-----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, KlMCMD9214QdmUrC7ySHBvt0bM6pPEXA+Wd3arD7E4A5Edtf+xcX7MyKgFnj2Cnn ua62VQuM5zGRRCboWRpQRg== 0000938347-98-000003.txt : 19981116 0000938347-98-000003.hdr.sgml : 19981116 ACCESSION NUMBER: 0000938347-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98746684 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 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 SEPTEMBER 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 NOVEMBER 1, 1998, 26,221,297 ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, WERE ISSUED AND OUTSTANDING. APEX SILVER MINES LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30,1998 INDEX PART I - FINANCIAL INFORMATION PAGE 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......................................... 10 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 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)
September 30, December 31, ------------- ------------ 1998 1997 (Unaudited) Assets Current assets Cash and cash equivalents $32,991,838 $57,033,193 Amounts due from affiliate - 722,717 Prepaid expenses and other assets 580,504 1,070,462 ------------- ------------- Current assets 33,572,342 58,826,372 Mining properties and development costs 26,968,712 11,888,258 Plant, buildings and equipment (net) 2,215,497 1,149,842 Value Added Tax recoverable 2,802,872 1,351,004 Other non-current assets 346,545 113,183 ------------- ------------- Total assets $65,905,968 $73,328,659 ============= ============= Liabilities and Shareholders' Equity Current liabilities Accounts payable and other accrued liabilities $ 1,823,887 $ 593,866 Current portion of long-term debt 284,773 412,408 ------------- ------------- Current liabilities 2,108,660 1,006,274 Long-term debt 1,930,486 3,093,788 Shareholders' equity Ordinary shares, $.01 par value, 75,000,000 shares authorized; 26,213,297, and 19,124,916, shares issued and outstanding 262,133 191,249 Contributed surplus 97,824,084 97,819,969 Accumulated deficit (36,219,395) (28,782,621) ------------- ------------- Total shareholders' equity 61,866,822 69,228,597 ------------- ------------- Total liabilities and shareholders' equity $65,905,968 $73,328,659 ============= ============= The accompanying notes form an integral part of these consolidated financial statements.
APEX SILVER MINES LIMITED (Successor to Apex Silver Mines LDC) CONSOLIDATED STATEMENT OF OPERATIONS (Expressed in United States dollars) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ------------------------------ 1998 1997 1998 1997 Income Interest income $ 488,812 $ 131,774 $ 1,882,808 $ 607,072 ----------------------------- ------------------------------ Total income 488,812 131,774 1,882,808 607,072 Expenses Exploration 1,202,739 2,167,115 3,539,127 10,128,698 Administrative 1,554,620 2,201,681 3,320,031 4,616,512 Consulting 885,976 802,532 1,711,608 1,862,201 Professional fees 163,341 (549,272) 621,990 226,591 Amortization and depreciation 42,785 14,148 126,826 55,346 ----------------------------- ------------------------------ Total expenses 3,849,461 4,636,204 9,319,582 16,889,348 ----------------------------- ------------------------------ Net loss $(3,360,649) $(4,504,430) $(7,436,774) $(16,282,276) ============================= ============================== Net loss per ordinary share - Basic and diluted(1) $ (0.13) $ (0.22) $ (0.28) $ (0.79) ============================= ============================== Weighted average ordinary shares outstanding 26,210,171 20,630,363 26,211,214 20,540,864 ============================= ============================== (1) Diluted earnings per share were antidilutive for all periods presented. The accompanying notes form an integral part of these consolidated financial statements.
APEX SILVER MINES LIMITED (Successor to Apex Silver Mines LDC) CONSOLIDATED STATEMENT OF CASH FLOWS (Expressed in United States dollars (Unaudited)
Nine Months Ended September 30, ------------------------------------ 1998 1997 Cash flows from operating activities: Net cash used in operating activities $ (4,763,272) $ (15,879,238) Cash flows from investing activities: Purchase of short-term investments - - Mining properties and development costs (15,680,454) (169,493) Purchases of plant, buildings and equipment (1,254,019) - Value Added Tax Receivable (1,451,868) Other (275,805) - --------------- --------------- Net cash used in investing activities (18,662,146) (169,493) Cash flows from financing activities: Net cash used in financing activities (615,937) (1,094,756) --------------- --------------- Net decrease in cash and cash equivalents (24,041,355) (17,143,487) Cash and cash equivalents beginning of period 57,033,193 25,949,771 --------------- --------------- End of period $ 32,991,838 $ 8,806,284 =============== =============== Supplemental non-cash transactions: Capitalization of depreciation expense related to San Cristobal assets $ 137,418 $ - The accompanying notes form an integral part of these consolidated financial statements.
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 (as defined below) so long as such omissions do not render the financial statements misleading. In the opinion of management, these financial statements reflect all adjustments that 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 Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. This Statement establishes standards for reporting and display of comprehensive income and its components. The effect of adopting SFAS No. 130 was not material for any of the periods presented. 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 is expected to be recovered through the sale of mine production. The VAT paid by ASC Peru is expected to be recovered through the sale of mine production and or the sale of mineral properties. As of September 30, 1998, the VAT recorded by ASC Bolivia and ASC Peru is $2,460,077 and $187,985 respectively. The VAT paid by Cordilleras Mexico is recoverable upon application to local authorities. As of September 30, 1998, the VAT recorded by Cordilleras Mexico is $154,810, which represents the net balance after refunds received during 1998 in the amount of $68,946. 4. Plant, Buildings and Equipment The components of plant, buildings and equipment were as follows: September 30, December 31, 1998 1997 -------------- ------------- (Unaudited) Buildings........... $ 929,096 $ 410,639 Mining equipment.... 754,799 728,313 Other furniture and equipment.......... 794,384 104,529 -------------- ------------- 2,541,279 1,243,481 Less: Accumulated depreciation....... (325,782) (93,639) -------------- ------------- $ 2,215,497 $1,149,842 ============== ============= 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 (the "Company") for the three months ended September 30, 1998 and 1997 and for the nine months ended September 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 as defined by the Securities and Exchange Commission ("SEC"), subsequent development and exploration expenses are capitalized. Through December 31, 1997, 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. federal, state and local income taxes. Other than the management services company, the Company does not pay income tax in the U.S. The Company is incorporated in the Cayman Islands and does not conduct any 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 September 30, 1998 Interest Income. Interest income for the third quarter of 1998 is $488,812 compared to $131,774 for the third quarter of 1997. The increase in interest income for the comparative periods was due to the additional cash raised in the 1997 Initial Public Offering. Exploration. Exploration expenses were $1,202,739 for the third quarter of 1998 compared to $2,167,115 for the third quarter of 1997. The decreased exploration expenses in 1998 compared to 1997 were due to the capitalization of exploration activity at the San Cristobal Project during 1998. Administrative. Administrative expenses were $1,554,620 for the third quarter of 1998, compared to $2,201,681 for the third quarter of 1997. The decrease in 1998 compared to 1997 is primarily related to stock option compensation expense associated with the granting of stock options to directors and officers in 1997. Consulting. Consulting fees were $885,976 for the third quarter of 1998 compared to $802,532 for the third quarter of 1997. The slight increase in 1998 compared to 1997 is primarily related to the use of third party consultants in the development of financing strategies pertaining to the San Cristobal Project. Professional Fees. Professional fees were $163,341 for the third quarter of 1998 compared to a net credit of $549,272 for the third quarter of 1997. The third quarter credit to professional fees during 1997 was the result of the capitalization of previously expensed legal and accounting fees, in the amount of $682,355, related to the 1997 initial public offering. The 1997 credit was partially offset by $133,083 of charges recorded to professional fees during the period. Results of Operations - Nine Months Ended September 30, 1998 Interest Income. Interest income for the nine months ended September 30, 1998 is $1,882,808 compared to $607,072 for the nine months ended September 30, 1997. The increase in interest income for the comparative periods was due to the additional cash raised in the 1997 Initial Public Offering. Exploration. Exploration expenses were $3,539,127 for the nine months ended September 30, 1998, compared to $10,128,698 for the nine months ended September 30, 1997. These expenditures were associated primarily with projects in Bolivia, Mexico and Peru. The decreased exploration expenses in 1998 compared to 1997 were due to the capitalization of exploration activity at the San Cristobal Project in 1998. Administrative. Administrative expenses were $3,320,031 for the nine months ended September 30, 1998, compared to $4,616,512 for the nine months ended September 30, 1997. The decrease in 1998 compared to 1997 is primarily related to stock option compensation expense associated with the granting of stock options to directors and officers in 1997. Consulting. Consulting fees were $1,711,608 for the nine months ended September 30, 1998, compared to $1,862,201 for the nine months ended September 30, 1997. The decrease in 1998 compared to 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 $621,990 for the nine months ended September 30, 1998, compared to $226,591 for the nine months ended September 30, 1997. The increase for 1998 compared to 1997 was primarily due to higher legal and accounting fees related to SEC compliance and reporting and shareholder relation activities. Liquidity and Capital Resources As of September 30, 1998, the Company had cash and cash equivalents of $32,991,838 compared to $57,033,193 at December 31, 1997. The decrease was due primarily to costs incurred on the San Cristobal Project and other exploration activities. 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 mid-1999. Based on drill results through the end of September 1998, the Company announced on October 28, 1998, that the proven and probable reserves have more than doubled from the 1997 first phase feasibility study. Proven and probable reserves now total 259.5 million tonnes of ore grading 1.96 ounces per tonne of silver, 1.57 percent zinc and 0.55 percent lead. Assumptions used to develop these reserves include market prices of $5.00 per ounce silver, $0.47 per pound of zinc and $0.25 per pound of lead. Updated reserves now contain 509 million ounces of silver, 4.1 million tonnes of zinc and 1.4 million tonnes of lead. 1998 drilling also resulted in a modest increase in the strip ratio(tonnes of waste per tonne of ore) to 1.90:1 versus a first phase feasibility strip ratio of 1.66:1. In addition, the 1998 drilling has extended the mine life to 24.0 years using a throughput rate of 30,000 tonnes per day, compared to a first phase feasibility mine life of 11.5 years at the same throughput rate. The increased grade of the new reserves will also result in increased metal production at the same throughput rate. Other Matters In April 1998, the Company retired $900,000 of long-term debt for a cash payment of $300,000. This debt was originally supposed to be paid through a 5% net smelter return royalty in the first year of production. The $600,000 difference was treated as a reduction of mining properties on the Company's balance sheet. 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 certain computer programs to interpret "00" as the year 2000 does not appear to be a significant problem for the Company. As of September 30, 1998, the Company does not maintain a mainframe computer or central database, and the accounting system is supported by personal computers and their related software. Although the software may require minor adjustments, the costs would be immaterial. To further mitigate the risk of data loss or corruption, the Company performs regular tape backups of all files, stays in contact with software manufacturers regarding updates to their products and keeps 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 and Hedging Activities 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 to date has not hedged commodity and base metals price risks. However, in order to complete the financing necessary to develop its mineral properties, the Company anticipates that it will be required to hedge some portion of its planned production in advance. In addition, as its mineral properties are brought into production and the Company begins to derive revenue from the production, sale and exchange of metals, the Company may utilize various price- hedging techniques to lock in forward delivery prices on a portion of its production. Such price-hedging techniques would be balanced to mitigate some of the risks associated with fluctuations in the prices of the metals the Company produces while allowing the Company to take advantage of rising metal prices should they occur. 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. 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 None. 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). 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: November 12, 1998 By: /s/ Thomas S. Kaplan Thomas S. Kaplan Chairman, Board of Directors EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 10-Q
5 1,000 9-MOS Dec-31-1998 Jan-01-1998 Sep-30-1998 32992 0 0 0 0 33572 29510 326 65906 2109 0 262 0 0 61605 65906 0 1883 0 0 9320 0 0 0 0 0 0 0 0 (7437) (.28) (.28)
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