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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
[_]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
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APEX SILVER MINES LIMITED
(Exact Name of Registrant as Specified in its Charter)
Cayman Islands, British West Indies Not Applicable
(State of Incorporation or (I.R.S. Employer Identification No.)
Organization)
Not Applicable
Caledonian House (Zip Code)
69 Jennette Street
George Town, Grand Cayman
Cayman Islands, British West Indies
(Address of principal executive
office)
(345) 949-0050
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
Ordinary Shares, $0.01 par value registered
Ordinary Shares Subscription American Stock Exchange
Warrants American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $132,000,000 as of March 22, 2001.
The number of Ordinary Shares outstanding as of March 22, 2001 was 34,521,629.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 2001 Annual Meeting of Shareholders are incorporated by reference in
Part III of this Report on Form 10-K.
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PART I
ITEMS 1 AND 2: BUSINESS AND PROPERTIES
Apex Silver Mines Limited, organized under the laws of the Cayman Islands in
1996, is engaged in the exploration and development of silver properties in
South America, Mexico and Central America. Our company has a large diversified
portfolio of privately owned and controlled silver exploration properties. We
have rights to or control approximately 100 silver and other mineral
exploration holdings, divided into 19 property groups, located in or near the
traditional silver producing regions of Bolivia, Mexico, Peru, El Salvador and
Honduras. Our exploration efforts have produced our first development
property, our 100% owned San Cristobal Project located in southern Bolivia.
San Cristobal's proven and probable reserves total 240 million tonnes of ore
grading 2.0 ounces per tonne of silver, 1.67% zinc and 0.58% lead, containing
470 million ounces of silver, 8.8 billion pounds of zinc and 3.1 billion
pounds of lead. None of our properties are in production, and consequently we
have no operating income or cash flow.
In December 1997, our company completed an initial public offering of
Ordinary Shares. In November 1999, we sold equity units comprised of Ordinary
Shares and warrants exercisable into Ordinary Shares.
As used herein, Apex Limited, our company, we and our refer collectively to
Apex Silver Mines Limited, its predecessors, subsidiaries and affiliates or to
one or more of them as the context may require.
BUSINESS STRATEGY
Our company is one of a limited number of mining companies which focus on
silver exploration, development and production. Our strategy is to capitalize
on our sizeable portfolio of silver exploration properties in order to achieve
long-term profits and growth and to enhance shareholder value.
Although our primary focus is on mining silver, we intend to produce other
metals associated with our silver deposits if economically practicable,
including zinc, lead, copper and gold. We are managed by a team of seasoned
mining professionals with significant experience in the identification and
exploration of mineral properties, as well as the construction, development
and operation of large scale, open pit and underground, precious and base
metals mining operations.
The principal elements of our business strategy are to:
. proceed to develop the San Cristobal Project into a large scale open pit
mining operation;
. continue to explore and develop the properties which we believe are most
likely to contain significant amounts of silver and divesting those
properties that are not of continuing interest; and
. identify and acquire additional mining and mineral properties that we
believe contain significant amounts of silver or have exploration
potential.
SAN CRISTOBAL PROJECT
Our 100% owned San Cristobal Project is located in the San Cristobal mining
district of the Potosi Department in southern Bolivia, a region that has
historically produced a significant portion of the world's silver supply. San
Cristobal is located in the Bolivian Altiplano in the Andes mountains,
approximately 500 kilometers south of the capital city of La Paz. The project
is accessible by a gravel road from the international railroad at Rio Grande,
approximately 50 kilometers to the north, and from the town of Uyuni, a former
railroad maintenance town, approximately 80 kilometers to the northeast. The
railroad begins at the Chilean port of Antafogasta, approximately 460
kilometers southwest of San Cristobal, and continues approximately
500 kilometers north to La Paz.
The San Cristobal property is comprised of certain mining concessions in a
large block of concessions covering approximately 460,000 acres which we own
or control. Under these mining concessions, our company has the right to carry
out exploration, mining, processing and marketing of all mineral substances
located within the concessions, and to use the water found on the concessions.
In order to maintain our rights to these concessions, we must make annual
mining patent payments to the Bolivian government.
Our San Cristobal property is largely unexploited. The relatively small,
shut down Toldos mine, located approximately 1.5 kilometers from the proposed
San Cristobal open pit mine, was mined by underground block caving and open
pit mining between 1985 and 1995. At present, there is no significant plant or
equipment on the San Cristobal property.
We believe that our San Cristobal property contains one of the largest known
open pit silver, zinc and lead deposits in the world. Additional drilling in
1998 doubled proven and probable reserves at San Cristobal, which total 240
million tonnes of ore grading 2.0 ounces per tonne of silver, 1.67% zinc and
0.58% lead. These reserves contain 470 million ounces of silver, 8.8 billion
pounds of zinc and 3.1 billion pounds of lead. The full dimensions of the San
Cristobal deposit have not yet been determined; mineralized material extends
outward from the identified ore body in most directions as well as to depths
below 260 meters.
In September 1999, we completed a detailed feasibility study on San
Cristobal. The feasibility study was prepared by Kvaerner, E&C Metals
Division, an independent engineering firm. Based on the feasibility study, we
anticipate developing a low cost, open pit silver-zinc mine at San Cristobal
with a low strip ratio of approximately 1.8:1 (tonnes of waste per tonne of
ore), including pre-stripping. Under the study's mine plan, we would mine the
deposit at a rate of approximately 40,000 tonnes of ore per day and process
the ore by conventional means. We would transport mined ore to the primary
crusher by truck and then convey the crushed ore to a mill and flotation
plant. The ore would be ground in semi-autogenous (SAG) and ball mill
circuits, and then processed by selective flotation to produce separate
silver-lead and silver-zinc concentrates. We expect to transport the filtered
concentrates by road to a port in Chile, and then by ocean vessel to smelters
and refineries in Asia, the Americas and Europe.
In September 2000 our company announced that positive metallurgical and
operational improvements occurring subsequent to completion of the San
Cristobal feasibility study have further enhanced the project economics. Once
commercial production is attained, we believe the operation should produce an
annual average of approximately 21 million contained ounces of silver, 478
million contained pounds of zinc and 155 million contained pounds of lead over
a mine life of approximately 17 years, with higher production anticipated in
the first five years. Based on the geology of San Cristobal, and the drilling,
analysis and proven and probable reserves identified to date, we believe that
the San Cristobal Project could be extended in life and/or increased in scale.
Based on estimated revisions made during 2000 to the San Cristobal Project,
and assuming contract mining, our company expects capital costs for
construction to total approximately $435 million, of which approximately $23
million has been spent through December 31, 2000. The $435 million is net of
approximately $60 million in expected tax credits of which approximately $35
million is expected to be recovered during the project's construction phase
and the remaining $25 million against the Company's future Bolivian income
taxes. In addition, the Company expects that the project will require
approximately $15 million of working capital.
Since completion of the feasibility study, we have continued negotiations
related to key infrastructure items including power for the project and the
port facilities. In addition, we continue to advance the detailed project
engineering, project permitting and project financing. We anticipate the
completion of the power supply negotiations during the second quarter of 2001,
and are working with the governments of Bolivia and Chile on issues related to
the use of the road from the project to the Chilean port. In light of its recent
public statements regarding its financial condition, we have suspended
negotiations with Washington Group International and are pursuing available
alternatives to our originally proposed contract mining arrangements. We and our
advisors are continuously reviewing this and all matters relating to our
construction and financing schedules within the context of global financial
markets and metals prices in order to optimize the project's economics. Should
we decide to push out the construction schedule while waiting for improvements
in financial and metals markets, we believe we have the flexibility to do so as
a consequence of our existing cash balances and low debt.
2
Geology
The San Cristobal Project occupies the central portion of a depression
associated with volcanism of Miocene age. The 4 kilometer diameter depression
is filled with fine to coarse grained volcanoclastic sedimentary rocks
(including shale, conglomerate, sandstone, landslide debris and talus). During
the late Miocene Period, after sedimentation had nearly filled the depression,
a series of dacite and andesite porphyry sills and domes intruded the
volcanoclastic rocks. Disseminated and stockwork silver-lead-zinc
mineralization formed locally both within the volcanoclastic sediments and in
the intrusions themselves. The disseminated mineralization was not mined in
the past except at the nearby Toldos mine. Historic production on the San
Cristobal property was from veins.
The two largest areas of mineralization, the Jayula and Tesorera deposits,
initially were drilled separately. Our additional drilling in 1998, which more
than doubled proven and probable reserves, merged the Jayula and Tesorera
deposits into one large deposit, now called the San Cristobal orebody.
Mineralization at the Jayula portion of the San Cristobal orebody is
dominated by stockwork consisting of iron oxides, clays, galena, barite,
sphalerite, pyrite, tetrahedrite, and acanthite. The veins of the stockwork
are most abundant in the dacite sill, near its contact with the volcanoclastic
sedimentary rocks. At the Tesorera portion of the orebody, mineralization is
characterized by galena, sphalerite, and acanthite, disseminated in the
volcanoclastic sedimentary rocks. This mineralization is most prevalent in the
coarser grained beds, usually conglomerates and coarse sandstones. To the
extent that ore grade mineralization is confined to the sedimentary beds, the
mineral zones are both stratiform and strata-bound, forming tabular bodies.
Oxidation of the mineralized zone at San Cristobal has occurred to depths
averaging 40 to 75 meters and affects approximately 4% of the reserves. In
this oxide zone, zinc has been almost completely leached out by groundwater;
silver values, however, are locally enhanced due to secondary enrichment
processes. In the oxide zone, the dominant minerals are iron oxides, galena,
clays, native silver, and secondary acanthite.
Reserves
We have completed approximately 169,400 meters of reverse circulation and
approximately 20,100 meters of diamond drilling at San Cristobal. This
drilling indicates that the mineralization is present over an area of 1,500
meters by 1,500 meters. The ore deposit defined by this drilling is open at
depth and in several lateral directions.
Proven and probable reserves were calculated in August 1999 using a $4.65
net smelter return per tonne cutoff value and market price assumptions of
$5.00 per ounce of silver, $0.50 per pound of zinc and $0.28 per pound of
lead. The following tables show our company's proven and probable reserves of
silver, zinc and lead for sulfide ore and oxide ore at the San Cristobal
project, which were calculated by Mine Reserve Associates, Inc.
Proven and Probable Reserves--San Cristobal Project
Average Grade Contained Metals(1)
----------------------- ---------------------
Tonnes Silver Zinc Lead Silver Zinc Lead
of ore Grade Grade Grade Ounces Tonnes Tonnes
(000s) (oz./tonne) (%) (%) (000s) (000s) (000s)
------- ----------- ----- ----- ------- ------ ------
Sulfide Ore.......... 230,700 1.90 1.73 0.58 430,300 3,990 1,338
Oxide Ore............ 9,600 4.20 0.10 0.61 39,700 10 58
- --------
(1) Amounts are shown as contained metals in ore and therefore do not reflect
losses in the recovery process. Sulfide ore reserves are expected to have
an approximate average recovery of 75% for silver, 92% for zinc and 87%
for lead. Oxide ore reserves are expected to have an average recovery of
60% for silver and 50% for lead.
3
In addition to proven and probable reserves, Mine Reserves Associates has
estimated 46 million tonnes of mineralized material at an average grade of
2.90 ounces of silver per tonne, 1.04% zinc, and 0.58% lead.
EXPLORATION
Other than San Cristobal and nearby exploration projects in the San
Cristobal district, we have a portfolio of silver properties in Bolivia,
Mexico, Peru, El Salvador, Honduras and Central Asia totaling approximately
670,000 acres which contain potential for silver mineralization or other
significant exploration potential. These mineral properties consist of:
. mining concessions which we have acquired, or applied for directly;
. mining concessions which we have leased, typically with an option to
purchase; and
. mining concessions which we have agreed to explore and develop and, if
feasible, bring into production, in concert with joint venture partners.
We generally seek to structure our acquisitions of mineral rights so that
individual properties can be optioned for exploration and subsequently
acquired at reasonable cost if justified by exploration results. Properties
which we determine do not warrant further exploration or development
expenditures are divested, typically without further financial obligation to
our company. Although we believe that our exploration properties may contain
significant silver or other mineralization, our analysis of most of these
properties is at a preliminary stage. The activities performed to date at
these properties often have involved the analysis of data from previous
exploration efforts by others, supplemented by our own exploration programs.
Our exploration holdings consist primarily of ownership interests, leases,
options and joint ventures, all in varying percentages. The distribution of
these holdings is summarized in the table below.
Location and Distribution of Exploration Properties
Number of
Exploration
Property
Country Groups Acreage
------- ----------- -------
Mexico and Central America
Mexico............................................ 6 213,800
Honduras.......................................... 1 8,000
El Salvador....................................... 1 10,000
--- -------
Subtotal........................................ 8 231,000
--- -------
South America
Bolivia........................................... 5 176,000
Peru.............................................. 5 60,000
--- -------
Subtotal........................................ 10 236,000
--- -------
Central Asia ....................................... 1 204,000
--- -------
Total........................................... 19 670,000
=== =======
Mexico and Central America
San Juan del Cordero
This property consists of approximately 94,000 acres that are located 37
kilometers northeast of the historic silver-lead-zinc mining center of Parral,
Chihuahua in northern Mexico. Our company owns mining claims covering
approximately 92,800 acres of this property and has the option to acquire the
remaining 1200 acres,
4
subject to a net smelter return royalty capped at $3.25 million. Water and
power are available on or near the area of exploration. We have drilled eleven
core and reverse-circulation holes totaling 2,052 meters in a variety of
targets, including veins, mantos, breccias and disseminated sulfides. Sub-ore
grade mineralization in breccias, thin mantos and disseminations in
sedimentary rocks was cut by five core and reverse-circulation holes drilled
on the north side of the stock (an intrusive body of igneous rock) that is
central to the mineralization in the district.
Platosa-Saltillera
In July, 2000 we announced completion of the latest round of core drilling
on this approximately 48,000-acre property, located about 5 kilometers
northwest of the town of Bermejillo in Durango State in northern Mexico. The
property contains water and is located within approximately 1.5 kilometers of
a paved highway, railroad and natural gas and powerlines. Under the terms of
our option agreements we have the opportunity to acquire a 65% direct interest
in the Platosa claim group, approximately 9,000 acres, and a 100% direct
interest in the Saltillera claim group, approximately 39,000 acres, that
adjoins Platosa on the west. Upon completion of earn-in requirements for the
Platosa claims, a joint venture company would be formed for those claims with
our company as operator.
Twenty-seven diamond drill holes totaling 3,645 meters at Platosa and six
diamond drill holes totaling 1,007 meters at Saltillera have been drilled
through year-end 2000. Drilling at Saltillera has found geologic indications
that massive sulfides may exist at depths greater than those drilled; however,
because mineralization is shallower at Platosa our exploration efforts have
been concentrated there. Three massive sulfide mantos have been identified by
drilling at Platosa. Nine holes encountered an average of 4.5 meters of
massive and sanded sulfides averaging 49.7 ounces per tonne silver, 28.5%zinc
and 16.5% lead in the mineralized zone we refer to as Manto No. 4. Six holes
in the mineralized zone 1.8 meters thick on average and referred to as Manto
No. 5, located from 10 to 20 meters below Manto No. 4, averaged 30.1 ounces of
silver and 5.1% lead and 3.1% zinc. Two holes intersected Manto No. 6 at a
location 100 meters east of Mantos Nos. 4 and 5. Manto No. 6 averages 3.2
meters thick, and our average assay results were 33.1 ounces of silver per
tonne, 7.4% lead and 5.7 % zinc. Our geologists have used mercury soil gas
geochemistry and electro-magnetic geophysical methods to help guide the
drilling through thin post-mineral cover.
San Luis del Cordero
Our company has the option to acquire a 60% interest in approximately 6,000
acres of mining claims located in Durango State, Mexico, 150 kilometers
northeast of Durango City, 180 kilometers west of the smelter city of Torreon
and 200 kilometers north of Grupo Mexico's silver-copper-zinc San Martin mine
in Zacatecas. San Luis del Cordero consists of silver-rich veins that lead
downward into silver-copper-zinc skarn mineralization. Three core holes were
drilled on the property in 2000. We believe that limestone projected to
underlay the area of drilling is a favorable host rock for massive skarn with
sulfide mineralization.
El Zapote
We have an option to acquire a 60% interest in the 10,200-acre El Zapote
mining concession in El Salvador from Intrepid Minerals Corporation by making
exploration expenditures of at least $400,000 and issuing to Intrepid up to
65,000 shares of our common stock. If we acquire the initial 60% interest in
El Zapote, we would have the right to acquire an additional 15% interest by
completing a bankable feasibility study for development of a mine on the
property. We have identified two primary target areas for limestone
replacement deposits, Cerro Colorado III and San Carolina. At Cerro Colorado
III, drill results from 14 core and reverse circulation holes indicate the
potential for an open pittable silver-zinc-lead deposit. At San Carolina,
surface sampling and geophysical survey indicate a manto type deposit may be
present. We plan to continue exploring the area through a combination of
mapping, sampling and drilling.
5
Other Mineral Properties
Mexico is the largest producer of silver in the world. We maintain an
exploration office in Zacatecas in Zacatecas State in the heart of the silver
mining region. In addition to the core properties described above, we have
holdings in the historic Zacatecas mining district as well as a disseminated
gold property in Oaxaca State and a silver property in Guerrero State.
South America
Cobrizos
The Cobrizos property is located on level terrain 12 kilometers north of the
San Cristobal Project in southern Bolivia. Our company is party to a joint
venture agreement with Corporacion Minera de Bolivia S.A., or Comibol, a
Bolivian government mining company, on its approximately 2,600 acres of mining
rights at the Cobrizos property. Under the agreement, we must make certain
payments to Comibol and complete certain work commitments on the property in
order to acquire an 85% interest in the joint venture. Under the joint
venture, Comibol would receive five percent of the operating cash flow (as
defined in the agreement) from production at the Cobrizos property until we
have recovered our entire capital investment; thereafter, Comibol would
receive 15% of operating cash flow. Our company would be the operator of the
joint venture.
Cobrizos is a partially oxidized copper-silver deposit of possible roll
front or red bed type in shale and sandstone of the Jurassic Potoco Formation.
Further field work would be required to determine the limits of the Cobrizos
mineralization, and whether there are proven and probable reserves.
Jehuamarca
We have the option to purchase this 10,000 acre property, located in
northern Peru about 650 kilometers northwest of Lima. Drilling several years
ago by an agency of the Japanese government and a Canadian mining company
found several strong indications of silver, but failed to locate the gold
deposits that were sought. Geologic mapping, sampling and reinterpretation of
the early drilling by our geologists revealed potential for the discovery of
both near-surface bulk mineable and deeper vein deposits.
Other Mineral Properties
Our holdings, joint ventures and options in Bolivia, other than the Cobrizos
property and San Cristobal Project, total approximately 173,000 acres,
including a joint venture in the historic Pulacayo silver mining district and
an option to purchase the large Tijtin gold prospect located about 60
kilometers northwest of San Cristobal. We aggressively seek silver exploration
opportunities in Bolivia.
We have an exploration office in Lima and are actively exploring for silver
in Peru, the world's second largest silver producing country. In addition to
the Jehuamarca silver property, we have acquired the mineral rights to several
historic silver districts in the southeastern part of the country and have
rights to a gold-silver vein prospect near Otuzco, and a silver-lead-zinc
vein, manto and diatreme prospect located near Cerro de Pasco.
Central Asia
We continue to maintain mineral rights to a 204,000 acre exploration
property in Kyrghyzstan.
6
RISK FACTORS
Investors in our company should consider carefully, in addition to the other
information contained in, or incorporated by reference into, this report, the
following risk factors:
No Production History--we have not mined any silver or other metals.
Our company has no history of producing silver or other metals. The
development of our economically feasible properties will require the
construction or rehabilitation and operation of mines, processing plants and
related infrastructure. As a result, we are subject to all of the risks
associated with establishing new mining operations and business enterprises.
There can be no assurance that we will successfully establish mining
operations or profitably produce silver or other metals at any of our
properties.
History of Losses--we expect losses to continue for at least the next three
years.
As an exploration and development company that has no production history, we
have incurred losses since our inception, and we expect to continue to incur
additional losses for at least the next three years. As of December 31, 2000,
we had an accumulated deficit of $55.2 million. There can be no assurance that
we will achieve or sustain profitability in the future.
Potential Inaccuracy of the Reserves and Other Mineralization Estimates
Unless otherwise indicated, reserves and other mineralization figures
presented in our filings with the Securities and Exchange Commission, press
releases and other public statements that may be made from time to time are
based on estimates of contained silver and other metals made by independent
geologists and/or our own personnel. These estimates are imprecise and depend
on geological interpretation and statistical inferences drawn from drilling
and sampling which may prove to be unreliable. There can be no assurance that:
. these estimates will be accurate;
. reserves and other mineralization figures will be accurate; or
. reserves or mineralization could be mined and processed profitably.
Since we have not commenced production on any of our properties, reserves
and other mineralization estimates for these properties may require
adjustments or downward revisions based on actual production experience.
Extended declines in market prices for silver, zinc and lead may render
portions of our reserves uneconomic and result in reduced reported reserves.
Any material reductions in estimates of our reserves and other mineralization,
or of our ability to extract these reserves or mineralization, could have a
material adverse effect on our results of operations and financial condition.
We have not established the presence of any proven or probable reserves at
any of our mineral properties other than the San Cristobal Project. There can
be no assurance that subsequent testing or future feasibility studies will
establish additional reserves at our properties. The failure to establish
additional reserves could restrict our ability to successfully implement our
strategies for long term growth beyond the San Cristobal Project.
San Cristobal Project Risks--the completion of the San Cristobal Project is
subject to delays in commencement and completion, our inability to achieve
anticipated production volume and cost increases.
Completion of the development of the San Cristobal Project is subject to
various factors, including the availability and timing of acceptable
arrangements for financing, power, transportation, construction, contract
mining and smelting or the availability, terms, conditions and timing of
required government approvals. The lack of availability on acceptable terms or
the delay in any one or more of these items could delay or prevent the
development of San Cristobal. There can be no assurance that:
. the development of the San Cristobal Project will be commenced or
completed on a timely basis, if at all;
. the resulting operations will achieve the anticipated production volume;
or
. the construction costs and ongoing operating costs associated with the
development of the San Cristobal Project will not be higher than
anticipated.
7
If the actual cost to complete the development of the San Cristobal project
is significantly higher than expected, there can be no assurance that we will
have enough funds to cover these costs or that we would be able to obtain
alternative sources of financing to cover these costs. Unexpected cost
increases or the failure to obtain necessary project financing on acceptable
terms, to commence or complete the development of the San Cristobal Project on
a timely basis, or to achieve anticipated production capacity, could have a
material adverse effect on our future results of operations and financial
condition.
The successful development of the San Cristobal project is subject to the
other risk factors described herein.
Dependence on a Single Mining Project--our principal asset is the San
Cristobal Project.
We anticipate that the majority, if not all, of our revenues for the next
few years and beyond will be derived from the sale of metals mined at the San
Cristobal Project. Therefore, if we are unable to complete and successfully
mine the San Cristobal Project in a timely manner, our ability to generate
revenue and profits would be materially adversely affected.
Management of Growth--our success will depend on our ability to manage our
growth.
We anticipate that as we bring our mineral properties into production and as
we acquire additional mineral rights, we will experience significant growth in
our operations. We expect this growth to create new positions and
responsibilities for management personnel and increase demands on our
operating and financial systems. There can be no assurance that we will
successfully meet these demands and manage our anticipated growth.
Volatility of Metals Prices--our profitability will be affected by changes in
the prices of metals.
Our profitability and long-term viability depend, in large part, on the
market price of silver, zinc, lead and other metals. The market prices for
these metals are volatile and are affected by numerous factors beyond our
control, including:
. global or regional consumption patterns;
. supply of, and demand for, silver, zinc, lead and other metals;
. speculative activities;
. expectations for inflation; and
. political and economic conditions.
The aggregate effect of these factors on metals prices is impossible for our
company to predict. Decreases in metals prices could adversely affect our
ability to finance the development of the San Cristobal Project and the
exploration and development of our other properties, which would have a
material adverse effect on our financial condition and results of operations.
The following table sets forth (1) the London Silver Market's high and low
spot price of silver in U.S. dollars per troy ounce and (2) the London Metals
Exchange's high and low settlement prices of zinc and lead in U.S. dollars per
pound, for the periods indicated.
Silver Zinc Lead
--------- --------- ---------
Year High Low High Low High Low
---- ---- ---- ---- ---- ---- ----
1994........................................... 5.75 4.64 0.54 0.41 0.31 0.15
1995........................................... 6.04 4.41 0.55 0.43 0.35 0.24
1996........................................... 5.83 4.71 0.50 0.44 0.42 0.30
1997........................................... 6.27 4.22 0.60 0.47 0.33 0.23
1998........................................... 6.83 4.88 0.52 0.42 0.27 0.22
1999........................................... 5.75 4.88 0.56 0.41 0.25 0.21
2000........................................... 5.45 4.57 0.58 0.46 0.26 0.18
8
Hedging and Currency Risks--we may not be successful in hedging against price,
currency and interest rate fluctuations and may incur mark to market losses
and lose money through our hedging programs.
We have engaged in limited metals trading activities to hedge against
commodity and base metals price risks, using puts and calls. We anticipate
that as we bring our mineral properties into production and we begin to
generate revenue, we may utilize various price hedging techniques to mitigate
some of the risks associated with fluctuations in the prices of the metals we
produce. We may also engage in activities to hedge the risk of exposure to
currency and interest rate fluctuations related to the development of San
Cristobal in Bolivia or in other countries in which we incur substantial
expenditures for exploration or development. Further, terms of our financing
arrangements may require us to hedge against these risks.
There can be no assurance that we will be able to successfully hedge against
price, currency and interest rate fluctuations. In addition, our ability to
hedge against zinc and lead price risk in a timely manner may be adversely
affected by the smaller volume of transactions in both the zinc and lead
markets. Further, there can be no assurance that the use of hedging techniques
will always be to our benefit. Hedging instruments which protect against
market price volatility may prevent us from realizing the benefit from
subsequent increases in market prices with respect to covered production. This
limitation would limit our revenues and profits. Hedging contracts are also
subject to the risk that the other party may be unable or unwilling to perform
its obligations under these contracts. Any significant nonperformance could
have a material adverse effect on our financial condition and results of
operations.
Uncertainty and Cost of Mineral Exploration and Acquisition--the exploration
of mineral properties is highly speculative in nature, involves substantial
expenditures, and is frequently non-productive.
Our future growth and profitability will depend, in part, on our ability to
identify and acquire additional mineral rights, and on the costs and results
of our continued exploration and development programs. Competition for
attractive mineral exploration properties is intense. See "--Competition." Our
strategy is to expand our reserves through a broad program of exploration.
Mineral exploration is highly speculative in nature and is frequently non-
productive. Substantial expenditures are required to:
. establish ore reserves through drilling and metallurgical and other
testing techniques;
. determine metal content and metallurgical recovery processes to extract
metal from the ore; and
. construct, renovate or expand mining and processing facilities.
If we discover ore, it usually takes several years from the initial phases
of exploration until production is possible. During this time, the economic
feasibility of production may change. As a result of these uncertainties,
there can be no assurance that we will successfully acquire additional mineral
rights, or that our exploration programs will result in new proven and
probable reserves in sufficient quantities to justify commercial operations in
any of our company's properties, other than the San Cristobal Project.
We consider from time to time the acquisition of operating or formerly
operating mines. Our decisions to acquire these properties are based on a
variety of factors including historical operating results, estimates of and
assumptions about future reserves, cash and other operating costs, metals
prices and projected economic returns, and evaluations of existing or
potential liabilities associated with the property and its operation. Other
than historical operating results, all of these may differ significantly from
our estimates and assumptions. In addition, there is intense competition for
attractive properties. Accordingly, there is no assurance that our acquisition
efforts will result in profitable mining operations.
Development Risks--our profitability depends, in part, on actual economic
returns and actual costs of developing mines, which may differ significantly
from our estimates and involve unexpected problems and delays.
None of our mineral properties, including the San Cristobal Project, has an
operating history upon which we can base estimates of future cash operating
costs. Our decision to develop the San Cristobal Project is based
9
on feasibility studies. Decisions about the development of other projects in
the future may also be based on feasibility studies. Feasibility studies
derive estimates of reserves and operating costs and project economic returns.
Estimates of economic returns are based, in part, on assumptions about future
metals prices. See "--Volatility of Metals Prices." Feasibility studies derive
estimates of cash operating costs based upon, among other things:
. anticipated tonnage, grades and metallurgical characteristics of ore to
be mined and processed;
. anticipated recovery rates of silver and other metals from the ore;
. cash operating costs of comparable facilities and equipment; and
. anticipated climatic conditions.
Actual cash operating costs, production and economic returns may differ
significantly from those anticipated by our studies and estimates.
There are a number of uncertainties inherent in the development and
construction of any new mine, including the San Cristobal Project. See "--San
Cristobal Project Risks." These uncertainties include:
. the timing and cost, which can be considerable, of the construction of
mining and processing facilities;
. the availability and cost of skilled labor, power, water and
transportation facilities;
. the availability and cost of appropriate smelting and refining
arrangements;
. the need to obtain necessary environmental and other governmental
permits, and the timing of those permits; and
. the availability of funds to finance construction and development
activities.
The costs, timing and complexities of mine construction and development are
increased by the remote location of many mining properties, like the San
Cristobal Project. It is common in new mining operations to experience
unexpected problems and delays during development, construction and mine
start-up. In addition, delays in the commencement of mineral production often
occur. Accordingly, there is no assurance that our future development
activities will result in profitable mining operations.
Title to Our Mineral Properties May be Challenged
Our policy is to seek to confirm the validity of our rights to title to, or
contract rights with respect to, each mineral property in which we have a
material interest. However, we cannot guarantee that title to our properties
will not be challenged or impugned. Title insurance generally is not
available, and our ability to ensure that we have obtained secure claim to
individual mineral properties or mining concessions may be severely
constrained. We have not conducted surveys of all of the claims in which we
hold direct or indirect interests and, therefore, the precise area and
location of these claims may be in doubt. Accordingly, our mineral properties
may be subject to prior unregistered agreements, transfers or claims, and
title may be affected by, among other things, undetected defects. In addition,
we may be unable to operate our properties as permitted or to enforce our
rights with respect to our properties.
Property Rights--we may lose rights to properties if we fail to meet payment
requirements or development or production schedules.
We derive the rights to some of our mineral properties, including some of
our principal properties at the San Cristobal Project, from leaseholds or
purchase option agreements which require the payment of rent or other
installment fees. If we fail to make these payments when they are due, our
rights to the property may lapse. There can be no assurance that we will
always make payments by the requisite payment dates. In addition, some
contracts with respect to our mineral properties require development or
production schedules. There can be no
10
assurance that we will be able to meet any or all of the development or
production schedules. In addition, our ability to transfer or sell our rights
to some of our mineral properties requires governmental approvals or third
party consents, which may not be granted.
Mining Risks and Limits of Insurance Coverage--we cannot insure against all of
the risks associated with mining.
The business of mining is subject to a number of risks and hazards,
including:
. adverse environmental effects;
. industrial accidents;
. labor disputes;
. technical difficulties due to unusual or unexpected geologic formations;
. failures of pit walls; and
. flooding and periodic interruptions due to inclement or hazardous
weather conditions.
These risks can result in, among other things:
. damage to, and destruction of, mineral properties or production
facilities;
. personal injury;
. environmental damage;
. delays in mining;
. monetary losses; and
. legal liability.
Although we maintain, and intend to continue to maintain, insurance with
respect to our operations and mineral properties within ranges of coverage
consistent with industry practice, there can be no assurance that insurance
will be available at economically feasible premiums. Insurance against
environmental risks is not generally available. These environmental risks
include potential liability for pollution or other disturbances resulting from
mining exploration and production. In addition, not all risks associated with
developing and producing silver, zinc, lead and other metals are included in
coverage and some covered risks may result in liabilities which exceed policy
limits. Further, we may elect to not seek coverage for all risks. The
occurrence of an event that is not fully covered, or covered at all, by
insurance, could have a material adverse effect on our financial condition and
results of operations.
Foreign Operations--we conduct all of our exploration activities in countries
with developing economies and are subject to the risks of political and
economic instability associated with these countries.
We currently conduct exploration activities in countries with developing
economies including Bolivia, Honduras, Mexico and Peru in Latin America. These
countries and other emerging markets in which we may conduct operations have
from time to time experienced economic or political instability. We may be
materially adversely affected by risks associated with conducting operations
in countries with developing economies, including:
. political instability and violence;
. war and civil disturbance;
. expropriation or nationalization;
. changing fiscal regimes;
11
. fluctuations in currency exchange rates;
. high rates of inflation;
. underdeveloped industrial and economic infrastructure; and
. unenforceability of contractual rights.
Changes in mining or investment policies or shifts in the prevailing
political climate in any of the countries in which we conduct exploration and
development activities could adversely affect our business. Our operations may
be affected in varying degrees by government regulations with respect to,
among other things:
. production restrictions;
. price controls;
. export controls;
. income and other taxes;
. maintenance of claims;
. environmental legislation;
. foreign ownership restrictions;
. foreign exchange and currency controls;
. labor;
. welfare benefit policies;
. land use;
. land claims of local residents;
. water use; and
. mine safety.
We cannot accurately predict the effect of these factors. In addition,
legislation in the United States regulating foreign trade, investment and
taxation could have a material adverse effect on our financial condition and
results of operations.
Government Regulation of Environmental Matters--our activities are subject to
foreign environmental laws and regulations which may materially adversely
affect our future operations.
We conduct mineral exploration and development activities primarily in
Central America and South America, and are most active in Bolivia, where the
San Cristobal Project is located, and Mexico. With the development of San
Cristobal, we also expect to conduct mining operations in Bolivia. These
countries have laws and regulations which control the exploration and mining
of mineral properties and their effects on the environment, including air and
water quality, mine reclamation, waste handling and disposal, the protection
of different species of flora and fauna and the preservation of lands. These
laws and regulations will require our company to acquire permits and other
authorizations for certain activities. In many countries, including Bolivia,
there is relatively new comprehensive environmental legislation, and the
permitting and authorization processes may be less established and less
predictable than they are in the United States. There can be no assurance that
we will be able to acquire necessary permits or authorizations on a timely
basis, if at all. Delays in acquiring any permit or authorization could
increase the development cost of San Cristobal or other projects and could
delay the commencement of production.
Environmental legislation in many countries is evolving in a manner which
will likely require stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental
12
assessments of proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. In Bolivia, where there
is relatively new environmental legislation, enforcement activities and
strategies may be under development, and thus may be less predictable than in
the United States. We cannot predict what environmental legislation or
regulations will be enacted or adopted in the future or how future laws and
regulations will be administered or interpreted. Compliance with more
stringent laws and regulations, as well as potentially more vigorous
enforcement policies or regulatory agencies or stricter interpretation of
existing laws, may (1) necessitate significant capital outlays, (2) cause us
to delay, terminate or otherwise change our intended activities with respect
to one or more projects and (3) materially adversely affect our future
operations.
Many of our exploration and development properties are located in historic
mining districts where prior owners may have caused environmental damage which
may not be known to us or to the regulators. In most cases, we have not sought
complete environmental analyses of our mineral properties and have not
conducted comprehensive reviews of the environmental laws and regulations in
every jurisdiction in which we own or control mineral properties. To the
extent we are subject to environmental requirements or liabilities, the cost
of compliance with these requirements and satisfaction of these liabilities
would reduce our net cash flow and could have a material adverse effect on our
financial condition and results of operations. If we are unable to fund fully
the cost of remediation of any environmental condition, we may be required to
suspend operations or enter into interim compliance measures pending
completion of the required remediation.
Competition--we compete against larger and more experienced companies.
The mining industry is intensely competitive. Many of the largest mining
companies are primarily producers of base metals, and may become interested in
the types of silver deposits on which we are focused because these deposits
typically are polymetallic, containing significant quantities of base metals
including zinc, lead and copper. Many of these companies have greater
financial resources, operational experience and technical capabilities than we
have. We may encounter increasing competition from other mining companies in
our efforts to acquire mineral properties and hire experienced mining
professionals. Increased competition in our business could adversely affect
our ability to attract necessary capital funding or acquire suitable producing
properties or prospects for mineral exploration in the future.
Holding Company Structure Risks--our ability to obtain dividends or other
distributions from our subsidiaries may be subject to restrictions imposed by
law and foreign currency exchange regulations.
We conduct, and will continue to conduct, all of our operations through
subsidiaries. Our ability to obtain dividends or other distributions from our
subsidiaries may be subject to restrictions on dividends or repatriation of
earnings under applicable local law, monetary transfer restrictions and
foreign currency exchange regulations in the jurisdictions in which the
subsidiaries operate. Our subsidiaries' ability to pay dividends or make other
distributions to our company is also subject to their having sufficient funds
to do so. If our subsidiaries are unable to pay dividends or make other
distributions, our growth may be inhibited unless we are able to obtain
additional debt or equity financing on acceptable terms. In the event of a
subsidiary's liquidation, we may lose all or a portion of our investment in
that subsidiary.
Requirement of External Financing--we may not be able to raise the funds
necessary to explore and develop our mineral properties.
We will need external financing to develop and construct the San Cristobal
Project and to fund the exploration and development of our other mineral
properties. Sources of external financing may include bank borrowings and
future debt and equity offerings. There can be no assurance that financing
will be available on acceptable terms, or at all. The failure to obtain
financing could have a material adverse effect on our growth strategy and our
results of operations and financial condition. The mineral properties that we
are likely to develop are expected to require significant capital
expenditures. There can be no assurance that we will be able to secure the
financing necessary to retain our rights to, or to begin or sustain,
production at our mineral properties.
13
Dependence on Key Personnel--we depend on the services of key executives.
We are dependent on the services of key executives including our chairman
and our chief operating officer and a small number of highly skilled and
experienced executives and personnel focused on the development of the San
Cristobal Project. Due to the relatively small size of our company, the loss
of these persons or our inability to attract and retain additional highly
skilled employees required for the development of the San Cristobal Project
may delay or otherwise adversely affect the development of the San Cristobal
Project, which could have a material adverse effect on our business or future
operations.
Substantial Control By Directors, Officers and 5% Shareholders--the
substantial control of our company by our directors, officers and 5%
shareholders may have a significant effect in delaying, deferring or
preventing a change in control of our company or other events which could be
of benefit to our other shareholders.
As of December 31, 2001, Thomas S. Kaplan and the other directors of our
company and officers of Apex Silver Mines Corporation, together with members
of their families and entities that may be deemed to be affiliates of or
related to these persons or entities, and 5% shareholders beneficially owned
approximately 19 million shares, or 52%, of the outstanding shares of our
company, assuming the conversion of currently exercisable options and
warrants. This level of ownership by these persons may have a significant
effect in delaying, deferring or preventing a change in control of our company
or other events which could be of benefit to our other shareholders.
There May Be Certain Tax Risks Associated With Investments In Our Company.
Potential investors that are U.S. taxpayers should consider that our company
may be considered to be "passive foreign investment company" (a "PFIC") for
federal income tax purposes. If our company were deemed to be a PFIC, then a
U.S. taxpayer who disposes or is deemed to dispose of shares of our company at
a gain, or who received a so-called "excess distribution" on the shares,
generally would be required to treat such gain or excess distribution as
ordinary income and pay an interest charge on a portion of the gain or
distribution unless the taxpayer makes a timely qualified electing fund
election (a "QEF" election). A U.S. taxpayer who makes a QEF election
generally must report on a current basis his or her share of any of our
company's ordinary earnings and net capital gain for any taxable year in which
our company is a PFIC, whether or not we distribute those earnings. Special
estate tax rules could be applicable to the shares of our company if we are
classified as a PFIC for income tax purposes.
FORWARD-LOOKING STATEMENTS
Some information contained in or incorporated by reference into this report
on Form 10-K may contain forward-looking statements. These statements include
comments regarding mine development and construction plans, costs, grade,
production and recovery rates, permitting, financing needs, the availability
of financing on acceptable terms, the timing of engineering studies and
environmental permitting, and the markets for silver, zinc and lead. The use
of any of the words "anticipate", "continue," "estimate," "expect," "may,"
"will," "project," "should," "believe" and similar expressions are intended to
identify uncertainties. We believe the expectations reflected in those
forward-looking statements are reasonable. However, we cannot assure you that
these expectations will prove to be correct. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of the risk factors set forth below and other factors set forth in, or
incorporated by reference into, this report:
. worldwide economic and political events affecting the supply of and
demand for silver, zinc and lead;
. volatility in market prices for silver, zinc and lead;
. financial market conditions, and the availability of financing on terms
acceptable to our company;
. uncertainties associated with developing a new mine, including potential
cost overruns and the unreliability of estimates in early stages of mine
development;
14
. variations in ore grade and other characteristics affecting mining,
crushing, milling and smelting operations and mineral recoveries;
. geological, technical, permitting, mining and processing problems;
. the availability and timing of acceptable arrangements for power,
transportation, water and smelting;
. the availability, terms, conditions and timing of required government
approvals;
. uncertainties regarding future changes in tax legislation or
implementation of existing tax legislation;
. variations in smelting operations and capacity;
. the availability of experienced employees; and
. the factors discussed under "Risk Factors."
Many of those factors are beyond our ability to control or predict. You
should not unduly rely on these forward-looking statements. These statements
speak only as of the date of this report on Form 10-K. Except as required by
law, we are not obligated to publicly release any revisions to these forward-
looking statements to reflect future events or developments. All subsequent
written and oral forward-looking statements attributable to our company and
persons acting on our behalf are qualified in their entirety by the cautionary
statements contained in this section and elsewhere in this report on Form 10-
K.
METALS MARKET OVERVIEW
Silver Market
Silver has traditionally served as a medium of exchange, much like gold.
While silver continues to be used for currency, the principal uses of silver
are for industrial uses, primarily for electrical and electronic components,
photography, jewelry and silverware. The CPM Group forecast in reports
generally available in the industry that in 1999 approximately 846 million
ounces of silver would be consumed for these and other industrial purposes, an
increase of 3.7% from 1999. CPM has projected that the consumption of silver
used for photography will be 267 million ounces in 2000, an increase of 4%
from the 257 million ounces used in 1999.
Silver's strength, malleability, ductility, thermal and electrical
conductivity, sensitivity to light and ability to endure extreme changes in
temperature combine to make silver a widely used industrial metal.
Specifically, it is used in photography, batteries, computer chips, electrical
contacts, and high technology printing. Silver's anti-bacterial properties
also make it valuable for use in medicine and in water purification.
Most silver production is obtained from mining operations in which silver is
not the principal or primary product. Approximately 76% of mined silver is
produced as a by-product of mining lead, zinc, gold, nickel or copper
deposits. CPM estimates that total silver supply from mine production,
recycling, estimated dishoarding and government stockpile sales has been
insufficient to meet industrial demand since 1990, and that stockpiles are
continuing to diminish. CPM studies indicate that approximately 728 million
ounces of silver were supplied from all sources in 2000, an increase of 6.5%
from 1999. Mine production of silver rose 4.6% to 487 million ounces.
15
The following table sets forth the London Silver Market's annual average,
high and low spot price of silver in U.S. dollars per troy ounce since 1978.
Year Average High Low
---- --------------------- ---------
(U.S. dollars per troy ounce)
1978....................................... 5.42 6.26 4.82
1979....................................... 11.06 32.20 5.94
1980....................................... 20.98 49.45 10.89
1981....................................... 10.49 16.30 8.03
1982....................................... 7.92 11.11 4.90
1983....................................... 11.43 14.67 8.37
1984....................................... 8.14 10.11 6.22
1985....................................... 6.13 6.75 5.45
1986....................................... 5.46 6.31 4.85
1987....................................... 7.01 10.93 5.36
1988....................................... 6.53 7.82 6.05
1989....................................... 5.50 6.21 5.04
1990....................................... 4.83 5.36 3.95
1991....................................... 4.06 4.57 3.55
1992....................................... 3.95 4.34 3.65
1993....................................... 4.31 5.42 3.56
1994....................................... 5.28 5.75 4.64
1995....................................... 5.19 6.04 4.41
1996....................................... 5.19 5.83 4.71
1997....................................... 5.17 6.27 4.22
1998....................................... 5.54 6.83 4.88
1999....................................... 5.22 5.75 4.88
2000....................................... 4.95 5.45 4.57
- --------
Source: Silver Institute and Kitco
Zinc and Lead Markets
We anticipate that our San Cristobal Project will, and that our future
projects may, involve the production of economically significant quantities of
metals other than silver. We expect production from San Cristobal to include
the extraction, processing and sale of significant quantities of zinc and lead
contained in sulfide concentrates.
Due to the corrosion resisting property of zinc, zinc is used primarily as
the coating in galvanized steel. Galvanized steel is widely used in
construction of infrastructure, housing and office buildings. In the
automotive industry, zinc is used for galvanizing and die-casting, and in the
vulcanization of tires. Smaller quantities of various forms of zinc are used
in the chemical and pharmaceutical industries, including fertilizers, food
supplements and cosmetics, and in specialty electronic applications such as
satellite receivers. The western world industrial consumption of zinc in 2000
was estimated in generally available industry publications of the
International Lead Zinc Study Group ("ILZSG") at approximately 7.0 million
tonnes compared to an estimated available supply of 6.1 million tonnes. The
majority of the implied deficit was covered by imports from eastern countries
and a reduction of warehouse stocks (predominately LME stocks), resulting in
roughly balanced refined metals markets in 2000.
The primary use of lead is in motor vehicle batteries, but it is also used
in cable sheathing, shot for ammunition and alloying. Lead in chemical form is
used in alloys, glass and plastics. Western world industrial consumption of
lead in 2000 is estimated by ILZSG and CHR Metals at 5.6 million tonnes. Lead
is widely recycled, with secondary production accounting in recent years for
approximately 55% to 60% of total supply.
16
According to ILZSG, 5.1 million tonnes of lead were produced in 2000. The
deficit was covered by a reduction in the level of lead metal warehouse
stocks.
The following table sets forth the annual average spot prices for zinc and
lead on the London Metals Exchange since 1978.
Year Zinc Lead
---- ----------- -----------
(U.S. cents per pound)
1978............................................... 31.0 33.7
1979............................................... 33.5 52.6
1980............................................... 34.4 41.4
1981............................................... 38.3 33.5
1982............................................... 33.7 24.7
1983............................................... 34.6 19.3
1984............................................... 41.7 20.1
1985............................................... 35.5 17.7
1986............................................... 34.1 18.4
1987............................................... 36.2 27.0
1988............................................... 56.3 29.7
1989............................................... 77.6 30.5
1990............................................... 68.9 36.7
1991............................................... 50.7 25.3
1992............................................... 56.2 24.6
1993............................................... 43.6 18.4
1994............................................... 45.3 24.9
1995............................................... 46.8 28.6
1996............................................... 46.5 35.1
1997............................................... 59.7 28.3
1998............................................... 46.4 24.0
1999............................................... 48.9 22.8
2000............................................... 51.2 20.3
- --------
Source: Fleming Global Mining Group and ILZSG
17
MANAGEMENT
Executive Officers and Certain Personnel
Apex Limited has no executive officers. Under the Companies Law (1995
Revision) of the Cayman Islands, directors are authorized to bind the
corporation that they represent. Apex Limited has entered into a Management
Services Agreement pursuant to which it has engaged Apex Silver Mines
Corporation, our wholly owned subsidiary, referred to as Apex Corporation, to
provide a broad range of corporate management and advisory services. Set forth
below are certain personnel of Apex Limited and its subsidiaries.
Name Age Position
---- --- --------
Thomas S. Kaplan............ 38 Chairman of Apex Limited, and Chief
Executive Officer of Apex Corporation
Keith R. Hulley............. 61 President and Chief Operating Officer, Apex
Corporation
Marcel F. DeGuire........... 51 Vice President of Corporate Development,
Apex Corporation
Mark A. Lettes.............. 51 Vice President, Finance and Chief Financial
Officer, Apex Corporation
Larry J. Buchanan........... 56 Chief Geologist, Apex Corporation
Edmond R. LeBlanc........... 42 Vice President, Marketing, Apex Corporation
Michael F. Shaw............. 54 Vice President, Project Manager, San
Cristobal, Apex Corporation
Linda Good Wilson........... 43 Vice President, Investor Relations, Apex
Corporation
Johnny Delgado Achaval...... 61 President and Chief Executive Officer,
Andean Silver Corporation LDC
Thomas S. Kaplan. Mr. Kaplan has been the chairman of the board of directors
of our company since its inception in March 1996 and is a director and was the
founder of companies we acquired in 1996 through 1998. Mr. Kaplan is a
principal shareholder in Consolidated Commodities Ltd., a shareholder of Apex
Limited. For the past ten years, Mr. Kaplan has served as an advisor to
private clients, trusts and fund managers in the field of strategic
forecasting, an analytical method which seeks to identify and assess global
trends in politics and economics and the way in which such trends relate to
international financial markets, particularly in the developing markets of
Asia, Latin America, the Middle East and Africa. Mr. Kaplan has managed
numerous venture capital investments and portfolio investment accounts, and is
a principal of several entities specializing in direct and portfolio
investments, including Feder Information Services Corporation, Tigris
Financial Group Ltd., and FMS Partners L.P. Mr. Kaplan also serves as a
director of African Plantations Corporation LDC, a Cayman Islands limited
duration company which owns and operates coffee and tea plantations in eastern
and southern Africa. Mr. Kaplan was educated in Switzerland and England and
holds B.A., M.A., and D. Phil. degrees in history from the University of
Oxford.
Keith R. Hulley. Mr. Hulley has been a director of our company since April
1997. A mining engineer with more than 30 years experience, Mr. Hulley serves
as the President and Chief Operating Officer of Apex Corporation and has
served as an executive officer of Apex Corporation since its formation in
October 1996. From early 1991 until he joined the Company, he served as a
member of the board of directors and the Director of Operations at Western
Mining Holdings Limited Corporation, a publicly traded international nickel,
gold and copper producer. At Western Mining, Mr. Hulley's responsibilities
included supervising on a global basis strategic planning, mine production,
concentrating, smelting, refining and sales. During this period, Western
Mining produced on an annual basis approximately 90,000 tonnes of nickel,
700,000 ounces of gold, 80,000 tonnes of refined copper and 1,500 tonnes of
uranium oxide. Mr. Hulley also supervised the development and operation of
Western Mining's Mount Keith open-pit nickel mine, an A$450 million mining
project. Prior to joining Western Mining, Mr. Hulley was the President, Chief
Executive Officer and Chairman of the board of directors of USMX Inc., a
publicly traded precious-metals exploration company. Mr. Hulley has also
served as the President of the minerals division and Senior Vice President for
Operations of Atlas Corporation, where he was in charge of mining exploration,
development and production. Previously he was Vice President of Mining and
Development of the U.S. division of BP Minerals, Inc. Over the course of his
career, Mr. Hulley has worked
18
as a miner and shift supervisor in the gold mines of South Africa, as Mine
Operation Superintendent of Kennecott Corporation's Bingham Canyon mine which
processed 100,000 tonnes of ore per day, and as project manager of the early
phase of the Ok Tedi exploration and development projects in Papua New Guinea.
A member of the American Institute of Mining and Metallurgical Engineers and a
Fellow of the Australian Institute of Mining and Metallurgy, Mr. Hulley holds
a B.S. in mining engineering from the University of Witwatersrand and an M.S.
in mineral economics from Stanford University.
Marcel F. DeGuire. Mr. DeGuire serves as Vice President of Corporate
Development of Apex Corporation. Prior to joining Apex Corporation in August
1996, he served as Vice President of Project Development and Regional Director
for those jurisdictions which were formerly part of the Soviet Union for
Newmont Gold Company, a subsidiary of Newmont Mining Corporation. During this
period, Mr. DeGuire acted as Project Leader of Newmont's Muruntau large scale
open pit heap leach gold project in Uzbekistan. This facility processes 37,800
tonnes of ore per day and was built at a cost of $225 million. Mr. DeGuire was
directly involved in the joint venture negotiations leading up to the project,
the subsequent feasibility studies, completion of construction and the
commencement of mining operations. In addition to his work in Central Asia,
Mr. DeGuire has been responsible for various feasibility analyses, including
Newmont's Yanacocha gold project in Peru. During his almost 20 years with
Newmont, Mr. DeGuire worked as resident manager of a uranium mine and rose to
President of several of Newmont's subsidiaries and became a leading expert in
environmental management and mine reclamation, serving as Newmont's Vice
President of Environmental Affairs and Research and Development as well as in
other senior executive positions. Mr. DeGuire is a member of the American
Institute of Mining, Metallurgical and Petroleum Engineers, the Canadian
Institute of Metallurgy, the Mining and Metallurgical Society of America and
has published various articles on mineral processing and environmental
matters. Mr. DeGuire holds a B.S. in metallurgical engineering from Michigan
Technological University and an M.S. in metallurgical engineering from the
University of Nevada, Reno.
Mark A. Lettes. Mr. Lettes has served as Vice President, Finance and Chief
Financial Officer of Apex Corporation since June 1998. Prior to joining Apex
Corporation, Mr. Lettes served from late 1996 to 1998 as Vice President
Trading for Amax Gold Inc. and Director of Treasury for Cyprus Amax Minerals
Company, where he was responsible for all Amax Gold hedging activities. A
financial professional with over 25 years experience, Mr. Lettes served as
Vice President and Chief Financial Officer for Amax Gold from 1994 until 1996
where he was responsible for numerous financings including project financings
for the Fort Knox mine in Alaska and the Refugio mine in Chile, parent-
subsidiary financing arrangements with Cyprus Amax and a convertible preferred
issue. Mr. Lettes started the gold hedging program at Amax Gold and was
responsible for all hedging activities of Amax Gold from 1987 through June
1998, when Amax Gold merged with Kinross Gold Corporation. From 1979 through
1986, Mr. Lettes held several positions at AMAX Inc. including Manager of
Corporate Development, Manager Futures Analysis and Group Planning
Administration. In those positions, Mr. Lettes was responsible for planning
and economic analysis activities for AMAX and for business development and
acquisition functions. Transactions on which Mr. Lettes worked at AMAX
included the acquisition of the remaining 50% of Alumax, AMAX's aluminum
subsidiary. Prior to his service at AMAX and Amax Gold, Mr. Lettes held
professional positions in the financial departments of United Technologies and
Rockwell International from 1974 until 1979. Mr. Lettes holds a B.S. in
marketing from the University of Connecticut and an M.B.A. from Ohio State
University.
Dr. Larry J. Buchanan. Dr. Buchanan has served as Chief Geologist and a
principal advisor to the Company's international operations since he joined
Apex Corporation in 1995. Dr. Buchanan was an independent consultant from 1990
through 1994. Dr. Buchanan is a noted exploration geologist with a reputation
as one of the industry's leading experts on epithermal deposits, on which he
has written several definitive texts. His analysis of such deposits has given
rise to the industry paradigm known as "The Buchanan Model". Dr. Buchanan has
published eight geological texts, played a key role in identifying several
multi-million ounce gold deposits, and developed implementation programs for
numerous currently producing mines. His consulting clients included Cyprus
Minerals Company, FMC Corporation, Total Resources, Inc. and Fischer-Watt Gold
Co. Inc. Dr. Buchanan is a shareholder and director of Begeyge Minera Ltda.
Dr. Buchanan holds a B.Sc. and an M.Sc. in geological engineering and a Ph.D
in economic geology from the Colorado School of Mines.
19
Edmond R. LeBlanc. Mr. LeBlanc has served as Vice President, Marketing of
Apex Corporation since April 1998. Prior to joining us, Mr. LeBlanc served as
Director of Marketing for Westmin Resources Limited from 1995 through March
1998, where he was responsible for sales, transportation and hedging for all
of the company's mineral production. Westmin sold a wide variety of products
including copper, zinc, precious metals and molybdenum concentrates, as well
as precious metal dore and copper cathodes. As a member of Westmin's senior
management, Mr. LeBlanc was instrumental in assessing marketing issues for the
company's five-year strategic plans. From 1990 to 1995, he served as Manager
of Special Projects and Manager of Marketing for Westmin. Mr. LeBlanc
commenced his career in the mining industry as an exploration geologist before
specializing in the marketing of nonferrous concentrates and precious metals.
He earned a B.S. in geology from Saint Xavier University.
Michael F. Shaw. Mr. Shaw has served as Vice President of Apex Corporation
since May 2000 and as Project Manager for the San Cristobal Project since
January 1999. Prior to joining Apex Corporation, Mr. Shaw served from 1996
through 1998 as a Vice President of Tiomin Resources and as Vice President,
General Manager and a director of Panama Cobre, S.A., a subsidiary of Tiomin.
At Tiomin, he was responsible for development activity at the Cerro Colorado
copper deposit in Panama. Mr. Shaw previously served from 1994 to 1996 as
Project Director for Cyprus Amax Minerals Company on its solvent extraction-
electrowinning expansion of the Cerro Verde copper mine in Peru. Under Mr.
Shaw's management, Cerro Verde's expansion was completed on schedule and under
budget. In addition, Mr. Shaw has held numerous project management positions
for Bechtel Corporation and Kvaerner Metals (Davy McKee). Over the course of
his career, he helped build the Andacollo gold mine in Chile, the El Abra
copper mine in Chile, the Jerritt Canyon gold mine in Nevada and Magma Copper
Company's flash copper smelter in Arizona. A metallurgical engineer with
nearly 30 years experience, Mr. Shaw began his career as a metallurgist for
Phelps Dodge Corporation before specializing in project management. He earned
a B.S. in chemistry and an M.S. in metallurgical engineering from the
University of Texas at El Paso.
Linda Good Wilson. Ms. Wilson joined Apex Corporation as Vice President,
Investor Relations in October 1997. Prior to joining Apex Corporation, Ms.
Wilson served from March through October 1997 as Director of Investor
Relations for Addwest Minerals, a newly listed Canadian junior gold producer.
With over 15 years of mining experience, Ms. Wilson spent the 10 years prior
to March 1997 at Cyprus Amax in numerous positions, including Director in the
Investor Relations and Treasury Department. Ms. Wilson began her career as a
Geologist at AMAX Inc.'s Mount Tolman Project, a large copper-molybdenum
deposit in eastern Washington. Ms. Wilson holds a B.A. in geology from Colby
College and a M.S. in mineral economics from the Colorado School of Mines.
Johnny Delgado Achaval. Mr. Delgado serves as the Chief Executive Officer of
Andean Silver Corporation LDC, a wholly owned subsidiary of our company. Mr.
Delgado has over 30 years experience in the South American mining industry,
including 15 years as President and principal shareholder of Mineria Tecnica
Consultores Asociados S.A. ("Mintec"), which was one of Bolivia's leading
mining consulting firms and the agent for Andean Silver Corporation LDC from
the formation of its Bolivian branch in 1994 until Mintec's acquisition by the
Company in 1998. Mr. Delgado founded Mintec in 1981. Prior to the formation of
Mintec, Mr. Delgado worked with International Mining Company from 1966 to
1981, where he served initially as Chief of Exploration and Project Manager
and then as Technical Vice President of its tungsten mining holding company,
Estalsa Boliviana S.A. Both before and during his tenure at Mintec, Mr.
Delgado was involved in all aspects of international mining, including the
direction of major exploration efforts in Bolivia, Peru, Brazil, Ecuador,
Argentina and Chile, as well as management of mining operations in Bolivia.
Mr. Delgado has taught mining engineering, mining finance and mine geology. He
is a member of the Geological Society of Bolivia, the Society of Bolivian
Engineers and the Mining Club.
As of December 31, 2000, the Company had approximately 75 full-time
employees.
20
Our subsidiary, Apex Corporation, provides management, advisory and
administrative services for our company under a Management Services Agreement
dated October 22, 1996. The services provided by Apex Corporation include:
. identifying and evaluating investment opportunities;
. making recommendations to our board of directors with respect to our
exploration and development activities;
. providing staffing, employees and the necessary expertise to manage our
company's business and monitor its exploration and development
activities; and
. advising our company with respect to investments, contractual and
financing activities and providing financial services.
We pay Apex Corporation a service fee in an amount equal to the direct and
indirect costs incurred by Apex Corporation in providing its services, plus 7%
of those costs.
CONVERSION TABLE
In this report, figures are presented in both United States standard and
metric measurements. Conversion rates from United States standard to metric
and metric to United States standard measurement systems are provided in the
table below.
U.S. Measure Metric Unit
- ------------ -----------
2.47 acres.............. 1 hectare
3.28 feet............... 1 meter
0.62 miles.............. 1 kilometer
0.032 ounces (troy)..... 1 gram
1.102 tons.............. 1 tonne
Metric Measure U.S. Unit
- -------------- ---------
0.4047 hectares......... 1 acre
0.3048 meters........... 1 foot
1.609 kilometer......... 1 mile
31.103 grams............ 1 ounce (troy)
0.907 tonne............. 1 ton
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 2000.
21
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our company's Ordinary Shares are listed on the American Stock Exchange
under the symbol "SIL." Our warrants are listed on the American Stock Exchange
under the symbol "SIL.WS", and began trading on February 25, 2000. As of March
22, 2001, we had approximately 130 shareholders of record and an estimated
3,500 additional beneficial holders whose Ordinary Shares were held in street
name by brokerage houses.
Our company has never paid any dividends on its Ordinary Shares and expects
for the foreseeable future to retain all of its earnings from operations for
use in expanding and developing its business. Any future decision as to the
payment of dividends will be at the discretion of our board of directors and
will depend upon our earnings, receipt of dividends from our subsidiaries,
financial position, capital requirements, plans for expansion and such other
factors as our board of directors deems relevant.
The following table sets forth the high and the low sale prices per share of
our Ordinary Shares for the periods indicated. The closing price of the
Ordinary Shares on March 22, 2001 was $7.62.
Ordinary Shares
----------------------------
2000 1999
------------ ------------
Period High Low High Low
------ ---- --- ---- ----
1st Quarter.............................. $ 12 $ 9 $10 3/4 $ 7 3/8
2nd Quarter.............................. $12 7/8 $8 3/4 $13 1/4 $10 1/16
3rd Quarter.............................. $10 5/8 $8 3/4 $15 1/4 $10 3/4
4th Quarter.............................. $10 7/16 $8 3/8 $ 15 $ 11
22
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of our company for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996, and the period from December 22,
1994 (inception) through December 31, 2000, are derived from our audited
consolidated financial statements. This table should be read in conjunction
with the Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
December 22,
1994
(inception)
Year ended December 31, through
---------------------------------------------------- December 31,
2000 1999 1998 1997 1996 2000
--------- -------- --------- --------- --------- ------------
(dollars in thousands, except per share amounts)
Statement of Operations:
Interest and other
income................. $ 5,652 $ 1,114 $ 2,444 $ 962 $ 575 $ 11,224
--------- -------- --------- --------- --------- ---------
Total income............ 5,652 1,114 2,444 962 575 11,224
--------- -------- --------- --------- --------- ---------
Expenses
Exploration........... 4,441 6,014 9,966 13,358 14,852 52,608
Administrative........ 8,376 2,846 3,339 2,440 265 17,465
Amortization and
depreciation......... 236 233 169 149 57 902
--------- -------- --------- --------- --------- ---------
Total expenses.......... 13,053 9,093 13,474 15,947 15,174 70,975
--------- -------- --------- --------- --------- ---------
Loss before minority
interest............... (7,401) (7,979) (11,030) (14,985) (14,599) (59,751)
Minority interest....... -- -- -- -- 2,876 4,559
--------- -------- --------- --------- --------- ---------
Net loss for the
period................. $ (7,401) $ (7,979) $ (11,030) $ (14,985) $ (11,723) $ (55,192)
========= ======== ========= ========= ========= =========
Net loss per Ordinary
Share.................. $ (0.21) $ (0.29) $ (0.42) $ (0.72) $ (0.66) $ (2.30)
========= ======== ========= ========= ========= =========
Weighted average number
of Ordinary Shares
outstanding ........... 34,473 27,601 26,212 20,930 17,672 23,985
Cash Flow Data:
Net cash provided by
(used in) financing
Activities............. $ (439) $ 4,073 $ (267) $ 5,008 $ 35,269 $ 190,760
Net cash used in
operating activities... (7,243) (8,289) (11,463) (17,990) (12,092) (60,897)
Net cash used in
investing activities... (27,511) (15,705) (19,086) (5,934) (524) (68,760)
--------- -------- --------- --------- --------- ---------
Net increase (decrease)
in cash................ $ (35,193) $ 70,079 $ (30,816) $ 31,084 $ 22,653 $ 61,103
========= ======== ========= ========= ========= =========
December 31,
----------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- -------- --------
(dollars in thousands)
Balance Sheet Data:
Total assets..................... $ 144,054 $ 151,077 $ 62,347 $ 73,329 $ 26,797
Long term liabilities............ 1,896 3,137 1,967 3,094 --
Shareholders' equity ............ 137,896 144,828 58,397 69,229 24,311
23
ITEM 7 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
You should read the following discussion and analysis together with the
consolidated financial statements of Apex Silver Mines Limited and the
selected financial data and related notes thereto included elsewhere in this
report on form 10-K.
Apex Limited is a mining exploration and development company that holds a
portfolio of silver exploration and development properties primarily in South
America, Mexico and Central America. None of these properties are in
production and, consequently, we have no current operating income or cash
flow.
We currently focus our resources primarily on the development of our San
Cristobal Project in Bolivia and our continued efforts to secure appropriate
financing.
Our company completed an initial public offering of Ordinary Shares on
December 1, 1997. We completed a subsequent offering of ordinary shares and
warrants during November 1999.
Results of Operations
Interest and Other Income. Our company does not yet produce silver or any
other mineral products and has no revenues from product sales. Our primary
source of revenue is interest income. Our policy is to invest all excess cash
in liquid, high credit quality, short-term financial instruments. Our interest
and other income for the year ended December 31, 2000 was $5.7 million
compared to $1.1 million and $2.4 million for the years ended December 31,
1999 and 1998, respectively. The 2000 increase in interest and other income
compared to 1999 is primarily the result of interest earned on higher average
cash balances during 2000 as the result of the net proceeds of our November
1999 offering of ordinary shares and warrants. The decrease in our interest
and other income for 1999 compared to 1998 was due to the reduced average cash
balance during 1999, prior to the receipt of the net proceeds of our November
1999 offering.
Exploration. Our company expenses mineral exploration expenditures as
incurred on each property until we determine that mining operations on that
property are feasible. Once we have determined that a mineral property has
proven and probable ore reserves, we capitalize all development costs. Through
December 31, 2000, we have expensed all acquisition and exploration costs as
incurred. Since September 1, 1997, we have capitalized development costs
associated with the San Cristobal Project and will continue to do so in the
future.
Our exploration expenses, including property holding costs and allocated
administrative expenses, were $4.4 million for the year ended December 31,
2000 compared to $6.0 million and $10.0 million for the years ended December
31, 1999 and 1998, respectively. The decreases in our exploration expenses for
these periods is due primarily to the reduced emphasis on exploration as we
concentrate our resources on the development of the San Cristobal Project.
Administrative. Our administrative expenses were $8.4 million for the year
ended December 31, 2000, compared to $2.8 million and $3.3 million for the
years ended December 31, 1999 and 1998, respectively. The increase in our
administrative expenses in 2000 as compared to 1999 is primarily due to costs
and fees directly related to our project financing efforts and stock
compensation. The decrease in our administrative expenses for 1999 compared to
1998 is primarily the result of the refocusing of our efforts on development
activities at the San Cristobal Project.
Income Taxes. Apex Silver Mines Corporation, our U.S. management services
company, is subject to U.S. income taxes. Otherwise our company pays no income
tax in the U.S. since we are incorporated in the Cayman Islands and conduct no
business that currently generates U.S. taxable income. The Cayman Islands
currently impose no corporate taxation. Our company has been granted exemption
until January 16, 2015 from any form of corporate taxation which may
subsequently be adopted in the Cayman Islands.
24
Liquidity and Capital Resources
As of December 31, 2000, our company had cash and cash equivalents of
approximately $61.1 million compared to $96.3 million at December 31, 1999.
The decrease in our cash and cash equivalents during 2000 is due to the
investment of approximately $27.5 million in property, plant and equipment
related to the development of San Cristobal, $7.3 million in cash used in
operations, which is net of interest and other income and is primarily related
to administration and exploration, and $0.4 million of payments on outstanding
notes.
In September 2000, our company amended and replaced its registration
statement at the Securities and Exchange Commission with a universal shelf
registration statement. The universal shelf registration statement became
effective September 8, 2000, and allows us to raise up to $200 million by
selling any combination of equity or debt securities listed in the statement.
Proceeds from offering(s) under the shelf registration, if any, may be used to
construct and develop San Cristobal, continue exploring our other properties,
maintain control or ownership of our properties, acquire additional mining
related properties or businesses and for general corporate purposes. It is
anticipated that project financing will constitute the substantial majority of
the overall financing for the San Cristobal Project. At December 31, 2000 no
securities had been sold under the universal shelf registration statement. In
February 2001, 65,000 Ordinary Shares were issued under the shelf registration
statement as consideration for acquisition of an exploration property.
Based on estimated revisions made during 2000 to the September 1999
feasibility study for the San Cristobal Project, which assumes contract mining,
we expect capital costs for construction to total approximately $435 million, of
which approximately $23 million has been spent through December 31, 2000. The
$435 million is net of approximately $60 million in expected tax credits of
which approximately $35 million is expected to be recovered during the project's
construction phase, and the remaining $25 million is expected to be recovered
against our future Bolivian income taxes. We estimate project spending for the
year 2001 to range from approximately $10 million to $25 million, depending upon
when fabrication of major capital items commences. We plan to fund project
expenditures from our existing cash balances. These expenditures may be
significantly reduced if our company decides to delay the construction schedule
while waiting for an improvement in financial and metals markets. We have this
financial flexibility due to our existing cash balances and low debt.
In order to maintain our mineral properties, we must make certain payments
including government mineral patent fees and commissions, work commitments,
lease and option payments and advance royalties. In order to maintain our
current portfolio of mineral properties, we will be required to make payments
during the next twelve months of approximately $0.2 million for San Cristobal,
$0.9 million for Platosa and $0.8 million for our other exploration
properties. In addition, we expect to make expenditures for other continuing
exploration, property acquisition, property evaluation and general corporate
expenses. Total exploration and administrative expense is not anticipated to
increase significantly during the next twelve months. We expect to fund these
obligations from existing cash balances.
We will be required to raise significant additional debt and equity
financing from outside sources to complete development of the San Cristobal
Project. In May 2000, two key multilateral funding agencies, International
Finance Corporation and Corporacion Andina de Fomento, joined our co-lead
arrangers for project financing, Barclays and Deutsche Bank, to develop
multilateral financing options for San Cristobal as part of a total financing
package that may incorporate support from other official agencies as well as
debt financing from banks and the capital markets. There can be no assurance
that we will be able to obtain the required financing on terms that we find
attractive, or at all.
Environmental Compliance
Our current and future exploration and development activities, as well as
our future mining and processing operations, are subject to various federal,
state and local laws and regulations in the countries in which we conduct our
activities. These laws and regulations govern the protection of the
environment, prospecting, development, production, taxes, labor standards,
occupational health, mine safety, toxic
25
substances and other matters. Our management expects to be able to comply with
those laws and does not believe that compliance will have a material adverse
effect on our competitive position. We intend to obtain all licenses and
permits required by all applicable regulatory agencies in connection with its
mining operations and exploration activities. We intend to maintain standards
of environmental compliance consistent with best contemporary industry
practice.
Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currently, our major principal cash balances are held in U.S. dollars. We
maintain minimum cash balances in foreign currencies and therefore have a
relative low exposure to currency fluctuations. Because we conduct our
activities largely in several foreign countries, we may in the future engage
in hedging activities to minimize the risk of exposure to currency and
interest rate fluctuations.
We expect that we will be required to hedge some portion of our planned
production in advance in order to complete the financing necessary to develop
San Cristobal. In addition, as we bring San Cristobal into production and
begin to derive revenue from the production, sale and exchange of metals, we
may utilize various price-hedging techniques to lock in forward delivery
prices on a portion of our production. We would expect to balance the use of
price-hedging techniques to mitigate some of the risks associated with
fluctuations in the prices of the metals we produce while allowing us to take
advantage of rising metal prices should they occur.
Our company has engaged in limited metals trading activities utilizing puts
and calls in a manner similar to anticipated lender requirements. At December
31, 2000, we recorded a year-to-date mark to market gain of approximately
$446,000 from these activities. There can be no assurance that we will always
benefit from the use of these techniques.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary information filed as
part of this Item 8 are listed under Part IV, Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" and contained in this Form 10-K
at page F-1.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10: DIRECTORS OF THE REGISTRANT AND CERTAIN EXECUTIVE OFFICERS OF APEX
CORPORATION
Information regarding directors of Apex Limited and certain executive
officers of Apex Corporation is incorporated by reference to the section
entitled "Election of Directors" in our definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A in
connection with the 2001 annual meeting of shareholders (the "Proxy
Statement").
ITEM 11: EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption "Executive
Compensation and Other Information" in our proxy statement, which information
(except for the report of the board of directors on executive compensation and
the performance graph) is incorporated by reference in this report on Form 10-
K.
26
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption "Security
Ownership of Principal Shareholders and Management" in our proxy statement,
which information is incorporated by reference in this report on Form 10-K.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information contained under the caption "Certain
Transactions" contained in our proxy statement, which information is
incorporated by reference in this report on Form 10-K.
27
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report on Form 10-K or incorporated by
reference.
1. The consolidated financial statements of the Company are listed on the
"Index to Financial Statements", on Page F-1 to this report.
2. Financial Statement Schedules (omitted because not material or not
applicable).
3. The following exhibits are filed with this report on Form 10-K or
incorporated by reference.
Exhibit
Number Description of Exhibits
------- -----------------------
3.1 Amended and restated Memorandum of Association of the Company.(1)
3.2 Amended and restated Articles of Association of the Company.(1)
4.1 Specimen of certificates representing the Company's Ordinary Shares,
par value U.S. $0.01 each.(2)
4.2 Form of Warrant Certificate.(3)
4.3 Form of Warrant Agreement dated November 5, 1999.(4)
10.1 Summary of the Company's 401(k) Plan.(2)
10.2 Management Services Agreement among the Company and its
subsidiaries.(2)
10.3 Non-Employee Directors' Share Plan, as amended.(1)
10.4 Employees' Share Option Plan.(1)
10.5 Form of Option Grant to Non-Employee Directors dated April 10,
1997.(5)
10.6 Employment contract between the Company and Marcel F. DeGuire, dated
July 23, 1996.(2)
10.7 Employment contract between the Company and Mark A. Lettes, dated May
19, 1998.(1)
10.8 Employment contract between the Company and Keith R. Hulley, dated
August 4, 1996.(2)
10.9 English translation of Deed of Lease and Purchase Option Contract
between Monica de Prudencio and Mineria Tecnia Consultores Asociados,
S.A. ("Mintec"), dated November 7, 1994, regarding the Tesorera
concession, with an attached note from Keith Hulley, a director of the
Company, as required by Rule 306 of Regulation S-T.(2)
10.10 English translation of Assignment Agreement between ASC Bolivia LDC
and Mintec regarding the rights to the above agreement, with an
attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.(2)
10.11 English translation of the Lease and Purchase Option Contract between
Empresa Minera Yana Mallcu S.A. and Mintec, dated February 7, 1996,
regarding the Toldos concession, with an attached note from Keith
Hulley, a director of the Company, as required by Rule 306 of
Regulation S-T.(2)
10.12 English translation of the Assignment of Lease and Purchase Option
Agreement among Banco Industrial S.A., Mintec and ASC Bolivia LDC,
with an attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.(2)
10.13 English translation of the Purchase Option Agreement between Mintec
and Litoral Mining Cooperative Ltd., dated August 17, 1995, regarding
the Animas concession, with an attached note from Keith Hulley, a
director of the Company, as required by Rule 306 of Regulation S-T.(2)
10.14 English translation of the Assignment and Assumption Agreement between
Mintec and ASC Bolivia LDC, dated May 22, 1996, regarding the Animas
concession, with an attached note from Keith Hulley, a director of the
Company, as required by Rule 306 of Regulation S-T.(2)
28
Exhibit
Number Description of Exhibits
------- -----------------------
10.15 English translation of the Purchase Agreement between ASC Bolivia LDC
and Litoral Mining Cooperative Ltd., regarding the Animas concessions
with an attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.(2)
10.16 English translation of the Joint Venture Agreement between Corporacion
Minera Boliviano S.A. ("Comibol") and ASC Bolivia LDC, regarding the
Cobrizos Concession, with an attached note from Keith Hulley, a
director of the Company, as required by Rule 306 of Regulation S-T.(2)
10.17 English translation of the Joint Venture Agreement between Comibol and
ASC Bolivia LDC regarding the Choroma Concession, with an attached
note from Keith Hulley, a director of the Company, as required by Rule
306 of Regulation S-T.(2)
10.18 Board Designation Agreement, dated October 28, 1997, by and between
the Company and Silver Holdings.(2)
10.19 Registration Rights and Voting Agreement, dated October 28, 1997, by
and among the Company, Silver Holdings, Consolidated, Argentum, Aurum
LLC and Thomas S. Kaplan.(2)
10.20 Amended and Restated Voting Trust Agreement, dated October 29, 1997,
between Thomas Kaplan and Consolidated.(2)
10.21 Amended and Restated Voting Trust Agreement, dated October 29, 1997,
between Thomas Kaplan and Argentum LLC.(2)
10.22 English translation of the Purchase Agreement between Monica de
Prundencio and ASC Bolivia, regarding the Tesorera and Jayula
concessions, dated September 3, 1997, with an attached note from Keith
Hulley as required by Rule 306 of Regulation S-T.(2)
10.23 Form of Change of Control Agreement dated June 26, 2000
21 List of Subsidiaries.
23 Consent of Independent Accountants.
- --------
(1) Incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 1998.
(2) Incorporated by reference to our Registration Statement on Form S-1 (File
No. 333-34685).
(3) Incorporated by reference to Exhibit 4.7 to the Registration Statement on
Form S-3 (File No. 333-76181), as amended, of the Registrant, first filed
with the Securities and Exchange Commission on April 13, 1999.
(4) Incorporated by reference to Exhibit 4.1 to the Form 8-K of the
Registrant, filed with the Securities and Exchange Commission on November
8, 1999.
(5) Incorporated by reference to Exhibit 4.3 in our Registration Statement on
Form S-8 (File No. 333-53185).
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
March 26, 2001 on its behalf by the undersigned, thereunto duly authorized.
Apex Silver Mines Limited
Registrant
/s/ Thomas S. Kaplan
By: _________________________________
Thomas S. Kaplan
Chairman, Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant, in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas S. Kaplan Director March 26, 2001
______________________________________
Thomas S. Kaplan
/s/ Harry M. Conger Director March 26, 2001
______________________________________
Harry M. Conger
______________________________________ Director March 26, 2001
Eduardo S. Elsztain
/s/ David Sean Hanna Director March 26, 2001
______________________________________
David Sean Hanna
______________________________________ Director March 26, 2001
Ove Hoegh
/s/ Keith R. Hulley Director March 26, 2001
______________________________________
Keith R. Hulley
/s/ Kevin R. Morano Director March 26, 2001
______________________________________
Kevin R. Morano
Director March 26, 2001
______________________________________
Paul Soros
/s/ Charles B. Smith Director March 26, 2001
______________________________________
Charles B. Smith
30
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
Page
----
Report of Management...................................................... F-2
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet at December 31, 2000 and 1999.................. F-3
Consolidated Statement of Operations for the years ended December 31,
2000, 1999, and 1998 and for the period from December 22, 1994
(inception) through December 31, 2000.................................... F-4
Consolidated Statement of Changes in Shareholders' Equity for the years
ended December 31, 2000, 1999, and 1998 and for the period from December
22, 1994 (inception) through December 31, 2000........................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
2000, 1999, and 1998 and for the period from December 22, 1994
(inception) through December 31, 2000.................................... F-6
Notes to the Consolidated Financial Statements............................ F-7
F-1
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements and for other financial and operating information appearing in the
annual report. It believes that its accounting systems and internal accounting
controls, together with other controls, provide assurance that all accounts
and records are maintained by qualified personnel in requisite detail, and
accurately and fairly reflect transactions of Apex Silver Mines Limited and
its subsidiaries in accordance with established policies and procedures.
The Board of Directors has an Audit Committee, all of whose members are
neither officers nor employees of the Company or its affiliates. The Audit
Committee recommends independent public accountants to act as auditors for the
Company for consideration by the Board of Directors; reviews the Company's
financial statements; confers with the independent accountants with respect to
the scope and results of their audit of the Company's financial statements and
their reports thereon; reviews the Company's accounting policies, tax matters
and internal controls; and oversees compliance by the Company with the
requirements of federal regulatory agencies. Access to the Audit Committee is
given to the Company's financial and accounting officers and independent
accountants.
Thomas S. Kaplan Mark A. Lettes
Chairman Vice President and Chief Financial
Apex Silver Mines Limited Officer
Apex Silver Mines Corporation
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Apex Silver Mines Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Apex Silver Mines Limited (successor to Apex Silver Mines LDC) and its
subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 and the period from December 22, 1994 (inception)
through December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 16, 2001
F-2
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars)
December 31, December 31,
2000 1999
------------ ------------
Assets
Current assets
Cash and cash equivalents........................ $ 61,103,263 $ 96,296,577
Accrued interest receivable...................... 214,259 61,119
Prepaid expenses and other assets................ 227,764 301,485
------------ ------------
Current assets................................. 61,545,286 96,659,181
Property, plant and equipment (net).............. 77,351,505 50,561,766
Value added tax recoverable...................... 5,024,021 3,810,460
Other............................................ 132,739 45,997
------------ ------------
Total assets................................... $144,053,551 $151,077,404
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accrued salaries, wages and benefits............. $ 159,465 $ 118,108
Accounts payable................................. 2,398,064 2,092,477
Current portion of notes payable................. 1,703,712 901,459
------------ ------------
Current liabilities............................ 4,261,241 3,112,044
Notes payable...................................... 1,896,396 3,137,368
Commitments and contingencies (Note 10)............ -- --
Shareholders' equity
Ordinary Shares, $.01 par value, 75,000,000
shares authorized; 34,486,629 and 34,466,168,
shares issued and outstanding, respectively
(Note 1e)....................................... 344,866 344,662
Contributed surplus.............................. 192,742,800 192,274,553
Accumulated deficit.............................. (55,191,752) (47,791,223)
------------ ------------
Total shareholders' equity..................... 137,895,914 144,827,992
------------ ------------
Total liabilities and shareholders' equity..... $144,053,551 $151,077,404
============ ============
The accompanying notes form an integral part of these consolidated financial
statements.
F-3
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States dollars)
For the
period
December 22,
1994
(inception)
Year ended Year ended Year ended through
December December December 31, December 31,
31, 2000 31, 1999 1998 2000
----------- ----------- ------------ ------------
Income
Interest and other
income............... $ 5,652,010 $ 1,113,547 $ 2,444,357 $ 11,223,697
----------- ----------- ------------ ------------
Total income........ 5,652,010 1,113,547 2,444,357 11,223,697
----------- ----------- ------------ ------------
Expenses
Exploration........... 4,440,931 6,013,535 9,965,999 52,607,640
Administrative........ 8,375,859 2,846,057 3,338,812 17,465,431
Amortization and
depreciation......... 235,749 232,987 169,116 901,264
----------- ----------- ------------ ------------
Total expense....... 13,052,539 9,092,579 13,473,927 70,974,335
----------- ----------- ------------ ------------
Loss before minority
interest............... (7,400,529) (7,979,032) (11,029,570) (59,750,638)
Minority interest in
loss of consolidated
subsidiary............. -- -- -- 4,558,886
----------- ----------- ------------ ------------
Net loss for the
period............. $(7,400,529) $(7,979,032) $(11,029,570) $(55,191,752)
=========== =========== ============ ============
Net loss per Ordinary
Share--Basic and
diluted(1)............. $ (0.21) $ (0.29) $ (0.42) $ (2.31)
=========== =========== ============ ============
Weighted average
Ordinary Shares
outstanding (Notes 1e
and 2h)................ 34,472,548 27,601,362 26,212,009 23,894,940
=========== =========== ============ ============
- --------
(1) Diluted earnings per share were antidilutive for all periods presented.
The accompanying notes form an integral part of these consolidated financial
statements.
F-4
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in United States dollars)
Accumulated
Deficit & Total
Shares Contributed Comprehensive Shareholders'
Outstanding Amount Surplus Deficit Equity
----------- -------- ------------ ------------- -------------
Issuance of shares upon
incorporation December
22, 1994 ($0.85 per
share)................. 8,822,546 $ 88,225 $ 5,571,398 $ -- $ 5,659,623
Net loss................ -- -- -- (213,165) (213,165)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1994................... 8,822,546 88,225 5,571,398 (213,165) 5,446,458
Net loss and
comprehensive loss..... -- -- -- (1,861,185) (1,861,185)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1995................... 8,822,546 88,225 5,571,398 (2,074,350) 3,585,273
Issuance of shares in
private placement
($8.00 per share)...... 4,256,700 42,567 32,406,783 -- 32,449,350
Net loss and
comprehensive loss..... -- -- -- (11,723,313) (11,723,313)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1996................... 13,079,246 130,792 37,978,181 (13,797,663) 24,311,310
Purchase of minority
interest in ASC Bolivia
($11.00 per share)..... 268,496 2,685 2,950,771 -- 2,953,456
Issuance of shares to
associates ($11.00 per
share)................. 138,595 1,386 1,523,159 -- 1,524,545
Issuance of shares for
services ($1.49 per
share)................. 115,207 1,152 231,566 -- 232,718
Stock option
compensation expense... -- -- 416,562 -- 416,562
Issuance of shares upon
Initial Public Offering
($11.00 per share)..... 5,523,372 55,234 54,719,730 -- 54,774,964
Net loss and
comprehensive loss..... -- -- -- (14,984,958) (14,984,958)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1997................... 19,124,916 191,249 97,819,969 (28,782,621) 69,228,597
Exchange of Apex LDC
shares................. 7,079,006 70,790 (70,790) -- --
Stock options exercised
($7.91 per share)...... 25,001 250 197,473 -- 197,723
Stock awards ($8.50 per
share)................. 21,838 218 185,407 -- 185,625
Unearned compensation... -- -- (185,625) -- (185,625)
Net loss and
comprehensive loss..... -- -- -- (11,029,570) (11,029,570)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1998................... 26,250,761 262,507 97,946,434 (39,812,191) 58,396,750
Stock options exercised
($8.77 per share)...... 25,549 256 223,900 -- 224,156
Sale of Ordinary Share
units ($12.00 per
share)................. 8,090,132 80,901 94,004,628 -- 94,085,529
Commissions paid in
stock ($12.00 per
share)................. 84,184 842 (842) -- --
Stock awards ($12.06 per
share)................. 15,542 156 187,475 -- 187,631
Unearned compensation
(net).................. -- -- (87,042) -- (87,042)
Net loss and
comprehensive loss..... -- -- -- (7,979,032) (7,979,032)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1999................... 34,466,168 344,662 192,274,553 (47,791,223) 144,827,992
Stock compensation
($10.88 per share) .... 5,100 51 55,412 -- 55,463
Stock awards ($9.13 per
share) ................ 15,361 153 140,168 -- 140,321
Unearned compensation... -- -- 272,667 -- 272,667
Net loss and
comprehensive loss..... -- -- -- (7,400,529) (7,400,529)
---------- -------- ------------ ------------ ------------
Balance, December 31,
2000................... 34,486,629 $344,866 $192,742,800 $(55,191,752) $137,895,914
========== ======== ============ ============ ============
The accompanying notes form an integral part of these consolidated financial
statements.
F-5
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars)
For the
period
December 22,
1994
(inception)
Year ended Year ended Year ended through
December 31, December 31, December 31, December 31,
2000 1999 1998 2000
------------ ------------ ------------ ------------
Cash flows from
operating activities:
Net cash used in
operating activities
(See Note 9)......... $ (7,243,649) $ (8,288,609) $(11,463,133) $(60,896,487)
------------ ------------ ------------ ------------
Cash flows from
investing activities:
Purchase of property,
plant, and
equipment............ (27,510,946) (15,705,206) (19,085,903) (68,760,351)
------------ ------------ ------------ ------------
Net cash used in
investing
activities......... (27,510,946) (15,705,206) (19,085,903) (68,760,351)
------------ ------------ ------------ ------------
Cash flows from
financing activities:
Net proceeds from
issuance of Ordinary
Shares............... -- 94,085,529 -- 191,761,070
Payment of notes...... (438,719) (236,534) (464,639) (1,139,892)
Proceeds from exercise
of stock options..... -- 224,156 197,723 421,879
Deferred
organizational and
financing costs...... -- -- -- (282,956)
------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities......... (438,719) 94,073,151 (266,916) 190,760,101
------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ (35,193,314) 70,079,336 (30,815,952) 61,103,263
Cash and cash
equivalents beginning
of period.............. 96,296,577 26,217,241 57,033,193 --
------------ ------------ ------------ ------------
Cash and cash
equivalents end of
period................. $ 61,103,263 $ 96,296,577 $ 26,217,241 $ 61,103,263
============ ============ ============ ============
Supplemental non-cash
transactions:
Acquisition of mining
properties for
asssumption of debt.. $ -- $ 260,000 $ --
Capitalized
development costs at
San Cristobal for
which a note payable
was issued........... $ -- $ 2,000,000 $ --
Non-cash debt
extinguished by one-
time early cash
payment.............. $ -- $ -- $ 826,196
The accompanying notes form an integral part of these consolidated financial
statements.
F-6
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
1. Incorporation, Recapitalization, Initial Public Offering, Subsequent
Offerings, Ownership and Operations
a. Apex Silver Mines Limited ("Apex Limited" or the "Company") was formed
under the laws of the Cayman Islands in March of 1996 for the sole purpose of
serving as a holding company for certain ownership interests in Apex Silver
Mines LDC ("Apex LDC"). On April 15, 1996, holders of approximately 55% of the
then-outstanding shares of Apex LDC elected to participate, effective as of
the completion of a proposed private placement of shares of Apex Limited which
was completed as of August 6, 1996, in a recapitalization effected by an
exchange, on a one-for-one basis, of their shares in Apex LDC for identical
equity instruments of Apex Limited (the "Recapitalization"). The balance of
shareholders retained a direct ownership interest in Apex LDC. As a result of
this recapitalization, Apex LDC became a majority-owned subsidiary of Apex
Limited. The accompanying financial statements reflect the historical accounts
of the Company's predecessor, Apex LDC. For purposes of the accompanying
consolidated financial statements of Apex Limited, the recapitalization has
been given retroactive effect to the date of incorporation of Apex LDC, with
the results of operations and equity attributable to the other ownership
interests in Apex LDC being reflected in "minority interest in consolidated
subsidiary". Consequently, for purposes of these financial statements, Apex
Limited is considered the successor to Apex LDC.
b. In August of 1996, Apex Limited issued 4,256,700 Ordinary Shares in a
private placement transaction (the "Private Placement") for net proceeds of
$32.4 million. These proceeds were contributed to Apex LDC in exchange for the
issuance by Apex LDC of 4,256,700 shares of its share capital. As a result of
this private placement, the Company's ownership interest in Apex LDC was
increased from approximately 55% to 65%.
c. On December 1, 1997, the Company closed its initial public offering (the
"Offering") of Ordinary Shares. The Company sold 5,000,000 Ordinary Shares at
a price of $11 per share on the American Stock Exchange under the symbol
"SIL". In addition, on December 23, 1997, the underwriters exercised an option
to purchase an additional 523,372 Ordinary Shares at the initial price of $11
per share. Net proceeds raised in the offering were approximately $54.8
million. These proceeds were contributed to Apex LDC in exchange for the
issuance by Apex LDC of 5,523,372 shares of its capital.
d. The Company's principal activities are the exploration and development of
mineral properties. The Company participates in the acquisition and
exploration of mineral properties for possible future development directly and
indirectly through its subsidiaries.
e. In conjunction with the Recapitalization and the Private Placement, Apex
Limited and the shareholders of Apex LDC entered into a Buy-Sell Agreement
(the "Buy-Sell Agreement") which was intended to maintain the same beneficial
interest in Apex LDC attributable to all shareholders of Apex LDC prior to the
Recapitalization and Private Placement. During 1998, Pursuant to the terms of
the Buy-Sell Agreement, Apex Limited exchanged 7,079,006 of its Ordinary
Shares for an equal number of Apex LDC shares. Such shares are included in the
34,486,629 Apex Limited Ordinary Shares outstanding at December 31, 2000. At
December 31, 2000, Apex Silver Mines Limited owned 100 percent of Apex LDC.
Per the provisions of the Buy-Sell Agreement, all of the outstanding shares of
Apex LDC are considered Ordinary Shares outstanding for the purposes of
computing net loss per Ordinary Share for the periods presented.
f. In November 1999, pursuant to a shelf registration statement filed with
the Securities and Exchange Commission, the Company sold 8,090,132 Ordinary
Share units, resulting in proceeds before commissions and fees of
approximately $97.1 million and net proceeds of approximately $94.1 million.
The Ordinary Share units, each priced at $12.00 per unit, were comprised of
one Ordinary Share and a warrant which is exercisable into
F-7
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
one-half of an Ordinary Share at any time on or before November 4, 2002 at a
price of $18.00 per ordinary share. The warrants, if exercised, would raise an
additional $73.6 million for the Company and would result in the issuance of
4,045,066 ordinary shares.
g. The Company, through indirect subsidiaries, is active in Mexico, Central
America and South America and currently holds interests in, or is the
beneficial owner of, non-producing silver resource properties in Bolivia,
Honduras, Mexico and Peru. The Company is in the process of evaluating certain
of its properties to determine the economic feasibility of bringing one or
more of the properties into production.
2. Summary of Significant Accounting Policies
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. The policies adopted, considered by management to
be significant, are summarized as follows:
a. Basis of consolidation
These consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. Investments in unincorporated joint
ventures are proportionately consolidated.
b. Translation of foreign currencies
Substantially all expenditures are made in United States dollars.
Accordingly, the Company uses the United States dollar as its functional
currency.
c. Cash, cash equivalents and short-term investments
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Short-term investments
include certificates of deposit with maturities greater than three months, but
not exceeding twelve months. Short-term investments are recorded at cost which
approximates fair value.
d. Mining properties, exploration and development costs
The Company expenses general prospecting costs and the costs of acquiring
and exploring unevaluated mining properties. When a property is determined to
have proven and probable reserves, development costs are capitalized. When ore
reserves are developed and operations commence, capitalized costs will be
amortized using the units-of-production method. Upon abandonment or sale of
projects, all capital costs relating to the specific project are written off
in the period abandoned or sold and a gain or loss is recognized. Beginning
September 1, 1997, all costs associated with the Company's San Cristobal
Project have been capitalized. As of December 31, 2000, capitalized property
and development costs related to the San Cristobal Project amounted to
$72,819,859. No other amounts related to mineral properties have been
capitalized.
e. Property, plant and equipment
Mineral properties include costs to acquire development properties and
property development costs. Mineral properties brought into production are
charged to operations using the units-of-production method based on
F-8
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
estimated recoverable reserves. Buildings are stated at cost and are
depreciated using the straight-line method, over useful lives of thirty to
forty years. Mining equipment and machinery are stated at cost and are
depreciated using the straight-line method over useful lives of three to eight
years. Other furniture and equipment are stated at cost and are depreciated
using the straight-line method over estimated useful lives of three to five
years.
f. Asset impairment
The Company evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amount may not be
recoverable. If the sum of estimated future net cash flows on an undiscounted
basis is less than the carrying amount of the related asset, an asset
impairment is considered to exist. The related impairment loss is measured by
comparing estimated future net cash flows on a discounted basis to the
carrying amount of the asset. Changes in significant assumptions underlying
future cash flow estimates may have a material effect on the Company's
financial position and results of operations. To date no such impairments have
been identified.
g. Stock compensation
As permitted under Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," the Company has elected to
measure compensation expense as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under that method,
the difference between the exercise price and the estimated fair value of the
shares at the date of grant is charged to compensation expense ratably over
the vesting period.
h. Net loss per ordinary share
Basic earnings per share excludes dilution and is computed by dividing net
earnings available to ordinary shareholders by the weighted average number of
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution that would occur if securities or other contracts to issue
Ordinary Shares were exercised or converted into Ordinary Shares.
Outstanding options to purchase 1,498,128, 915,817 and 626,571 Ordinary
Shares were not included in the computation of diluted earnings per share at
December 31, 2000, 1999, and 1998 respectively, because to do so would have
been antidilutive.
i. Derivative financial instruments
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133, as amended by FAS
137, is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000 (January 1, 2001 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. For fair-value hedge transactions in which the Company is hedging
changes in the fair value of an asset, liability, or firm commitment, changes
in the fair value of the derivative instrument will generally be offset by
changes in the hedged item's fair value. For cash flow hedge transactions, in
which the Company is hedging the variability of cash flows related to a
variable-rate asset, liability or forecasted transaction, changes in the fair
value of the derivative instrument will be reported in other comprehensive
F-9
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
income. The gains and losses on the derivative instrument that are reported in
other comprehensive income will be reclassified as earnings in the periods in
which earnings are impacted by the variability of cash flows of the hedged
item. The ineffective portion of all hedges will be recognized in current-
period earnings.
Our company engages in limited metals trading activities utilizing puts and
calls andwe mark the open positions to market recording the difference in the
carrying value to current earnings, in accordance with FAS 133, which will be
effective January 1, 2001. During 2000, the Company recorded mark to market
gains of approximately $446,000, which is included in interest and other
income in the Consolidated Statement of Operations.
j. Reclassification of prior year balances
Certain prior year balances have been reclassified to conform to the
classifications being presented at December 31, 2000.
3. Income Taxes
The provision for income taxes includes United States federal, state and
foreign income taxes currently payable and deferred based on currently enacted
tax laws. Deferred income taxes are provided for the tax consequences of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is recognized if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
There is currently no taxation imposed by the Cayman Islands. If any form of
taxation were to be enacted, the Company has been granted exemption therefrom
to January 16, 2015. The Company's subsidiaries which do business in other
countries have not generated income and therefore are not liable for local
income taxes.
As of December 31, 2000 and 1999, operating loss carryforwards generated by
ASC Bolivia amounted to approximately $16.6 and $16.1 million, respectively.
Operating losses (as adjusted for inflation) may be carried forward and
deducted from taxable income indefinitely. The deferred tax asset resulting
from the operating loss carryforwards has been entirely offset by a valuation
allowance.
No net deferred tax assets related to operating losses generated through
December 31, 2000 by the Company's other foreign subsidiaries have been
included in the accompanying financial statements, as all such assets have
been entirely offset by a valuation allowance of approximately $15.9 million.
4. Value Added Tax Recoverable
The Company has recorded value added tax ("VAT") paid in Bolivia and Mexico
as recoverable assets. Bolivian law states that VAT paid prior to production
is recoverable as a credit against Bolivian taxes arising from production,
including income tax. The VAT paid in Bolivia is expected to be recovered
through production from the proven and probable reserves at the San Cristobal
Project that the Company intends to develop. The VAT paid in Mexico is related
to exploration activities and is recoverable upon application to the tax
authorities. We have received VAT refunds relating to VAT paid in Mexico
through 1998. Applications for refund of the remaining VAT paid in Mexico
through 2000 have been filed and payment is expected in due course. At
December 31, 2000, the recoverable VAT recorded for Bolivia and Mexico is
$4,731,003 and $293,018 respectively.
F-10
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
Because of the uncertainty of the recoverability of VAT paid in Peru, VAT
costs incurred in Peru are charged to expense as incurred.
5. Property, Plant and Equipment
The components of property, plant, and equipment were as follows:
December
December 31, 31,
2000 1999
------------ -----------
Mineral properties................................ $ 72,819,859 $48,056,283
Buildings......................................... 1,166,868 1,137,173
Mining equipment and machinery.................... 3,317,827 1,267,679
Other furniture and equipment..................... 805,289 765,241
------------ -----------
78,109,843 51,226,376
Less: Accumulated depreciation.................... (758,338) (664,610)
------------ -----------
$ 77,351,505 $50,561,766
============ ===========
Depreciation expense for the periods ended December 31, 2000, 1999 and 1998
totaled $210,278, $176,395 and $112,471, respectively. For the periods ended
December 31, 2000, 1999 and 1998 respectively, $195,505, $168,461 and $135,561
of depreciation associated with the San Cristobal Project was capitalized.
6. Notes Payable
The Company's Notes Payable consists of the following:
December 31, December 31,
2000 1999
------------ ------------
San Cristobal Area Properties.................... $ 1,847,369 $2,238,827
San Cristobal Foundation......................... 1,752,739 1,800,000
----------- ----------
Sub-total...................................... 3,600,108 4,038,827
Less Current Portion............................. (1,703,712) (901,459)
----------- ----------
Total.......................................... $ 1,896,396 $3,137,368
=========== ==========
In 1996, 1997 and 1998 the Company exercised options to purchase the Toldos
and other properties in the San Cristobal area. The following outstanding
notes payable were recorded on the Company's books:
Banco de Santa Cruz--The Company will make annual payments of $68,914 for
each of the next five years, plus interest at Banco de Santa Cruz'
preferential rate of interest which was approximately 14% as of December
31, 2000. The note plus accrued interest was being carried on the Company's
books for $344,571 at December 31, 2000.
Barex--The Company will make one payment of $900,000 on December 1, 2001.
No interest is due on this note.
Monica de Prudencio--The Company makes monthly payments of $12,000 per
month through June 2004 and a final payment of $8,000 due July 15, 2004. No
interest is due on this debt. The note was being carried on the Company's
books for $512,000 at December 31, 2000.
F-11
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
Oscar Bonifaz--The note was being carried on the Company's books for
$60,000 at December 31, 2000. No interest is due on this debt. The note
will be repaid in 2001.
San Cristobal Foundation--In 1999 our company executed a note agreement
with the San Cristobal Foundation for $2 million payable by the end of
2005. Payments in the amount of $47,261 and $200,000 were made on the note
during 2000 and 1999 respectively.
7. Stock Option Plans
The Company has established a plan to issue share options and other awards
to be valued by reference to the Company's shares for officers, employees,
consultants and agents of the Company and its subsidiaries (the "Plan"). Under
the Plan, the total number of options and other awards outstanding at any time
cannot exceed ten percent of the Company's share capital. Options granted and
other awards under the Plan are non-assignable. Options exist for a term, not
to exceed ten years, as fixed by the Compensation Committee of the Board of
Directors of the Company ("the Committee"). Options vest ratably over periods
of up to four years with the first tranche vesting on the date of grant or the
anniversary of the date of grant. Unexercised options expire ten years after
the date of grant.
The Company has established a share option plan for its non-employee
directors (the "Director Plan). Under the Director Plan, the total number of
options outstanding at any one time cannot exceed five percent of the
Company's share capital. Pursuant to the Director Plan non-employee directors
receive i) at the effective date of their initial election to the Company's
board of directors, an option to purchase the number of Ordinary Shares equal
to $50,000 divided by the closing price of the Ordinary Shares on the American
Stock Exchange (the "AMEX") on such date, ii) at the close of business of each
annual meeting of the Company's shareholders, an option to purchase the number
of Ordinary Shares equal to $50,000 divided by the closing price of the
Ordinary Shares on the AMEX on such date, and iii) at the close of business of
each meeting of the Company's Board of Directors, an option valued at $3,000
calculated using the Black-Scholes option-pricing model to purchase Ordinary
Shares with an exercise price equal to that of the closing price of the
Ordinary Shares on the AMEX on such date. Options granted to a non-employee
director vest on the date of the grant and expire 10 years after the date of
the grant or one year after the date that such non-employee director ceases to
be a director of the Company. Options granted under the Director Plan are
transferable only in limited circumstances.
A summary of our company's stock options at December 31, 2000, 1999 and 1998
and changes during those years is presented in the following table:
2000 1999 1998
----------------------- ------------------------ ------------------------
Number of Average Price Number of Average Price Number of Average Price
Options Shares Per Share Shares Per Share Shares Per Share
------- --------- ------------- --------- ------------- --------- -------------
Outstanding beginning of
period................. 915,817 $9.98 626,571 $ 8.84 455,625 $ 8.00
Granted during period... 582,311 $9.79 358,847 $11.76 195,947 $10.69
Forfeited or expired
during period.......... -- -- (44,052) $ 8.97 -- $ --
Exercised during
period................. -- -- (25,549) $ 8.77 (25,001) $ 7.91
--------- ----- --------- ------ --------- ------
Outstanding end of
period................. 1,498,128 $9.91 915,817 $ 9.98 626,571 $ 8.84
========= ===== ========= ====== ========= ======
Exercisable at end of
period................. 713,602 563,898 391,222
Weighted average of fair
value of options
granted during period.. $1.76 $ 1.36 $ 1.98
Weighted average
remaining contractual
life................... 8.0 years 8.3 years 8.3 years
F-12
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
Options granted during 2000, 1999 and 1998 ranged in exercise price from
$9.13 to $11.63, $7.94 to $14.88 and $8.25 to $12.75 respectively.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company has accounted for its stock options
under the fair value method of SFAS No. 123. For purposes of calculating the
fair value of options, volatility for the three years presented is based on
the historical volatility of the Company's stock over its public trading life.
The Company currently does not foresee the payment of dividends in the near
term. The fair value for these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
Year ended Year ended Year ended
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Weighted average risk-free interest
rate............................... 6.21% 5.64% 5.55%
Volatility.......................... 40.50% 42.10% 48.10%
Expected dividend yield............. -- -- --
Weighted average expected life (in
years)............................. 2.83 2.73 2.53
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
Year ended Year ended Year ended
December December December 31,
31, 2000 31, 1999 1998
----------- ----------- ------------
As reported
Net loss.......................... $(7,400,529) $(7,979,032) $(11,029,570)
Net loss per Ordinary Share....... $ (0.21) $ (0.29) $ (0.42)
Pro forma
Net loss.......................... $(8,837,116) $(8,509,350) $(11,548,400)
Net loss per Ordinary Share....... $ (0.26) $ (0.31) $ (0.44)
In addition, on December 13, 2000, December 14, 1999 and December 15, 1998,
the Company issued 15,361, 15,542 (net of forfeitures) and 21,838 respectively
of its Ordinary Shares to employees as a portion of performance bonuses paid
during these years.
8. Related Party Transactions
Apex LDC engaged Tigris Financial Group Ltd. ("Tigris") to provide
management advisory services to Apex LDC and its subsidiaries. Tigris is
wholly owned by Mr. Thomas S. Kaplan, a director and officer of Apex LDC and a
director and shareholder of the Company. The consulting arrangement with
Tigris was terminated at the end of 1999. During the years ended December 31,
1999 and 1998 fees and reimbursed expenses paid to Tigris for such services
amounted to $20,495 and $39,637 respectively.
Two individuals, one of whom is an officer of a subsidiary and a shareholder
of the Company, the second of whom is an officer of certain of the Company's
subsidiaries, are shareholders and directors of Begeyge Minera Ltda.
("Begeyge"), from whom the Company has the right to purchase the Suyatal
Project in Honduras for an aggregate purchase price of $3,000,000.
F-13
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
9. Cash Flow Information
A reconciliation of net earnings to cash from operations is as follows:
For the
period
December 22,
1994
(inception)
Year ended Year ended Year ended through
December December December 31, December 31,
31, 2000 31, 1999 1998 2000
----------- ----------- ------------ ------------
Cash flows from operating
activities:
Net loss............... $(7,400,529) $(7,979,032) $(11,029,570) $(55,191,752)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Amortization and
depreciation........ 235,749 232,987 169,116 901,264
Minority interest in
loss of consolidated
subsidiary.......... -- -- -- (4,558,886)
Shares issued in
consideration for
services............ -- -- -- 1,524,545
Changes in operating
assets and
liabilities:
(Increase) decrease
in accrued interest
receivable.......... (153,140) 65,213 (23,920) (214,259)
(Increase) decrease
in prepaid expenses
and other assets.... (13,021) 896,137 (229,572) (314,506)
Increase in value
added tax
recoverable......... (1,213,561) (1,084,657) (1,374,799) (5,024,021)
(Increase) decrease
in amounts due from
affiliates.......... -- -- 722,717 --
Increase (decrease)
in accrued salaries,
wages & benefits.... 41,357 (36,692) 114,064 159,465
Increase (decrease)
in accounts
payable............. 305,587 (520,182) 205,331 330,075
Other increase
(decrease).......... 485,458 37,028 (16,500) 505,986
----------- ----------- ------------ ------------
Net cash used in
operating activities.... $(7,243,649) $(8,288,609) $(11,463,133) $(60,896,487)
=========== =========== ============ ============
10. Commitments and Contingencies
The Company has lease commitments associated with the corporate headquarters
office space as follows:
2001 2002 2003 2004 2005
Corporate headquarters office lease........ $187,987 $ -- $ -- $ -- $ --
Payments associated with this lease were recorded to rent expense by the
Company in the amounts of $203,759, $146,714 and $140,650 for the years ended
December 31, 2000, 1999 and 1998 respectively.
F-14
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
11. Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
receivables, value added tax recoverable, accounts payable, other current
liabilities and long-term debt. Except for the value added tax and long-term
debt, the carrying amounts of these financial instruments approximate fair
value due to their short maturities. The estimated fair values of the
Company's long-term financial instruments, as measured on December 31, 2000
and 1999, are as follows:
2000 1999
--------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Value added tax recoverable.... $5,024,021 $4,283,122 $3,810,460 $2,999,445
Notes payable.................. 1,896,396 1,532,900 3,137,368 2,402,260
The fair values of the value added tax recoverable and the long-term debt
are estimated based on the expected timing of future cash flows.
12. Segment Information
In 1998, the Company adopted SFAS 131, Disclosure about Segments of an
Enterprise and Related Information. The Company's sole activity is exploration
for and development of silver properties and, consequently, the Company has
only one operating segment--mining.
Substantially all of the Company's long-lived assets are in Bolivia.
13. Quarterly Results of Operations (Unaudited)
The following table summarizes our company's quarterly results of operations
for the years ended December 31, 2000 and 1999:
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
2000
- ----
Interest and other income......... $1,734,862 $1,421,052 $1,382,814 $1,113,282
Net loss for the period........... 723,296 1,888,071 2,148,069 2,641,093
Net loss per Ordinary Share--basic
and diluted...................... $ 0.02 $ 0.05 $ 0.06 $ 0.08
1999
- ----
Interest and other income......... $ 255,239 $ 233,348 $ 87,698 $ 537,262
Net loss for the period........... 2,439,552 2,087,444 2,230,055 1,221,981
Net loss per Ordinary Share--basic
and diluted...................... $ 0.09 $ 0.08 $ 0.08 $ 0.04
F-15