David Sean Hanna. ITEM 5. OTHER INFORMATION None. ITEM 6. (A) REPORTS ON FORM 8-K None. (B) EXHIBITS 3.1 Amended and restated Memorandum of Association of the Registrant.* 3.2 Amended and restated Articles of Association of the Registrant.* 27 Financial Data Schedule. *Incorporated by reference to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1997 (File No. 1-13627). 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized. APEX SILVER MINES LIMITED (Registrant) Date: August 12, 1998 By: /s/ Thomas S. Kaplan --------------------- Thomas S. Kaplan Chairman, Board of Directors 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary information extracted from the financial statements included in the Apex Silver Mines Limited Form 10-Q for the quarter ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 37,786,981 0 0 0 0 39,500,518 26,997,106 259,238 69,282,042 1,947,169 0 0 0 199,066 64,953,407 69,282,042 0 1,393,996 0 0 5,470,120 0 0 0 0 0 0 0 0 (4,076,124) (0.16) (0.16)
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