(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
51,849,241
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ Yes No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes þ No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934 from their obligations under those Sections.
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.
þ Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer þ | Non-accelerated filer |
| ||
Indicate by check mark which financial statement item the Registrant has elected to follow.
Item 17 þItem 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes No
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- iii -
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements concerning our operations and planned future acquisitions within the meaning of the safe harbor for such statements under the Private Securities Litigation Reform Act of 1995. Any statements that involve discussions with respect to predictions, expectations, belief, plans, projections, objectives, assumptions or future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, could”, “might”, or “will” be taken to occur or be achieved) are not statements of historical fact and may be “forward looking statements” and are intended to identify forward-looking statements, which include statements relating to, among other things, our ability to continue to successfully compete in its market. You are cautioned not to place undue reliance on forward looking statements. These forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time such statements were made. Forward lookingWe undertake no obligation to update forward-looking statements should circumstances or estimates or opinions change. Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward looking statements, including, without limitation,
uncertainty of production at our mineral exploration properties;
risks related to our ability to finance the failurecontinued exploration of our mineral properties;
risks related to no Proven Mineral Reserves or Probable Mineral Reserves;
our history of losses and expectation of future losses;
risks related to factors beyond our control;
risks and uncertainties associated with new mining operations;
risks related to our ability to obtain adequate financing on a timely basis and other for our planned development activities;
lack of infrastructure at our mineral exploration properties;
risks and uncertainties. uncertainties relating to the interpretation of drill results and the geology, grade and continuity of our mineral deposits;
unpredictable risks and hazards related to mining operations;
risks related to governmental regulations, including environmental regulations;
commodity price fluctuations;
our ability to attract and retain qualified personnel;
uncertainties related to title to our mineral properties;
risks related to reclamation activities on our properties;
risks related to political instability and unexpected regulator change;
currency fluctuations;
increased competition in the mining industry for properties and qualified personnel;
risks related to some of our directors and officers involvement with other natural resource companies;
enforcement of U.S. judgments and laws in Canada;
our ability to attract and retain qualified management;
our classification as a passive foreign investment company under the Internal Revenue Code.
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Actual results could differ materially from those projected in the forward-looking statements as a result of the matters set out or incorporated in this Annual Report generally and certain economic and business factors, some of which may be beyond our control. Some of the important risks and uncertainties that could effect forward looking statements as described further in this document under the headings “Risk Factors”, “History and Development of the Company”, “Business Overview”, “Descriptions of Properties” and “Operating and Financial Review and Prospects”.
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In this Annual Report, “we”, “us”, “our”, “Silver Standard”, “the Company” and “the Company”company” refer to Silver Standard Resources Inc., a company incorporated under theCompany Act (British(British Columbia), and its subsidiaries.
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- v -
GLOSSARY OF GEOLOGICAL TERMS
DEFINITIONS AND ABBREVIATIONS
alteration — - usually referring to chemical reactions in a rock mass resulting from the passage of hydrothermal fluids.
breccia — - rock consisting of more or less angular fragments in a matrix of finer-grained material or cementing material.
claim — - that portion of public mineral lands, which a party has staked or marked out in accordance with provincial or state mining laws, to acquire the right to explore for the minerals under the surface.
conglomerate — - rock composed of mostly rounded fragments which are of gravel size or larger in a finer grained matrix.
crystalline — - means the specimen is made up of one or more groups of crystals.
cut-off grade — - the minimum grade of mineralization that delimits mineralization that has a reasonable prospect of economic extraction from mineralization that does not have a reasonable prospect of economic extraction.
deposit - a natural occurrence of a useful mineral of sufficient extent and degree to invite exploitation.
dilution - results from the mixing in of unwanted gangue or waste rock with the ore during mining.
dolomite - a magnesium bearing limestone usually containing at least 15% magnesium carbonate.
dyke — - a tabular body of igneous rock that cuts across the structure of adjacent rocks or cuts massive rocks.
dilutionfault — results from the mixing in of unwanted gangue or waste rock with the ore during mining.
dolomite — a magnesium bearing limestone usually containing at least 15% magnesium carbonate.
fault — - a fracture in a rock where there has been displacement of the two sides.
feasibility studymeans a detailed study of a deposit in which all geological, engineering, operating, economic and other relevant factors are engineered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.
g/t — - grams per tonne.
gangue — - term used to describe worthless minerals or rock waste mixed in with the valuable minerals.
geophysics — - the study of the physical properties of rocks, minerals, and mineral deposits.
grade — - the concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit.
hectare — - a square of 100 metres on each side.
host rock — - the rock within which the ore deposit occurs.
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igneous — - means a rock formed by the cooling of molten silicate material.
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Indicated Mineral Resource — - is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
induced polarization method — - the method used to measure various electrical responses to the passage of alternating currents of different frequencies through near-surface rocks or to the passage of pulses of electricity.
Inferred Mineral Resource — - is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
intrusion — - general term for a body of igneous rock formed below the surface.
limestone — - sedimentary rock that is composed mostly of carbonates, the two most common of which are calcium and magnesium carbonates.
massive—- a geologic body more than 100 millimeters in thickness.
Measured Mineral Resource — - is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
Mineral Reserve —-is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined.This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
Mineral Resource- — is a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
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mineralization- vii -
mineralization — usually implies minerals of value occurring in rocks.
net profits interestroyalty —- a royalty based on the profit, allowing for costs directly related to production. The expenses that the operator deducts from revenue are defined in the royalty agreement. Payments generally begin after payback of capital costs. The royalty holder is not responsible for contributing to capital expenses, covering operating losses or environmental liabilities.
net smelter return–– means the amount actually paid to the mine or mill owner from the sale of ore, minerals and other materials or concentrates mined and removed from mineral properties. This type ofroyalty provides
net smelter return royalty– a royalty paid from cash flow that is free of any operating or capital costs and environmental liabilities.
outcrop — - means an exposure of rock at the earth’s surface.
porphyry– a rock with conspicuous large grains in a fine grained ground mass.
oz/ton — - ounces per ton.
plunge - the vertical angle between a horizontal plane and the line of maximum elongation of a body.
Preliminary Feasibility Study — - is a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established and where an effective method of mineral processing has been determined. This Study must includedetermined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, economic, social, and economicenvironmental factors and the evaluation of other relevant factors which are sufficient for a qualified personQualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
Probable Mineral Reserve — - is the economically mineable part of an Indicated and, in some circumstances, a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Studystudy must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
Proven Mineral Reserve — - is the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Studystudy must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.December 11, 2005.
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Qualified Person– means an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; has experience relevant to the subject matter of the mineral project and the technical report; and is a member or licensee in good standing of a professional association.
reclamation bond – a financial instrument or cash usually required when mechanized work is contemplated on a mineral claim. The bond may be used to reclaim any workings or put right any damage, if the reclamation of the mineral claim does not satisfy the requirements of the regulations.
sedimentary — - a rock formed from cemented or compacted sediments.
sediments — - are composed of the debris resulting from the weathering and breakup of other rocks that have been deposited by or carried to the oceans by rivers, or left over from glacial erosion or sometimes from wind action.
sericite- viii -
sericite — a fine-grained variety of mica occurring in small scales, especially in schists.
shear zone — - where a fault affects a width of rock rather than being a single clean break, the width of affected rock is referred to as the shear zone. The term implies movement, i.e. shearing.
silicate — - most rocks are made up of a small number of silicate minerals ranging from quartz (SiO2) to more complex minerals such as orthoclase feldspar (KAlSi3O8) or hornblende (Ca2Na(Mg,Fe)4(Al,Fe,Ti)Si8)22(OH)2).
sill — - tabular intrusion which is sandwiched between layers in the host rock.
stockwork – a mineral deposit consisting of a three-dimensional network of closely spaced planar or irregular veinlets.
sulphide –- a mineral compound characterized by the linkage of sulphur with a metal.
tailings — - material rejected from a mill after recoverable valuable minerals have been extracted.
tailings pond — - a pond in which tailings are disposed.
tuff — - a finer grained pyroclastic rock made up mostly of ash and other fine grained volcanic material.
veins — - the mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.
waste — - rock which is not ore. Usually referred to that rock which has to be removed during the normal course of mining in order to get at the ore.
All disclosure about our exploration properties in this Annual Report conforms to the standards of United States Securities and Exchange Commission Industry Guide 7,Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, other than disclosure of “Mineral Resources”, “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources”, which are Canadian geological and mining terms as defined in accordance with Canadian National Instrument 43-101 under the guidelines set out in the CIM Standards.
In this Annual Report references to “Canadian “CanadianNational Instrument 43-101”43-101” are references to National Instrument 43-101, Standards of Disclosure for Mineral Projects, of the Canadian Securities Administrators and references to “CIM Standards”“CIM Standards” are references to Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council on August 20, 2000December 11, 2005 as may be amended from time to time by the CIM.
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Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources and Indicated Mineral Resources.
This Annual Report uses the terms “Measured Mineral Resource” and “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them.U.S. investors are cautioned not to assume that any part or all of the Mineral Resources in these categories will ever be converted into Mineral Reserves.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
This Annual Report uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
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- x -
PART I
Item 1 | Identity of Directors, Senior Management and Advisers |
A. Directors and Senior Management This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as such, there is no requirement to provide any information under this item. B. Advisers This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item. C. Auditors This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item. Item 2 Offer Statistics and Expected Timetable This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item. Item 3 Key Information A. Selected Financial Data The following table summarizes certain of our selected financial data. This information should be read in conjunction with the more detailed financial statements included in this Annual Report. Table No. 1 Selected Financial Data (expressed in thousands of Canadian dollars, except per share and number of shares data) Year ended Year ended Dec 31, 2004 Year ended Dec 31, 2003 Year ended Dec 31, 2002 Year ended Dec 31, 2001 1. Revenues Nil Nil Nil Nil Nil 2. Loss for period(1) $5,870 $1,518 $3,938 $2,198 $3,377 3. Loss per common share(1) $0.11 $0.03 $0.10 $0.06 $0.13 4. Total assets $219,288 $217,457 $92,812 $81,096 $48,685 5. Long term obligations and redeemable preferred stock(2) $Nil $Nil $75 $249 $143 6. Share capital $219,971 $217,502 $113,537 $99,510 $66,108 7. Cash dividends per common share Nil Nil Nil Nil Nil 8. Number of shares 51,849,241 51,576,802 42,604,832 39,190,887 30,913,953 (1) All of our operations are continuing. (2) No preferred stock has been issued. (3) Certain comparative figures have been restated including amounts relating to future income tax liabilities by increasing mineral property costs and future income tax liabilities. -1- The selected financial data is presented in Table 1 above and in the financial statements in accordance with generally accepted accounting principles (“GAAP”) prevailing in Canada as of the dates shown. The selected financial data under U.S. GAAP for the above periods is indicated below in Table 2: Table No. 2 Selected Financial Data (expressed in thousands of Canadian dollars, except per share and number of shares data) Year ended Dec 31, 2005 Year ended Dec 31, 2004 Year ended Dec 31, 2003 Year ended Dec 31, 2002 Year ended Dec 31, 2001 1. Revenues Nil Nil Nil Nil Nil 2. Loss for period(1) $26,581 $61,680 $14,099 $19,282 $15,317 3. Loss per common share(1) $0.51 $1.28 $0.35 $0.54 $0.58 4. Total assets $57,865 $69,718 $26,993 $19,463 $6,163 5. Long term obligations and redeemable preferred stock(2) $Nil Nil $75 $249 $143 6. Share capital $218,773 $216,875 $113,706 $99,679 $66,603 7. Cash dividends per common share Nil Nil Nil Nil Nil 8. Number of shares 51,849,241 51,576,802 42,604,832 39,190,887 30,913,953 (1) All of our operations are continuing. (2) No preferred stock has been issued. (3) Certain comparative figures have been restated. -2 - Reference should be made to note U.S./Canadian Dollar Exchange RatesItem 1 Identity of Directors, Senior Management and AdvisersA. Directors and Senior Management Advisers AuditorsItem 2 Offer Statistics and Expected Timetable Key InformationA. Selected Financial Data Year ended
Dec 31, 2003Year ended
Dec 31, 2002Year ended
Dec 31, 2001Year ended
Dec 31, 2000Year ended
Dec 31, 19991. Revenues Nil Nil Nil Nil Nil 2. Loss for period* $3,938 $2,198 $3,377 $1,705 $1,264 3. Loss per common share* $0.10 $0.06 $0.13 $0.08 $0.07 4. Total assets $85,213 $74,748 $45,399 $31,070 $26,655 5. Long term
obligations and
redeemable preferred stock**$75 $249 $143 $165 Nil 6. Capital stock $113,537 $99,510 $66,108 $52,078 $46,120 7. Cash dividends
per common shareNil Nil Nil Nil Nil 8. Number of shares $42,604,832 $39,190,887 $30,913,953 $24,266,458 $20,438,047
Dec 31, 2005
Restated(3)
Restated(3)
Restated(3)
Restated(3)* All of our operations are continuing.** No preferred stock has been issued.- 1 -
Restated(3) Year ended
Dec 31, 2003
restatedYear ended
Dec 31, 2002
restatedYear ended
Dec 31, 2001
restatedYear ended
Dec 31, 2000
restatedYear ended
Dec 31, 1999
restated1. Revenues Nil Nil Nil Nil $30 2. Loss for period* $14,099 $19,282 $15,317 $5,777 $8,672 3 Loss per common share* $0.35 $0.54 $0.58 $0.26 $0.49 4 Total assets $26,993 $19,463 $6,163 $3,765 $3,434 5. Long term
obligations and
redeemable preferred stock**$75 $249 $143 $165 Nil 6. Capital stock $113,706 $99,679 $66,603 $52,247 $46,289 7. Cash dividends
per common shareNil Nil Nil Nil Nil 8. Number of shares $42,604.832 $39,190,887 $30,913,953 $24,266,458 $20,438,047 * All of our operations are continuing.** No preferred stock has been issued.1819 to the consolidated financial statements for a description of material differences between Canadian and U.S. GAAP.- 2 -
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars (Cdn$). The Government of Canada permits a floating exchange rate to determine the value of the Canadian dollar against the U.S. dollar (US$). In this Annual Report all references to “$” and “Cdn$” refer to Canadian Dollars, all references to “US$” refer to United States Dollars and all references to “A$” refer to Australian Dollars.
Table No. 3 below sets out the rate of exchange for the Canadian dollar at December 31, 2005, December 31, 2004, December 31, 2003, December 31, 2002 December 31, 2001, December 31, 2000 and December 31, 1999,2001, the average rates for the period, and the range of high and low rates for the period. Table No. 4 sets out the high and low rates of exchange for the Canadian dollar for each month during the previous six months.
For purposes of these tables, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The tables set out the number of Canadian dollars required under that formula to buy one U.S. dollar. The average rate in Table No. 3 means the average of the exchange rates on the last day of each month during the period.
Table No. 3
U.S. Dollar/Canadian Dollar Exchange Rates for Five Most Recent Financial Years
Average | High | Low | Close | |||||
| Average | High | Low | Close | |||||
Fiscal Year Ended December 31, 2005 | 1.21 | 1.27 | 1.15 | 1.17 | ||||
Fiscal Year Ended December 31, 2004 | 1.30 | 1.40 | 1.18 | 1.20 | ||||
| Fiscal Year Ended December 31, 2003 | 1.40 | 1.58 | 1.29 | 1.40 | 1.58 | 1.29 | 1.29 | |
| Fiscal Year Ended December 31, 2002 | 1.57 | 1.61 | 1.51 | 1.58 | 1.57 | 1.61 | 1.51 | 1.58 |
| Fiscal Year Ended December 31, 2001 | 1.55 | 1.60 | 1.49 | 1.59 | 1.55 | 1.60 | 1.49 | 1.59 |
| Fiscal Year Ended December 31, 2000 | 1.48 | 1.56 | 1.43 | 1.52 | ||||
| Fiscal Year Ended December 31, 1999 | 1.49 | 1.54 | 1.44 | 1.47 | ||||
Table No. 4
U.S. Dollar/Canadian Dollar Exchange Rates for Previous Six Months
| November | December | January | February | March | April | |||||||
September | October | November | December | January | February | |||||||
| High | 1.32 | 1.30 | 1.34 | 1.33 | 1.37 | 1.18 | 1.19 | 1.20 | 1.17 | 1.17 | 1.16 | |
| Low | 1.31 | 1.29 | 1.32 | 1.30 | 1.16 | 1.17 | 1.15 | 1.14 | ||||
On April 30, 2004,March 29, 2006, the exchange rate of Canadian dollars into United States dollars, based upon the noon buying rate in New York City for cable transfers payable in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York, was US$1.01.00 equals Cdn$1.37.1.17.
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B. Capitalization and IndebtednessTable of Contents
B. | Capitalization and Indebtedness |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
C. | Reasons for the Offer and Use of Proceeds |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
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D. | Risk Factors |
D. Risk Factors
Our exploration programs may not result in a commercial mining operation.
Mineral exploration involves significant risk because few properties that are explored contain bodies of ore that would be commercially economic to develop into producing mines. Our mineral properties are without a known body of commercial ore and our proposed programs are an exploratory search for ore. We do not know whethercannot provide any assurance that our current exploration programs will result in any commercial mining operation. If the exploration programs do not result in the discovery of commercial ore, we will be required to acquire additional properties and write-off all of our investments in our existing properties.
We may not have sufficient funds to complete further exploration programs.
We have limited financial resources (working capital of approximately $40.344 million at December 31, 2005), do not generate operating revenue, and must finance our exploration activity by other means.means, including financing through joint ventures, debt financing or equity financing. We do not know whethercannot provide any assurance that additional funding will be available for further exploration of our projects or to fulfil our anticipated obligations under our existing property agreements. If we fail to obtain additional financing, we will have to delay or cancel further exploration of our properties, and we could lose all of our interest in our properties.
We do not have Proven Mineral Reserves or Probable Mineral Reserves.
We have not established the presence of any Proven Mineral Reserves or Probable Mineral Reserves at any of our mineral properties. We cannot provide any assurance that future feasibility studies will establish Proven Mineral Reserves or Probable Mineral Reserves at our properties. The failure to establish Proven Mineral Reserves or Probable Mineral Reserves could restrict our ability to successfully implement our strategies for long-term growth.
We have a history of losses and expect to incur losses for the foreseeable future.
We have incurred losses during each of the following periods and expect to incur losses for the foreseeable future:
$5.870 million for the year ended December 31, 2005;
$1.518 million for the year ended December 31, 2004;
$3.938 million for the year ended December 31, 2003;
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$2.198 million for the year ended December 31, 2002; and
$3.377 million for the year ended December 31, 2001.
As of December 31, 2005, we had an accumulated deficit of $43.524 million. We expect to continue to incur losses unless and until such time as one or more of our properties enter into commercial production and generate sufficient revenues to fund our continuing operations. If our exploration programs successfully locate an economic ore body, we will be subject to additional risks associated with mining including those set out inthis Item 3.D – “Risk Factors” under the heading “We have no revenue from operations and no ongoing mining operations of any kind.”
Factors beyond our control may determine whether any mineral deposits we discover are sufficiently economic to be developed into a mine.
The determination of whether our mineral deposits are economic is affected by numerous factors beyond our control. These factors include:
the metallurgy of the mineralization forming the mineral deposit;
market fluctuations for precious metals;
the proximity and capacity of natural resource markets and processing equipment; and
government regulations governing prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.
We have no revenue from operations and no ongoing mining operations of any kind.
We are a mineral exploration company and have no revenues from operations and no ongoing mining operations of any kind. Our properties are in the exploration stage, and we have not defined or delineated any proven or probable reserves on any of our properties. If our exploration programs successfully locate an economic ore body, we will be subject to additional risks associated with mining:
We will require additional funds to place the ore body into commercial production. Substantial expenditures will be required to:
establish ore reserves through drilling;
develop metallurgical processes to extract the metals from the ore; and
construct the mining and processing facilities at any site chosen for mining.
The sources of external financing that we may use for these purposes include public or private offerings of debt, convertible notes and equity. In addition, we may enter into one or more strategic alliances and may utilize one or a combination of all these alternatives. We cannot provide any assurance that the financing alternative chosen by us will be available on acceptable terms, or at all. If additional financing is not available, we may have to postpone the development of, or sell, the property.
The majority of our property interests are not located in developed areas and as a result may not be served by appropriate
road access;
water and power supply; and
other support infrastructure.
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These items are often needed for development of a commercial mine. If we cannot procure or develop roads, water, power and other infrastructure at a reasonable cost, it may not be economic to develop properties, where our exploration has otherwise been successful, into a commercial mining operation.
In making determinations about whether to proceed to the next stage of development, we must rely upon estimated calculations as to the mineral reserves and grades of mineralization on our properties. Until ore is actually mined and processed, mineral reserves and grades of
mineralization must be considered as estimates only. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling which may prove to be unreliable. We cannot provide any assurance that:
these estimates will be accurate;
resource or other mineralization figures will be accurate; or
this mineralization can be mined or processed profitably.
Any material changes in mineral reserve estimates and grades of mineralization will affect the economic viability of the placing of a property into production and a property’s return on capital.
Our resource estimates have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for silver, gold, tin, zinc, lead and copper may render portions of our mineralization uneconomic and result in reduced reported mineralization. Any material reductions in estimates of mineralization, or of our ability to extract this mineralization, could have a material adverse effect on our results of operations or financial condition. We cannot provide any assurance that minerals recovered in small scale tests will be duplicated in large scale tests under on-site conditions or in production scale.
Mining operations often encounter unpredictable risks and hazards that add expense or cause delay. These include:
unusual or unexpected geological formations;
metallurgical and other processing problems;
metal losses;
environmental hazards;
power outages;
labour disruptions;
industrial accidents;
periodic interruptions due to inclement or hazardous weather conditions;
flooding, explosions, fire, rockbursts, cave-ins, landslides, and;
inability to obtain suitable or adequate machinery, equipment or labour.
We may become subject to liabilities in connection with:
pollution;
cave-ins; or
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hazards against which we cannot insure against or which we may elect not to insure.
The payment of these liabilities could require the use of financial resources that would otherwise be spent on mining operations.
Mining operations and exploration activities are subject to national and local laws and regulations governing:
prospecting, development, mining and production;
exports and taxes;
labour standards, occupational health and mine safety;
waste disposal, toxic substances, land use and environmental protection.
In order to comply, we may be required to make capital and operating expenditures or to close an operation until a particular problem is remedied. In addition, if our activities violate any such laws and regulations, we may be required to compensate those suffering loss or damage, and may be fined if convicted of an offence under such legislation.
Our profitability and long-term viability will depend, in large part, on the market price of silver, gold, tin, zinc, lead and copper. 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, gold, tin, zinc, lead and copper;
speculative activities;
expectations for inflation; and
political and economic conditions.
We cannot predict the effect of these factors on metals prices.
In order to bring our mineral properties into production 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 effectively attract and retain additional qualified personnel to manage our anticipated growth. The failure to attract such qualified personnel to manage growth effectively could have a material adverse effect on our business, financial condition and results of operations.
We are subject to significant governmental regulations.
Our exploration activities are subject to extensive federal, state, provincial, territorial and local laws and regulations governing various matters, including:
environmental protection;
management and use of toxic substances and explosives;
management of natural resources;
exploration of mineral properties;
exports;
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- 4 -
- 5 -
price controls;
taxation;
labor standards and occupational health and safety, including mine safety; and
historic and cultural preservation.
Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which could result in significant expenditures. We may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of our activities and delays in the exploration of our properties.
Our properties may be subject to uncertain title.
We own, lease or have under option, unpatented and patented mining claims, mineral claims or concessions which constitute our property holdings. The ownership and validity, or title, of unpatented mining claims and concessions are often uncertain and may be contested. We have not conducted surveys of all of the claims in which we hold direct or indirect interests. A successful claim contesting our title to a property will cause us to lose our rights to explore and, if warranted, develop that property. This could result in our not being compensated for our prior expenditures relating to the property.
Land reclamation requirements for our exploration properties may be burdensome.
Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance. Reclamation may include requirements to:
control dispersion of potentially deleterious effluents; and
reasonably re-establish pre-disturbance land forms and vegetation.
In order to carry out reclamation obligations imposed on us in connection with our mineral exploration, we must allocate financial resources that might otherwise be spent on further exploration programs.
Political or economic instability or unexpected regulatory change in the countries where our properties are located could adversely affect our business.
Certain of our properties are located in countries, provinces and states more likely to be subject to political and economic instability, or unexpected legislative change, than is usually the case in certain other countries, provinces and states. Our mineral exploration activities could be adversely affected by:
political instability and violence;
war and civil disturbance;
expropriation or nationalization;
changing fiscal regimes;
fluctuations in currency exchange rates;
high rates of inflation;
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- 6 -
underdeveloped industrial and economic infrastructure; and
unenforceability of contractual rights;
any of which may adversely affect our business in that country.
We may be adversely affected by fluctuations in foreign exchange rates.
We maintain our bank accounts mainly in Canadian and U.S. dollars. Any appreciation in the currencies of Argentina, Australia, Chile, Mexico or other countries where we carryout exploration activities against the Canadian or U.S. dollar will increase our costs of carrying out operations in such countries. In addition, any decrease in the U.S. dollar against the Canadian dollar will result in a loss on our books to the extent we hold funds in U.S. dollars.
We face industry competition in the acquisition of exploration properties and the recruitment and retention of qualified personnel.
We compete with other exploration companies, many of which have greater financial resources than us or are further in their development, for the acquisition of mineral claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees and other personnel. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs and supplies. If we require and are unsuccessful in acquiring additional mineral properties or personnel, we will not be able to grow at the rate we desire or at all.
Some of our directors and officers have conflicts of interest as a result of their involvement with other natural resource companies.
Some our directors and officers are directors or officers of other natural resource or mining-related companies such as, at present, Mr. Quartermain who serves as a director and officer of Radiant Resources Inc. (formerly Pacific Sapphire Company Ltd.) and as a director of Canplats Resources Corporation, IAMGold Corporation, (formerly Repadre Capital Corporation), Vista Gold Corporation, Paso Rico Resources Ltd., Esperanzaand Minco Silver Corporation (formerly Reliant Ventures Ltd.) and Strathmore Minerals Corp.Corporation. These associations may give rise to conflicts of interest from time to time. As a result of these conflicts of interest, we may miss the opportunity to participate in certain transactions, which may have a material, adverse effect on our financial position.
Enforcement of judgments or bringing actions outside the United States against us and our directors and officers may be difficult.
We are organized under the law of and headquartered in British Columbia, Canada, and none of our directors and officers are citizens or residents of the United States.States, other than our Vice President, Project Development. In addition, a substantial part of our assets are located outside the United States and Canada. As a result, it may be difficult or impossible for an investor to (a) enforce in courts outside the United States judgments against us and our directors and officers obtained in United States’ courts based upon the civil liability provisions of United States’ federal securities laws or (b) bring in courts outside the United States an original action against us and our directors and officers to enforce liabilities based upon such United States’ securities laws.
Item 4 InformationWe may experience difficulty attracting and retaining qualified management to grow our business, which could have a material adverse effect on our business and financial condition.
We are dependent on the Companyservices of key executives including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for our activities may have a material adverse effect on our business and financial condition.
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A. HistoryUnder U.S. federal tax rules, we may be classified as a passive foreign investment company (a “PFIC”), which may result in special and Developmentgenerally unfavorable U.S. federal tax consequences to our U.S. shareholders.
As a non-U.S. corporation, we may be a PFIC depending on the percentage of our gross income which is “passive”, within the meaning of the U.S. Internal Revenue Code of 1986, as amended, or the percentage of our assets that produce or are held to produce passive income. We were a PFIC in our 2005 taxable year, and we may be a PFIC in subsequent taxable years. If we are a PFIC for any taxable year during a U.S. shareholder’s holding period in our common stock, such U.S. shareholder may be subject to increased U.S. federal income tax liability on the sale of common shares or on the receipt of dividends. See Item 10.E – “Taxation”. The PFIC rules are complex and may be unfamiliar to U.S. shareholders. Accordingly, U.S. shareholders are urged to consult their own tax advisors concerning the application of the PFIC rules to their investment in our common shares.
Item 4 | Information on the Company |
A. | History and Development of the Company |
General Background
General Background
We were incorporated in British Columbia, Canada, on December 11, 1946 under the name “Silver Standard Mines, Limited (NPL)” and changed our name to “Silver Standard Mines Limited” on July 18, 1979. We changed our name to “Consolidated Silver Standard Mines Limited” and consolidated our common stock on a 1-for-5 basis on August 9, 1984. All references to the number of shares or per share data in this Annual Report refer to consolidated shares/data, unless otherwise indicated. We changed our name to “Silver Standard Resources Inc.” on April 9, 1990.
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On May 12, 2005, our shareholders adopted new articles as required by the new British ColumbiaTableBusiness Corporations Actand authorized an increase in our authorized capital from 100,000,000 common shares without par value to an unlimited number of Contentscommon shares without par value.
Our head office and registered and records office is located at: Suite 1180 —- 999 West Hastings Street, Vancouver, British Columbia, Canada V6C 2W2. The contact person is Robert A. Quartermain, President. The telephone number is (604) 689-3846; the facsimile number is (604) 689-3847. We do not have a registered agent in the United States.
In June 2003, our wholly owned subsidiary MaverickMarch 2005, we entered into an agreement with Esperanza Silver Inc. acquired from Vista Gold Corporation and Vista Nevada Corp. an option to acquire a 55% interest in(“Esperanza”) for the Maverick Springs Projectevaluation of mineral prospects located in northern Nevada, representing all of the silver resources hosted in the project.central Peru. See Item 4.B —- “Business Overview”.
In June 2003,September 2005, we acquired from Northern Hemisphere Development Corp. and Aber Diamond Corporationentered into a 100% interest injoint venture agreement with Esperanza for the Sunrise Lake deposit located in Canada’s Northwest Territories.exploration of the San Luis Project. See Item 4.B —- “Business Overview”.
In August 2003,November 2005, we exercised our optionannounced agreements with Mexicana del Arco, S.A. de C.V. and Industrial Minera Mexico, S.A. de C.V. to acquire a 100% interest in the Challocollo projectVeta Colorada Project located in Region One of Northern Chile. See Item 4.B — “Business Overview”.
In October 2003, we announced a new silver discovery at our 100% owned La Pitarrilla property in DurangoChihuahua State, Mexico. See Item 4.B —- “Business Overview”.
In February 2004,January 2006, we exercisedcompleted the acquisition of all of the shares of Sociedad Minera Berenguela S.A., the holder of the rights to the Berenguela Project located in Peru. See Item 4.B - “Business Overview”.
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In March 2006, we entered into an agreement with Pan American Silver Corp. (“Pan American”) to sell our option to acquire a 100%50% interest in the San Marcial SilverManantial Espejo Project located in Mexico.Argentina to Pan American. See Item 4.B —- “Business Overview”.
In March 2004, we acquired from Sociedad Minera Berenguela S.A. and Fossores Ltd. an option to acquire all of the silver resources contained in the Berenguela project in Peru and all of the data for the project. See Item 4.B — “Business Overview”.
In this Annual Report all references to “$” and “Cdn$” refer to Canadian Dollars and all references to “US$” refer to United States Dollars.
The information contained in this Annual Report is current as at December 31, 2003,2005, other than where a different date is specified.
B. | Business Overview |
B. Business Overview
All disclosure about our exploration properties in this Annual Report conforms to the standards of United States Securities and Exchange Commission Industry Guide 7,Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, other than disclosure of “Mineral Resources”, “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources”, which are geological and mining terms as defined in accordance with Canadian National Instrument 43-101 under the guidelines set out in the CIM Standards. U.S. investors in particular are advised to read carefully the definitions of these terms as well as the explanatory and cautionary notes in the Glossary, and the cautionary notes below, regarding use of these terms.
We are engaged in the exploration of silver properties in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States and the acquisition of silver properties, if warranted, throughout the world. We are an exploration stage company and none of our properties are currently beyond the advanced exploration stage. There is no assurance that a commercially viable mineral deposit exists on any of our properties and further exploration work may be required before a final evaluation as to the economic and legal feasibility is determined. For further information, see Item 3.D – “Risk Factors”.
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We have fivetwo principal mineral property interests: (1) the Pirquitas Project in the Province of Jujuy, Argentina and (2) the Pitarrilla Project in Durango State, Mexico. We have four secondary mineral property interests: the Bowdens Project in Australia, the Shafter Silver Project in Texas, U.S.A., a 50% interest (which may be increased to 80% by funding certain expenditures) in the San Luis Project located in the Ancash Department of Peru and a 50% interest in the Manantial Espejo Project in the Province of Santa Cruz, Argentina (2) the Bowdens Silver Project in the Mudgee District of Australia, (3) a 43.4%(which interest in the Pirquitas Project in the Province of Jujuy, Argentina, (4) La Pitarrilla in Durango State, Mexico and (5) the Shafter Silver Project in Texas, U.S.A.we have agreed to sell to Pan American, see Item 4.B - “Business Overview - Secondary Properties”). We also have eight secondary properties: the Challacollo Silver Project in Chile,nine tertiary mineral property interests: the Diablillos Project in Argentina, an optionthe Berenguela Project in Peru, the right to acquire the Veta Colorada Project in Mexico, the Challacollo Project in Chile, a 55% interest in the Maverick Springs Project in northern Nevada, U.S.A., an option to acquire all of the in-ground silver at the Berenguela Project in Peru, the San Marcial Silver Project in Mexico, the San Agustin Property in Durango State, Mexico, the Silvertip Property in northern British Columbia, Canada and the Sunrise Lake Deposit in the Northwest Territories, Canada; andCanada. We also have two long-term properties:property interests: the Candelaria Minemine in west central Nevada, U.S.A. and the Sulphurets Project in British Columbia, Canada. WeIn categorizing our projects, we consider, among other things, the priority of the project for the ensuing year, proposed expenditures in respect of the project for the ensuing year and the stage of exploration of the project.
In addition, we have severalformed a strategic alliance with Minco to jointly pursue silver opportunities in China, an agreement with Esperanza for the evaluation of mineral prospects in central Peru and a number of other property holdings in Argentina, Australia, Canada, Chile, Mexico Chile and Canada,the United States, which are not considered principal, secondary or long-term properties.
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Principal Properties
Pirquitas Project
Under an agreement dated June 21, 2002, we acquired from Stonehill Institutional Partners, L.P., Stonehill Offshore Partners Limited and Stonehill Capital Management, LLC a 43.4% interest in Sunshine Argentina, Inc., a Delaware corporation, the holder of the rights to the Pirquitas Project located in the Province of Jujuy, Argentina. The total purchase price for the 43.4% interest was:
the payment at closing of US$3,000,000 in cash; and
the issuance of a US$1,340,000 convertible debenture, with a term of one year, exercise price of Cdn$5.80 per share and interest rate of 10% per annum.
The debenture was fully converted by the holder by December 31, 2002 into 360,636 common shares in our capital. At the time of the acquisition of 43.4% interest in Sunshine Argentina, Inc., we became the operator of the Pirquitas Project
Under an agreement dated October 20, 2004, we acquired from Elliott International L.P., The Liverpool Limited Partnership and Highwood Partners, L.P. a 56.6% interest in Sunshine Argentina, Inc., for a 100% total interest, on the issuance of 2.663 million common shares in our capital.
We currently own 100% of the issued and outstanding shares in the capital of Sunshine Argentina, Inc. for a 100% interest in the Pirquitas Project.
Pitarrilla Project
We acquired by staking the original mineral claim covering the Pitarrilla Project in November 2002, acquired two contiguous claims by staking in 2003 and 2004 and applied for a fourth contiguous claim by staking in 2005. In addition, in 2004/2005 we acquired two adjoining claims, the Pena and Pena 1 claims, on payment of US$300,000 and a third adjoining claim, the America claim, on payment of US$250,000. We have agreed to pay the following finder’s fee to La Cuesta International, Inc. in respect of our acquisition of the Pitarrilla Project:
US$5,000 in cash following the staking of the property (paid);
the greater of (i) US$5,000 and (ii) 2% of our direct exploration expenditures on the Property, payable every six months; and
a 0.25% net smelter returns royalty applicable to all gold and silver produced from the property;
provided that the maximum amount payable in respect of the finder’s fee is an aggregate of US$500,000.
We currently own a 100% interest in the Pitarrilla Project, subject to the above described finder’s fee capped at US$500,000.
Secondary Properties
Bowdens Project
We entered into an agreement on December 23, 1996 with Golden Shamrock Mines Limited as amended by an amending agreement dated August 4, 1997, to acquire all of the issued shares of GSM Exploration Pty Limited (“GSM Exploration”) (now known as Silver Standard Australia Pty Limited) at a cost of US$6,712,845. The acquisition of the shares of GSM Exploration was completed on August 22, 1997.
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At the time, the only asset of GSM Exploration was the Bowdens Project located in New South Wales, Australia, which it acquired from CRA Exploration Pty Limited (“CRA Exploration”) (now known as Rio Tinto Exploration Pty Limited) pursuant to the terms of a tenement sale agreement dated August 11, 1994. Under the terms of the tenement sale agreement, CRA Exploration had the right, among other things, to:
receive a payment of A$1,429,397 on GSM Exploration making a decision to mine in respect of the Bowdens Project;
reacquire up to a 51% interest in the Bowdens Project in the event gold and silver resources are delineated on the Bowdens Project in excess of A$800,000,000 or base metal resources are delineated on the Bowdens Project in excess of A$3,000,000,000 within the six month period following the decision to mine; and
reacquire a 100% interest in the Bowdens Project at no cost in the event GSM Exploration did not make a decision to mine in respect of the Bowdens Project by August 11, 1999.
On July 31, 1997, prior to completing the acquisition of the shares of GSM Exploration, we entered into an agreement with CRA Exploration under which CRA Exploration agreed to release all of its rights to reacquire an interest in the Bowdens Project in return for:
the issuance of 160,000 of our common shares (which have since been issued);
the payment of A$1,500,000 on the commencement of commercial production on the Bowdens Project; and
the granting of a royalty of 2% of net smelter returns reducing to 1% of net smelter returns after the payment of US$5,000,000 in royalties.
Accordingly, with the completion of the acquisition of the shares of GSM Exploration and the signing of the agreement with CRA Exploration, we own the following interest in the Bowdens Project:
100% of the shares of GSM Exploration for a 100% interest in the Bowdens Project;
subject to the rights of CRA Exploration to receive:
payment of A$1,500,000 on the commencement of commercial production on the Bowdens Project; and
a royalty of 2% of net smelter returns reducing to 1% of net smelter returns after the payment of US$5,000,000 in royalties.
Shafter Silver Project
On September 19, 2000 we entered into an agreement with SSR Acquisition, Inc. (our wholly-owned subsidiary), Coastal Capital Partners L.P., John H. Bailey, Peter Galli, Carolyn E. Galli, Mark Fidler, Kathleen Fidler and David Fraser. Under the agreement, we acquired 91.8% of the issued shares of Silver Assets, Inc. in consideration of the payment of US$0.00654 per share for a total purchase price of US$599,305.15. On November 9, 2000, a short-form merger between SSR Acquisition, Inc. and Silver Assets, Inc. was effected (under the laws of the State of California), under which we acquired the remaining issued shares of Silver Assets, Inc. for US$0.00654 per share. The purchase price for 100% of the issued shares of Silver Assets, Inc. was US$693,601 (Cdn$1,024,293).
At the time of our acquisition of Silver Assets, Inc., its sole asset was a 90.56% interest in Rio Grande Mining Company (“Rio Grande”), the holder of the Shafter Silver Project located near Shafter, Texas. On February 4, 2002, the Nevada Secretary of State accepted a filing document that effected our acquisition of the remaining 9.44% outstanding minority stockholdings in Rio Grande. The cost of acquiring the minority stockholding was US$55,053 and is to be paid out over time as shares are surrendered. In late 2005, US$49,000 in unclaimed minority stockholding interests were remitted to states of last known residence in settlement of our obligations for the minority stock holdings of Rio Grande.
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Prior to our acquisition Silver Assets, Inc. and Rio Grande, Rio Grande purchased all of the “major” outstanding royalties on metal production from the Shafter Silver Project. One of these royalties was a 6.25 percent net smelter return royalty payable to Cyprus Amax out of future mining revenues, which Rio Grande purchased from Cyprus Amax for $50,000 cash and a $475,000 note. Following our acquisition of Silver Assets, Inc.:
we made the final payment of US$75,000 plus interest due to Cypress Amax under the US$475,000 note; and
we acquired one of the two remaining royalties on metal production from the Shafter Silver Project of 6.5% on the Chavez-Miller portion of the property, covering an area of approximately 137.4 hectares, for US$117,500.
The only remaining material royalty on metal production from the Shafter Silver Project is a 6.25% royalty on a narrow strip of land, covering an area of 10 acres, leased from the State of Texas that contains only a minor amount of the Mineral Resource.
With the acquisition of the minority stockholdings in Silver Assets, Inc. and Rio Grande, we own a 100% interest in the Shafter Silver Project, subject to the above described royalty payable to the State of Texas.
San Luis Project
On March 22, 2005, we entered into an agreement with Esperanza for the evaluation of mineral prospects in central Peru. Under the evaluation agreement,
we agreed to contribute US$300,000; and
Esperanza agreed to contribute US$200,000 and certain know-how;
to carry out agreed upon evaluation programs for mineral prospects, with Esperanza acting as operator. In the event Esperanza acquires or proposes to acquire any mineral property as a result of an evaluation program, we may elect to enter into a joint venture with Esperanza for the exploration of the mineral property on the following terms:
we will initially hold a 50% interest in the joint venture and Esperanza will initially hold a 50% interest in the joint venture;
we may elect on the formation of the joint venture to increase our interest in the joint venture to 55% by funding the first US$500,000 in exploration expenditures;
once we incur the first US$500,000 in exploration expenditures or, if we do not elect to increase our interest to 55%, following the formation of the joint venture, we will incur with Esperanza US$1.5 million in exploration expenditures in proportion to our respective interests in the joint venture;
once we incur with Esperanza US$1.5 million in exploration expenditures, we may elect to increase our interest in the joint venture to 70% by paying all costs required to be incurred to complete a feasibility study; and
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if we elect to increase our interest to 70% by completing a feasibility study, on completion of the feasibility study we may elect to increase our interest in the joint venture to 80% by paying all costs required to be incurred to place the property into commercial production.
In August 2005, Esperanza advised us of the acquisition of certain mineral concessions, known as the San Luis Project, as the result of an evaluation program carried out under the evaluation agreement. On September 6, 2005, we entered into a joint venture agreement with Esperanza for the exploration of the San Luis Project (the “San Luis Joint Venture”) on the terms set out above and elected to increase our interest in the joint venture to 55% by funding the first US$500,000 in exploration expenditures. As at December 31, 2005, we had incurred $135,000 (US$108,000) in exploration expenditures on the San Luis Project, with a further US$392,000 to be incurred to earn a 55% interest in the San Luis Joint Venture.
We currently hold a 50% interest in the San Luis Joint Venture and have elected to increase our interest in the San Luis Joint Venture to 55%.
Manantial Espejo Project
On November 4, 1998, we entered into an agreement with Triton Mining Corporation (“Triton Mining”), a wholly-owned subsidiary of Black Hawk Mining Inc., a Toronto Stock Exchange listed company, pursuant to which we acquired an option to acquire a 50% interest in Minera Triton Argentina S.A. (“Minera Triton”), a wholly-owned subsidiary of Triton Mining. In order to exercise the option, we were required to:
make staged cash option payments to Triton Mining of US$1,536,500 (paid); and
incur exploration expenditures on the Manantial Espejo Project of US$4.5 million by December 31, 2001, extendable to December 31, 2002 in certain circumstances.
At the time we acquired our option to acquire a 50% interest in Minera Triton:
Minera Triton owned 80% of the issued and outstanding shares of Compania Minera Altovalle S.A. (“Altovalle”), an Argentine corporation, which owned certain mineral properties known as the “Manantial Espejo Project” located in the Santa Cruz Province of Argentina.
The remaining 20% of the shares of Altovalle were owned by Barrick Exploraciones Argentinas S.A., a subsidiary of Barrick Gold Corporation, (“Barrick Gold”).
Under the terms of the Altovalle shareholders’ agreement between Minera Triton and Barrick Gold, on completion of a feasibility study for the Manantial Espejo Project, Barrick Gold was required to elect to either:
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increase its interest in Altovalle to 40% by paying Minera Triton 40% of its reasonable costs incurred in respect of the Manantial Espejo Project; or
sell its interest in Altovalle to Minera Triton for US$5.00 per ounce of gold plus US$0.06 per ounce of silver contained in the proven and probable reserve supporting the feasibility study with any ounces of gold or silver mined in addition to the ounces contemplated in the proven and probable reserve in the feasibility study subject to a 3% net smelter returns royalty.
In addition, under the terms of the Altovalle shareholders’ agreement between Minera Triton and Barrick Gold, the following royalties were payable to Barrick Gold:
- 9 -a payment of 60 cents (US) per tonne of ore mined from the Manantial Espejo Project and fed to process with a maximum of 1 million tonnes; and
0.5% net smelter returns royalty derived from the production of minerals from the Manantial Espejo Project.
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At the time we acquired an option to acquire a 50% interest in Minera Triton, Minera Triton held its interest in Altovalle and the Manantial Espejo Project subject to a net smelter returns royalty granted to Repadre Capital Corporation (“Repadre Capital”) equal to 1.5% of 80% of net smelter returns in respect of production from the Manantial Espejo Project.
In August 2001, in order to increase our interest in Altovalle and the Manantial Espejo Project from an option to acquire 50% interest in Minera Triton, we acquired Barrick Gold’s 20% interest in Altovalle and terminated Barrick Gold’s rights under the Altovalle shareholders’ agreement by:
issuing to Barrick Gold 400,000 of our common shares valued at $920,000;
granting to Barrick Gold a royalty of US$5.00 per ounce of gold plus US$0.06 per ounce of silver contained in the proven and probable reserve supporting the feasibility study for the Manantial Espejo Project payable prior to the commencement of construction of a mine at the Manantial Espejo Project;
granting to Barrick Gold a 3% net smelter returns royalty on any ounces of gold or silver mined in addition to the ounces contemplated in the proven and probable reserve in the feasibility study;
agreeing to maintain in place the following royalties payable to Barrick Gold:
the payment of 60 cents (US) per tonne of ore mined from the Manantial Espejo Project and fed to process with a maximum of 1 million tonnes; and
0.5% net smelter returns royalty derived from the production of minerals from the Manantial Espejo Project.
At the time of the acquisition of Barrick Gold’s interest, we were not contemplating the subsequent transactions in 2002 described below with Triton Mining and Pan American. No gain or loss was recorded on the completion of this transaction with Barrick.
Under our option agreement for the acquisition of a 50% interest in Minera Triton, we agreed with Triton Mining that if either party acquired Barrick Gold’s 20% interest in the Manantial Espejo Project the acquiring party would offer one-half of the 20% interest to the other party for 50% of the acquisition cost. Accordingly, we transferred to Triton Mining one-half of the 20% interest (representing 10%, valued at $460,000) and cash of $125,000 in exchange for a 40% direct interest in the Sulphurets property. The net allocation of the $528,000 purchase cost of the 40% Sulphurets property interest was $499,000 to the Sulphurets property, $21,000 to working capital (including $8,000 cash) and $8,000 for reclamation deposits. We agreed to accept the 40% interest in the Sulphurets property we did not already own as consideration for the 10% interest in Manantial Espejo Project in order to increase our interest in the Sulphurets property to 100%. No gain or loss was recorded on the completion of this transaction.
On January 22, 2002, we received from Triton Mining an offer to sell to us all of its interest in the Manantial Espejo Project pursuant to the terms of the right of first refusal contained in the shareholders’ agreements for Minera Triton and Altovalle. On February 22, 2002, we elected to exercise our right of first refusal and entered into an agreement with Triton Mining under which we agreed to purchase Triton Mining’s remaining interest in Altovalle and the Manantial Espejo Project for US $2,000,000,US$2,000,000, which at the time consisted of:
- 10 -the ownership of a 10% interest in Altovalle for a 10% interest in the Manantial Espejo Project; and
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the ownership of a 100% interest in Minera Triton for a 80% interest in the Manantial Espejo Project, subject to our option to acquire a 50% interest in Minera Triton. At the time, under our option to acquire a 50% interest in Minera Triton, we had made all required option payments (totalling US$1,536,500) and incurred US$4.1 million of the US$4.5 million required to be incurred by us to exercise our option and acquire a 50% interest in Minera Triton.
Concurrently with entering into the agreement with Triton Mining, we entered into an agreement with Pan American Silver Corp. (“Pan American”) to sell to Pan American:
the ownership of a 50% interest in Minera Triton for a 40% interest in the Manantial Espejo Project; and
the ownership of a 10% interest in Altovalle for a 10% interest in the Manantial Espejo Project;
in consideration of the payment of US$2,000,000 in cash or common shares and the obligation to contribute the first US$3,000,000 towards mine construction once a production decision is made for the Manantial Espejo Project.
On March 27, 2002, we concurrently closed our agreements with Triton Mining and Pan American and paid the cash and share consideration we received from Pan American, for the sale of the interest in the Manantial Espejo Project, to Triton Mining as consideration for its remaining interest in the Manantial Espejo Project. As part of our acquisition of Triton Mining’s interest, we deemed our option to acquire a 50% interest in Minera Triton to be exercised. As part of the sale to Pan American of an interest in the Manantial Espejo Project, we entered into a joint venture agreement with Pan American for the exploration and development of the Manantial Espejo Project. Under the terms of the joint venture agreement, we will remain operator of the project until a decision is made to complete a feasibility study. Thereafter, Pan American will be the operator of the project until the commencement of commercial production. On commencement of commercial production, we, together with Pan American, will form an operating company to act as operator of the project, which will be owned by the two of us in proportion to our respective interests in the project. All costs and expenses incurred in respect of the project shall be incurred by the two of us in proportion to our respective interests in the joint venture.
On March 27, 2002, we also acquired from Repadre Capital all of Repadre Capital’s interest in the net smelter returns royalty granted to Repadre Capital by Minera Triton equal to 1.5% of 80% of net smelter returns in respect of production from the Manantial Espejo Project. The purchase price for the royalty interest was US$200,000. We also agreed to sell a 50% interest in the royalty we acquired from Repadre Capital to Pan American for US$100,000.
In November 2002, Pan American acquired from Barrick Gold all of Barrick Gold’s rights to receive a royalty from the Manantial Espejo Project of US$5.00 per ounce of gold plus US$0.06 per ounce of silver contained in the proven and probable reserve supporting the feasibility study for the project with any ounces of gold or silver mined in addition to the ounces contemplated in the proven and probable reserve in the feasibility study subject to a 3% net smelter returns royalty. In December 2002, we acquired from Pan American a 50% interest in the royalty for US$300,000.
On March 21, 2006, we entered into an agreement with Pan American to sell to Pan American all of our 50% interest in the Manantial Espejo Project, including all shareholder loans and interests in royalties, in consideration of the issue to us of 1.95 million common shares of Pan American, having a value of US$46.3 million as of March 21, 2006. In addition, if Pan American sells all or a portion of the Manantial Espejo Project at anytime over the next 3 years, we will receive 50% of the sale proceeds, after deducting Pan American’s acquisition and other project costs. The agreement with Pan American is subject to regulatory approval and is expected close on April 10, 2006.
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WithOn completion of the sale of our 50% interest in the Manantial Espejo Project to Pan American, we will have no interest in the Manantial Espejo Project.
Until the completion of the above described transactions,sale of our interest in the Manantial Espejo Project to Pan American, we currentlywill continue to have the following interest in the Manantial Espejo Project:
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| the ownership of a 50% interest in Minera Triton for a 40% |
Bowdens Silver Project
We entered into an agreement on December 23, 1996 with Golden Shamrock Mines Limited as amended by an amending agreement dated August 4, 1997, to acquire all of the issued shares of GSM Exploration Pty Limited (“GSM Exploration”) (now known as Silver Standard Australia Pty Limited) at a cost of US$6,712,845. The acquisition of the shares of GSM Exploration was completed on August 22, 1997. At the time, the only asset of GSM Exploration was the Bowdens Silver Project, which it acquired from CRA Exploration Pty Limited (“CRA Exploration”) (now known as Rio Tinto Exploration Pty Limited) pursuant to the terms of a tenement sale agreement dated August 11, 1994. Under the terms of the tenement sale agreement, CRA Exploration had the right, among other things, to:
On July 31, 1997, prior to completing the acquisition of the shares of GSM Exploration, we entered into an agreement with CRA Exploration under which CRA Exploration agreed to release all of its rights to reacquire an interest in the Bowdens Silver ProjectManantial Espejo Project; and
the ownership of a 10% interest in return for:
Accordingly, with the completion of the acquisition of the shares of GSM Exploration and the signing of the agreement with CRA Exploration, we own the followingAltovalle for a 10% interest in the Bowdens Silver Project:Manantial Espejo Project;
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Pirquitas Project
Under an agreement dated June 21, 2002, we acquired from Stonehill Institutional Partners, L.P., Stonehill Offshore Partners Limited and Stonehill Capital Management, LLC a 43.4% interest in Sunshine Argentina, Inc., a Delaware corporation, the holder of the rights to the Pirquitas Project. The total purchase price for the 43.4% interest was:
The debenture was fully converted by the holder by December 31, 2002 into 360,636 common shares in our capital.
The holders of the remaining 56.6% interest in Sunshine Argentina, Inc. are Elliott International, L.P. and The Liverpool Limited Partnership. We are the operator of the Pirquitas Project.
We currently own 434 of the shares of Sunshine Argentina, Inc. for a 43.4% interest in the Pirquitas Project.
La Pitarrilla
We acquired by staking the original mineral claim covering La Pitarrilla in November 2002 and acquired a contiguous claim by staking in June 2003. Our application for an additional contiguous claim is pending. We have agreed to pay the following finder’s fee to La Cuesta International, Inc. in respect of our acquisition of La Pitarrilla:
provided that the maximum amount payable in respect of the finder’s fee is an aggregate of US $500,000.
We currently own a 100% interest in La Pitarrilla, subject to the above described finder’s fee capped at US $500,000.Barrick Gold’s right to:
Shafter Silver Project
On September 19, 2000 we entered into an agreement with SSR Acquisition, Inc. (our wholly-owned subsidiary), Coastal Capital Partners L.P., John H. Bailey, Peter Galli, Carolyn E. Galli, Mark Fidler, Kathleen Fidler and David Fraser. Under the agreement, we acquired 91.8% of the issued shares of Silver Assets, Inc. in consideration of thereceive a payment of US$0.0065460 cents (US) per share for a total purchase pricetonne of US$599,305.15. On November 9, 2000, a short-form merger between SSR Acquisition, Inc. and Silver Assets, Inc. was effected (under the laws of the State of California), under which we acquired the remaining issued shares of Silver Assets, Inc. for US$0.00654 per share. The purchase price for 100% of the issued shares of Silver Assets, Inc. was US$693,601 (Cdn$1,024,293).
At the time of our acquisition of Silver Assets, Inc., its sole asset was a 90.56% interest in Rio Grande Mining Company (“Rio Grande”), the holder of the Shafter Silver Project located near Shafter, Texas. On February 4, 2002, the Nevada Secretary of State accepted a filing document that effected our acquisition of the remaining 9.44% outstanding minority stockholdings in Rio Grande. The cost of acquiring the minority stockholding was US$55,053 and is to be paid out over time as shares are surrendered.
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Prior to our acquisition Silver Assets, Inc. and Rio Grande, Rio Grande purchased all of the “major” outstanding royalties on metal productionore mined from the Shafter Silver Project. OneManantial Espejo Project and fed to process with a maximum of these royalties was1 million tonnes; and
receive a 6.25 percent0.5% net smelter returnreturns royalty payable to Cyprus Amax out of future mining revenues, which Rio Grande purchased from Cyprus Amax for $50,000 cash and a $475,000 note. Following our acquisition of Silver Assets, Inc.:
The only remaining material royalty on metal productionderived from the Shafter Silver Project is a 6.25% royalty on a narrow stripproduction of land, covering an area of 10 acres, leasedminerals from the State of Texas that contains only a minor amount of Mineral Resource.Manantial Espejo Project.
Tertiary Properties
With the acquisition of the minority stockholdings in Silver Assets, Inc. and Rio Grande, we own a 100% interest in the Shafter SilverDiablillos Project subject to the above described royalty payable to the State of Texas.
Secondary Properties
Challacollo Silver Project
Under the terms of an option agreement dated November 16, 2001, we acquired from Sociedad Contractual Minera Septentrion (“Minera Septentrion”) an option to acquire a 100% interest in the Challacollo Silver Project located in northern Chile. Under the terms of the option agreement, we are required to make the following cash option payments totaling US $1,500,000 over two years:
o US $20,000 due on signing the option agreement; (paid) o US $130,000 due on March 1, 2002; (paid) o US $250,000 due on August 1, 2002; (paid) o US $500,000 due on March 1, 2003 (paid); and o US $600,000 due on August 1, 2003 (paid).
On August 1, 2003, we exercised the option and acquired a 100% interest in the Challacollo Silver Project.
A five percent finder’s fee is included in the cash option payments. The property is subject to an existing 2% production royalty capped at US $850,000 and a 2% production royalty to Minera Septentrion increasing to 3% once the existing 2% royalty is fully paid. The Minera Septentrion royalty may be purchased for US $1,500,000 at any time.
At the date of this Annual Report, we have the following interest in the Challacollo Silver Project:
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Diablillos Property
As of November 1, 2001, we entered into a purchase agreement with Silver Standard (BVI) Inc. (our wholly owned subsidiary) and Pacific Rim Mining Corp. (“Pacific Rim”) and Pac Rim Cayman and Pac Rim Caribe (III) (wholly owned subsidiaries of Pacific Rim). Under the agreement, we agreed to acquire all of Pacific Rim’s interest in the Diablillos propertyProject located in Salta Province, Argentina through the acquisition of all of the shares of two indirect wholly owned subsidiaries of Pacific Rim: Salta Gold Ltd. and Pacific Rim Mining Corporation Argentina S.A. Under the terms of the purchase agreement, we agreed to pay Pacific Rim US $3,400,000US$3,400,000 in staged payments of:
US$1,000,000 payable in cash on closing;
US$500,000 payable in cash on December 31, 2001;
US$500,000 payable in cash or our shares, at our election, on or before June 30, 2002;
US$500,000 payable in cash or our shares, at our election, on or before December 31, 2002;
US$500,000 payable in cash or our shares, at our election, on or before June 30, 2003; and
US$400,000 payable in cash or our shares, at our election, on or before December 31, 2003.
On December 14, 2001, we completed the acquisition of the Diablillos propertyProject and made the US $1,000,000US$1,000,000 cash payment due on closing. On December 31, 2001, we paid the US $500,000US$500,000 payment then due, and on January 18, 2002 issued 383,025 common shares in our capital in satisfaction of the payments due on June 30, 2002 and December 31, 2002. On June 28, 2002, we issued 142,970 common shares in our capital in satisfaction of the payments due on June 30, 2003 and December 31, 2003. The total purchase price was $5,433,000, with $5,430,000 allocated for the property and $3,000 allocated for a provision for reclamation.
We currently own a 100% interest in the Diablillos property.Project.
Berenguela Project
On March 31, 2004, we, and our wholly owned subsidiary Silver Standard Peru S.A., entered into an option agreement with Sociedad Minera Berenguela S.A. (“SOMINBESA”), a Peruvian corporation and the holder of the rights to the Berenguela Project located in Peru, and Fossores Ltd. (“Fossores”) under which we acquired an option to acquire all of the in-ground silver resources contained in the Berenguela Project in Peru. In order to maintain the option in good standing, we are required to:
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issue 17,500 of our common shares to SOMINBESA following acceptance for filing of the option agreement by the TSX Venture Exchange (issued);
substantially complete an exploration program on the Berenguela Project having an in-ground expenditure of a minimum of US$500,000 (completed);
cause a silver resource estimate (the “Berenguela Resource Estimate”) for the Berenguela Project to be prepared using all existing data, including data generated in the exploration program;
In order to exercise the option, we are required to issue to SOMINBESA the number of common shares in our capital that have a value equal to:
if the price of silver is less than or equal to US$5.50 per ounce, US$0.02 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate;
if the price of silver is greater than US$5.50 per ounce but less than or equal to US$6.50 per ounce, US$0.025 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate;
if the price of silver is greater than US$6.50 per ounce, US$0.03 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate;
on or before the earlier to occur of:
July 31, 2005; and
the expiry of a period of 60 days following the filing of the Berenguela Resource Estimate with the Canadian Securities Administrators;
provided that we shall have not less than a period of 60 days following the completion of the Berenguela Resource Estimate to exercise the option, if the Berenguela Resource Estimate is completed prior to July 31, 2005.
Under the terms of the option agreement, we have the right on exercise of the option, among other things, to:
to acquire and mine all silver resources in excess of the those contained in the Berenguela Resource Estimate on payment of US$0.10 per ounce; and
independently exploit the silver resources on the property if SOMINBESA has not completed a feasibility study and commenced the development of the property at the time the average London fix of the price of silver has exceeded US$7.00 per ounce, averaged over a consecutive 130 day period.
On March 31, 2004, we also entered into a funding agreement with Fossores, under which Fossores agreed to provide us with:
all the data in Fossores’ files concerning the Berenguela Project;
a computerized index of the data;
the metallurgical processes that can be used to recover the silver resources from the Berenguela Project; and
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a pre-feasibility study that presents an economically viable plan for the development of the Berenguela Project, including silver recovery.
Under the funding agreement, we agreed to pay Fossores:
US$20,000 on execution of the Berenguela option agreement (paid);
US$180,000 following acceptance for filing of the Berenguela option agreement by the TSX Venture Exchange (paid); and
on exercise of the Berenguela option agreement:
if the price of silver is less than or equal to US$5.50 per ounce, US$0.02 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate;
if the price of silver is greater than US$5.50 per ounce but less than or equal to US$6.50 per ounce, US$0.025 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate;
if the price of silver is greater than US$6.50 per ounce, US$0.03 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate.
Under letters dated September 2, 2005, October 31, 2005 and November 30, 2005, the period for exercising the option under the option agreement was extended to January 15, 2006.
On December 30, 2005, we entered into an agreement for the acquisition of all of the shares of SOMINBESA. Under the purchase agreement, we agreed to pay to the vendors, Daniel Kappes, Michael Cassiday and Victor Raul Eyzaguirre, an aggregate payment of US$2.0 million in cash, to issue to the vendors common shares in our capital having a value of US$8.0 million and to grant to the vendors a 2% net smelter returns royalty on copper produced from the project capped at US$3.0 million. On January 12, 2006, we completed the acquisition of the shares of SOMINBESA, and the Berenguela Project, and issued 530,504 shares in our capital to satisfy the obligation to issue shares in our capital having a value of US$8 million.
We currently have the following interest in the Berenguela Project:
a 100% interest in the Berenguela Project;
subject to a royalty of 3% of net smelter returns on copper produced from the project capped at US$3 million.
Veta Colorada Project
On July 27, 2005, we entered into agreements with Mexicana del Arco, S.A. de C.V. and Industrial Minera Mexico, S.A. de C.V. to acquire a 100% interest in the Veta Colorada Project located in the Parral District of Chihuahua State, Mexico. Under the purchase agreements, we agreed to pay US$50,000 (paid) on signing the agreements and a further US$3.45 million on satisfactory completion of due diligence within 120 days of signing the agreements. In December 2005, the vendors agreed to extend the due diligence period to March 31, 2006 in consideration of an advance payment of US$120,000 (paid) with the remaining US$3.33 million due by March 31, 2006.
We currently hold the right to acquire a 100% interest in the Veta Colorada Project, subject to making the final payment of US$3.33 million on or before March 31, 2006.
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Challacollo Project
Under the terms of an option agreement dated November 16, 2001, we acquired from Sociedad Contractual Minera Septentrion (“Minera Septentrion”) an option to acquire a 100% interest in the Challacollo Project located in northern Chile. Under the terms of the option agreement, we are required to make the following cash option payments totaling US$1,500,000 over two years:
US$20,000 due on signing the option agreement; (paid)
US$130,000 due on March 1, 2002; (paid)
US$250,000 due on August 1, 2002; (paid)
US$500,000 due on March 1, 2003 (paid); and
US$600,000 due on August 1, 2003 (paid).
On August 1, 2003, we exercised the option and acquired a 100% interest in the Challacollo Project.
A five percent finder’s fee is included in the cash option payments. The project is subject to an existing 2% production royalty capped at US$850,000 and a 2% production royalty to Minera Septentrion increasing to 3% once the existing 2% royalty is fully paid. The Minera Septentrion royalty may be purchased for US$1,500,000 at any time.
In 2005, we agreed to acquire certain mineral claims adjacent to the Challacollo Project, which acquisition has not as of yet completed.
At the date of this Annual Report, we have the following interest in the Challacollo Project:
a 100% interest in the Challacollo Project;
subject to:
a 2% production royalty capped at US$850,000; and
a 2% production royalty increasing to 3% once the above 2% royalty is fully paid, which may be purchased for US$1,500,000 at any time.
Maverick Springs Project
As required by a letter agreement dated November 7, 2002 among Vista Gold Corporation (“Vista”), Vista Nevada Corp. (“VNC”), a wholly-owned subsidiary of Vista, and Silver Standard, on June 9, 2003, our wholly owned subsidiary Maverick Silver Inc. entered into an exploration and development agreement with Vista and VNC, pursuant to which we acquired an option to acquire a 55% interest in the Maverick Springs Project located in northern Nevada, representing all of the silver resources hosted in the project, subject to underlying agreements and royalties described below. This option is exercisable on:
payment of US$300,000 on execution of the exploration and development agreement (paid); and
incurring US$1,200,000 over four years to fund required exploration expenditures, land payments and option payments, of which the full amount has been incurred as at December 31, 2005.
Under an option agreement dated October 7, 2002 among Newmont Mining Corporation and Newmont Capital Limited (together, “Newmont”), Vista and VNC, Newmont granted Vista and VNC an option to acquire a 100% interest in the Maverick Springs Project. In order to maintain the option in good standing, Vista and VNC must make the following payments and expenditures required to be made under Newmont’s mining lease with the owner of the property:
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payment of US$15,000 on October 1, 2002 (paid);
payment of US$50,000 on October 1, 2003 (paid);
• | payment of |
a net smelter returns royalty ranging from 1.9% for gold and silver prices that are less than US$250 and US$4.50 per ounce, respectively, to 5.9% for gold and silver prices that are greater than US$550 and US$8.50 per ounce, respectively;
a net smelter returns royalty of 2.9% for all metals other than gold and silver; and
completion of a minimum of 6,400 feet of exploration drilling in each of the first three years of the agreement (completed).
In order for Vista and VNC to exercise their option from Newmont, they are required to:
pay Newmont US$250,000 in cash (paid);
reimburse Newmont for 2003 federal maintenance fees of US$37,300 (paid);
issue to Newmont 141,243 shares of Vista (issued) and 141,243 warrants of Vista (issued) (with each warrant exercisable for one share of Vista for a period of two years at US$4.43 per share);
issue to Newmont, on the first anniversary of the option agreement, the number of shares of Vista determined by dividing US$500,000 by the weighted average closing price of the shares of Vista on the American Stock Exchange averaged over the 10-day trading period ending on the day before the first anniversary of the agreement (the “Weighted Average Price”) and an equal number of share purchase warrants (with each warrant exercisable for a period of two years from the closing at a price equal to 125% of the Weighted Average Price)(on October 7, 2003, Vista issued 122,923 common shares and warrants to Newmont); and
grant to Newmont a 1½% net smelter returns royalty on production from the Maverick Springs Project.
In addition, following the fourth anniversary of the option agreement with Newmont, Newmont may, on payment of 200% of Vista'sVista’s expenditures on the Maverick Springs Project, acquire a 51% interest in the project. If Newmont elects to acquire a 51% interest in the Maverick Springs Project, expenditures by Vista, following the acquisition of 51% of the project by Newmont, will be capped at US $2,000,000US$2,000,000 until a feasibility study is completed for the project.
In October 2005, we incurred the last of the US$1.2 million in required expenditures and vested our interest in the Maverick Springs Project.
We currently have the following interest in the Maverick Springs Project:
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Berenguela Project,
On March 31, 2004, we, and our wholly owned subsidiary Silver Standard Peru S.A., entered into an option agreement with Sociedad Minera Berenguela S.A. (“SOMINBESA”) and Fossores Ltd. (“Fossores”) under which we acquired an option to acquire representing all of the in-ground silver resources containedhosted in the Berenguela project in Peru. In orderproject;
subject to:
the net smelter returns royalties payable to maintain the option in good standing, we are required to:property owner and Newmont described above; and
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In order to exercise the option, we are required to issue to SOMINBESA the number of common shares in our capital that have a value equal to:
on or before the earlier to occur of:
provided that we shall have not less than a period of 60 days following the completion of the Berenguela Resource Estimate to exercise the option, if the Berenguela Resource Estimate is completed prior to July 31, 2005.
Under the terms of the option agreement, we have the right on exercise of the option, among other things, to:
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On March 31, 2004, we also entered intoNewmont’s right to acquire a funding agreement with Fossores, under which Fossores agreed to provide us with:
o the metallurgical processes that can be used to recover the silver resources from the Berenguela project; and o a pre-feasibility study that presents an economically viable plan for the development of the Berenguela project, including silver recovery.
Under the funding agreement, we agreed to pay Fossores:
We currently have the following51% interest in the Berenguela Project:Maverick Springs Project described above.
San Marcial Silver Project
In January 2002, we acquired from Gold-Ore Resources Ltd. (“Gold-Ore”) an option to acquire up to a 100% interest in Gold-Ore’s option to acquire the San Marcial propertyProject located in Sinaloa State, Mexico. Under the terms of the option:
- 18 -we may earn a 50% interest by:
making cash payments totaling US$29,000 by February 4, 2002; and
incurring exploration expenditures of at least US$175,000 by April 30, 2002.
We may then earn up to a 100% interest in Gold-Ore’s option by, at our election, either:
issuing to Gold-Ore 200,000 of our common shares with a value of at least US$350,000; or
paying to Gold-Ore US$350,000 in cash and our common shares with at least US$150,000 in cash.
In addition, if, following the exercise of the option, within three years of the date of the option agreement:
we outline in excess of 50 million ounces of measured and indicated silver resources on the property, in accordance with Canadian National Instrument 43-101 using a 50 gram/tonne silver cut-off grade, we shall pay to Gold-Ore, in cash or our common shares, at our election, US$0.005 per ounce for each ounce of silver outlined in excess of 50 million ounces; and
the afternoon fix of the price of silver on the London Mercantile Exchange is greater than or equal to US$6.50 per ounce for a minimum of 60 consecutive days, we shall pay to Gold-Ore, in cash or our common shares, at our election, US$0.005 per ounce for each ounce of measured and indicated silver resources outlined on the property, in accordance with Canadian National Instrument 43-101, using a 50 gram/tonne silver cut-off grade.
To exercise Gold Ore’sGold-Ore’s option and earn a 100% interest in the San Marcial propertyProject pursuant to the underlying option agreement, we will be required to:
make cash payments to the project vendor, Met-Sin Industriales, S.A. de C.V., totaling US$462,500:
US$25,000 by August 4, 2002;
US$25,000 by February 4, 2003;
US$25,000 by August 4, 2003; and
US$387,500 by February 4, 2004;
incur US$400,000 in further exploration expenditures on the project by February 4, 2004 (US$200,000 of which must be incurred by February 4, 2003);
pay US$100,000 on commencement of commercial production to International American Resources Inc.;
pay a 3% net smelter returns royalty to the project vendor, provided that each 1% of the royalty can be acquired for US$600,000.
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In August 2002, we exercised our option with Gold-Ore to acquire an option to acquire a 100% interest in the San Marcial Project by:
paying to Gold-Ore US$150,000 in cash;
issuing to Gold-Ore 45,706 common shares in our capital; and
entering into an option agreement with the owner of the San Marcial Project to acquire a 100% interest in the San Marcial Project on the terms contained in the original option agreement between Gold-Ore and the owner of the project described above.
In February 2004, we exercised our option to acquire a 100% interest in the San Marcial Project by making the final payment due under the option agreement of US $387,500,US$387,500, for total payment to the vendorpayments of US $462,500.US$462,500.
At the date of this Annual Report, we have the following interest in the San Marcial Project:
- 19 -a 100% interest in the San Marcial Project:
subject to:
paying US$100,000 on commencement of commercial production to International American Resources Inc.; and
paying a 3% net smelter returns royalty to the project vendor, provided that each 1% of the royalty can be acquired for US$600,000.
San Agustin Property
We acquired by staking the mineral claims covering the San Agustin Property located in Durango State, Mexico in April 2003. We have agreed to pay the following finder’s fee to La Cuesta International, Inc. in respect of our acquisition of the San Agustin Property:
US$5,000 in cash following the staking of the property (paid);
the greater of (i) US$5,000 and (ii) 2% of our direct exploration expenditures on the property, payable every six months; and
a 0.25% net smelter returns royalty applicable to all gold and silver produced from the property;
provided that the maximum amount payable in respect of the finder’s fee is an aggregate of US $500,000.US$500,000.
We currently own a 100% interest in the San Agustin Property, subject to the above described finder’s fee capped at US $500,000.US$500,000.
Silvertip Property
Under an agreement dated November 27, 2002 with Imperial Metals Corporation and its wholly-owned subsidiary Silvertip Mining Corporation (together “Imperial”), we acquired a 100% interest in the Silvertip Property located in northern British Columbia.Columbia, Canada. Under the agreement:
we paid Imperial $1,200,000 in cash;
issued to Imperial 100,000 of our common shares; and
assumed the remaining reclamation obligations associated with the property (at the date of this Annual Report, reclamation bonding totals $79,000 in respect of the Silvertip Property).
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Certain of the non-core claims comprised in the property are subject to a 5% net profits interest royalty.
We currently own the following interest in the Silvertip Property:
we own a 100% interest in the Silvertip Property;
subject to a 5% net profits interest royalty on certain of the non-core claims comprised in the property.
Sunrise Lake Deposit
Under an agreement dated June 9, 2003 with Northern Hemisphere Development Corp. (“Northern”) and Aber Diamond Corporation (“Aber”), we acquired a 100% interest in the Sunrise Lake Deposit located in the South MacKenzie District, Northwest Territories, Canada. Under the agreement:
- 20 -we paid Northern US$252,442.40 in cash and issued to Northern 42,938 of our common shares;
we paid Aber US$235,557.60 in cash and issued to Aber 40,066 of our common shares; and
assumed the remaining reclamation obligations associated with the property.
The claims comprised in the propertySunrise Lake Deposit are subject to a 5% net profits interest royalty.
We currently own the following interest in the Sunrise Lake Deposit:
we own a 100% interest in the Sunrise Lake Deposit;
subject to a 5% net profits interest royalty on claims comprised in the Sunrise Lake Deposit.
Long-Term Properties
Candelaria Mine
On November 1, 1999, we entered into an option agreement with Kinross Candelaria Mining Company, a Delaware corporation and an indirect wholly-owned subsidiary of Kinross Gold Corporation, a Toronto Stock Exchange listed company, (together “Kinross”) under which we acquired an option to acquire a 100% interest in the Candelaria mine, located in Mineral and Esmeralda counties of the State of Nevada. Under the option agreement, in consideration of the issuance to Kinross of 50,000 of our common shares, we were granted the right to carry out a six month due diligence review of the Candelaria mine. In order to exercise the option, we were required to:
make staged cash payments to Kinross totalling $300,000 over a period of 12 months;
issue 600,000 units to Kinross (each unit to consist of one common share and one common share purchase warrant, with each warrant entitling Kinross to acquire one additional common share for a period of one year at a price of $3.50); and
pay US$1,000,000 to Kinross on commencement of commercial production.
In addition to the payments and share issuances, on exercise of the option:
Kinross may elect to require us to purchase the processing facility located on the mine site for $300,000; and
we will assume all liabilities relating to the mine.
On March 28, 2000, we entered into an amending agreement with Kinross, under which Kinross agreed to extend the term of the option by three months (to a nine-month term) on our payment to Kinross of $50,000 and issuance to Kinross of 27,500 of our common shares. Under further amending agreements dated July 12, 2000, October 27, 2000 and November 29, 2000, the term of the option was extended, without payment of any further consideration, to March 31, 2001. On March 30, 2001, we delivered notice of exercise of the option to Kinross, which provided for the closing of the purchase on amended terms. On October 1, 2001, we acquired from Kinross Gold U.S.A., Inc. (“Kinross Gold”) all of the shares of Kinross Candelaria Mining Company, the owner of the Candelaria mine and related assets, on:
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- 21 -payment to Kinross Gold of US$65,834;
issuance to Kinross Gold of 600,000 common shares in our capital and 600,000 common share purchase warrants, with each warrant entitling Kinross Gold to acquire one additional common share until October 1, 2002 at a price of Cdn$3.50 per share;
delivery to Kinross Gold of a promissory note in the amount of Cdn$300,000 payable on or before April 1, 2002 in cash or our shares, at our election, at a price equal to the 20-day average closing price of our shares on the Canadian Venture Exchange (we paid the full amount of the promissory note on March 26, 2002 by the issuance to Kinross Gold of 70,922 of our common shares);
reimbursement of Kinross Gold of US$209,607 for expenses incurred by Kinross Gold in respect of the Candelaria mine from April 1, 2001 to September 30, 2001; and
the assumption of all liabilities associated with the Candelaria mine.
Under the purchase agreement, Kinross Gold agreed to maintain the reclamation bonding for the Candelaria mine in place until April 1, 2003, extendable to April 1, 2004 on our payment to Kinross Gold of US $50,000. In March 2003, we paid the US $50,000 for Kinross Gold to maintain the reclamation bonding in place until April 1, 2004 at which time we are required to provide substitute reclamation bonding.US$50,000. Reclamation bonding for the property is currently US $1,679,435. We havewas US$1,679,435, and we pledged the shares of Kinross Candelaria Mining Company to Kinross Gold, Inc. as collateral pending our arrangement of reclamation bonding. In March 2003, we paid the US$50,000 for Kinross Gold to maintain the reclamation bonding in place until April 1, 2004. In March 2004, we filed a substitute reclamation bond and related documents with the Bureau of Land Management to assume the reclamation bonding for the Candelaria Mine. As at the date of this annual report,On July 30, 2004, the Bureau of Land Management has not processed our filing and, effective March 8, 2004, accepted our substitute reclamation bond and terminated the period of liability of the Kinross Gold has granted us an extensionreclamation bond. As a result, the shares of the time in which weKinross Candelaria Mining Company (now known as Candelaria Mining Company) are requiredno longer pledged to provide substitute reclamation bonding.Kinross Gold.
Under the terms of the purchase agreement, Kinross Gold iswas responsible for completing the reclamation of the mine (including the seeding of certain parts of the property), and we agreed, among other things, to assume all liabilities, including environmental monitoring, relating to the mine following the completion of reclamation by Kinross Gold. Kinross Gold completed the reclamation of the Candelaria Minemine in 2003. With the completion of the reclamation of the mine by Kinross Gold, we are responsible for the establishment of plant growth on the property. In the event the seeding by Kinross Gold on the property does not result in sufficient plant growth, we will be required to reseed the property at an estimated cost of US $136,800;US$136,800; and, if reseeding does not establish sufficient plant growth, we will be required to place a soil cap on the heap leach pads at an estimated cost of US $1,272,100.US$1,272,100. In addition, on reclamation of the mine, we must monitor the mine at a total estimated cost of US $20,300US$20,300 over a five year period.
We acquired the Candelaria mine for the large silver resource that remained on the property at the time of closure of the mine by Kinross Gold. Our due diligence review of the property included re-drilling 9 holes in the Deep Diablo area, limited metallurgical studies, engineering scoping studies and a complete environmental audit. The drilling confirmed the original resource estimate. Metallurgical and engineering studies demonstrated that conventional milling of the ore is feasible at higher silver prices. The environmental review did not identify any significant environmental issues and confirmed that the substantial amount of reclamation work completed to date satisfied all state and federal guidelines.
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At the date of this Annual Report, we haveown all of the followingshares of Candelaria Mining Company, which owns a 100% interest in the Candelaria mine:mine.
Sulphurets Project (Newhawk Arrangement)
On September 30, 1999 pursuant to a plan of arrangement (the “Newhawk Arrangement”), holders of common shares of Newhawk Gold Mines Ltd. (“Newhawk”) exchanged every six Newhawk shares for one of our common shares. There were 13,712,707 common shares of Newhawk issued and outstanding at the time of the Newhawk Arrangement which were exchanged for 2,285,451 of our common shares. On completion of the Newhawk Arrangement, Newhawk became our wholly-owned subsidiary.
At the time of the acquisition of Newhawk, its principal asset was a 60% interest in the Sulphurets Project (at the time 40% owned by Black Hawk Mining Inc. (“Black Hawk”), which interest we subsequently acquired) and a 100% interest in the Snowfield Property, each of which is located in northwest British Columbia. The Sulphurets Project consists of a 60% interest in the Bruceside Property.Columbia, Canada.
Following the Newhawk Arrangement, we completed reclamation work on the Sulphurets Project then underway. Reclamation work in 1999 was approved by the British Columbia Ministry of Energy and Mines, Ministry of Environment, Lands and Parks and Ministry of Forests. Total reclamation costs incurred in 1999 were $1,161,333. As at the date of this Annual Report, reclamation bonding totals $5,000 in respect of the Sulphurets Project.
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Under an agreement with Triton Mining (a wholly owned subsidiary of Black Hawk) described under the heading “Manantial Espejo Project” above, we acquired, among other things, Black Hawk’s 40% interest in the Sulphurets Project in exchange for a 10% interest in Altovalle, a cash payment of $125,000 and 1.2% net smelter returns royalty on production in excess of current resources of silver and gold already outlined on the Sulphurets Project.
In November 2001, we granted Sean Morriss an option to acquire all of the shares of Newhawk, the holder of the Sulphurets Project, and the Snowfields and Blue Ice properties exercisable on payment of Cdn $3,800,000.Cdn$3,800,000. The option may be exercised by Mr. Morriss at any time on or before the close of business on May 30, 2002, and may be further extended. In the event the option is exercised, we anticipate recording a gain of approximately $151,000 on the disposition. We did not contemplate the granting of the option to Sean Morriss at the time of the acquisition of the Sulphurets Project. The option granted to Mr. Morriss expired without exercise.
We currently own all of the shares of Newhawk Gold Mines Ltd., which owns a 100% interest in the Sulphurets Project.
El Asiento Project subject to the 1.2% net smelter returns royalty payable to Black Hawk described above.
Minco Silver – Strategic Alliance
In October 2004, we formed a strategic alliance with Minco to jointly pursue silver opportunities in China. Under an agreement dated July 25, 2003 with Corporacion Minera de Boliviathe terms of the alliance, we invested $2,000,000 in Minco Silver Corporation (“COMIBOL”Minco Silver”), a subsidiary of Minco, to acquire a 20% interest in Minco Silver. We have preferential purchase rights to participate in future financings of Minco Silver in order to increase our interest to up to 30% of Minco Silver. As part of the state mining companystrategic alliance, Minco Silver is the exclusive entity for both Minco and Silver Standard to pursue silver projects in China. Robert Quartermain, our President and one of Bolivia, we returnedour directors, represents us on the El Asiento Projectboard of directors of Minco Silver. William Meyer, one of our directors, is the Chairman of Minco and is also on the board of directors of Minco Silver.
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Minco has evaluated many silver projects in China over the past two years and has assembled a large silver database. Currently, Minco Silver has the right to COMIBOL. For disclosure asacquire a 100% of the equity interest in the Fuwan Silver project, Guangdong, China, which includes 4 exploration permits covering a total of 205.63 square kilometers.
On May 9, 2005, Minco Silver completed a financing of 4,276,000 special warrants (each special warrant exchangeable for one common share of Minco Silver without payment of any additional consideration) at a price of $1.25 per special warrant for gross proceeds of $5,345,000. We acquired 960,000 of the special warrants at a cost of $1.2 million to this project, please seemaintain our Annual Reportinterest in Minco Silver.
On December 2, 2005, the shares of Minco Silver began trading on Form 20-F for the fiscal year ending December 31, 2000 filed withToronto Stock Exchange under the U.S. Securities and Exchange Commission.symbol MSV.
Other Properties
Duthie Property
We acquired the Duthie Property in November 1978 for its then known silver reserve, based on the then prevailing price of silver, and functioning mill. The Duthie Property is located 12 kilometers west of Smithers, British Columbia, approximately 1.2 kilometers north of Aldrich Lake. It operated intermittently from 1923 to the mid-1980‘s.mid-1980's. Over much of this period, some hand-picked direct-shipping ore was mined, especially in the early years. Of an estimated 80,000 tons mined, about 59,400 tons were milled. Concentrate shipments totaled 7,144 tons.
At the time of acquisition of the Duthie Property, we were not responsible for, and had no obligation in respect of, the reclamation of historical tailings. In the early 1990‘s,1990’s, British Columbia adopted legislation which resulted in our becoming responsible for the reclamation of historical tailings on the Duthie Property. As a result, we submitted a reclamation proposal for the tailings impoundment area that contained three reclamation options to the Province of British Columbia in March 1994. We have since completed a study which defines the most appropriate reclamation option and in March 1998 submitted the results of the study to the Province of British Columbia. A reclamation option was accepted by the Province of British Columbia in June 1999, subject to possible refinements. During 2001, 20022003, 2004 and 2003,2005, we carried out reclamation work of $177,000, $155,000$81,000, $205,000 and $81,000, respectively.$202,000, respectively, with 2005 expenditures less than intended to due to weather conditions. Reclamation work will continue in 20042006 at an estimated cost of $148,000.$507,164. Remaining reclamation obligations include placing perimeter ditches around the tailings impoundment area, capping the tailings, constructing a wetland and monitoring the results in subsequent years. Estimated costs for the remaining reclamation are $545,000,$295,000, which amount has been included in our provision for reclamation and includes $12,000$27,000 per year for ongoing monitoring.
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Silver Standard Mine Property
We acquired the Silver Standard Mine Property in 1947, placed the mine in production in 1948 and operated the property as a mine until 1958. As the former mine operator, we are responsible for the reclamation of the property.
Our environmental consultants are studyinghave studied the property to determine whetherand are preparing a conceptual reclamation is requiredplan with possible reclamation alternatives for the tailingsreclamation of the property. In 2006, our consultants are expected to finalize the conceptual reclamation plan, and we will then submit it to the appropriate government agencies for comment. On finalization of the conceptual reclamation plan, we believe we will have sufficient information available to estimate the fair value of the liability associated with the reclamation of the property. This estimate will be adjusted to reflect any changes to the reclamation plan resulting from the regulatory review. Until the conceptual reclamation plan is accepted by the regulatory agencies, monitoring is not required.
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In 2005, we spent $90,000 completing required reclamation work on the property, and the property in general. Accordingly, a reclamation plan has not been formulated. If a reclamation plan is required, determination of reclamation costs must await submission of the plan to and acceptance by appropriate government agencies, until that time monitoring is not required. The only remedial work required on the property at this time iswhich involved the closure of mine workings, which has an estimated cost of $250,000, which amount has beenworkings. We have included $348,000 in our asset retirement obligation liabilities at December 31, 2005 for reclamation work we believe will be included in our provision for reclamation.any reclamation alternative accepted by the regulatory agencies and which we expect to complete over the next two years on the property.
Others
We have severala number of other property holdings in Argentina, Australia, Canada, Chile, Mexico Canada and the United States, which are not considered our principal, secondary, tertiary or long-term properties. These property interests are being held for possible future exploration and development, reclamation work, sale, or joint venture. Interests in all of our properties are currently held through claims, leases and options and through working interests. We review such holdings on a regular basis to determine if they should be retained.
C. | Organizational Structure |
We have 1411 material subsidiaries. The following table sets out the name, jurisdiction of incorporation and incorporation date, date of our acquisition and our interest in each of our material subsidiaries:
Table No. 5
Material Subsidiaries
| Jurisdiction of Incorporation |
| Silver Standard |
Candelaria Mining Company | Delaware, USA; January 31, 1964 | October 1, 2001 | 100% |
Maverick Silver Inc. | Nevada, USA, January 24, 2003 | January 24, 2003 | 100% |
Minera Silver Standard Chile | Chile; November 10, 1994 | November 10, 1994 | 100% |
Minera Triton Argentina | Argentina; January 21, 1997 | March 27, 2002 | 50% |
Newhawk Gold Mines Ltd. | British Columbia, Canada; January 20, 1948 | September 30, 1999 | 100% |
Pacific Rim Mining Corporation Argentina | Argentina; October 1, 1993 | December 14, 2001 | 100% |
Rio Grande Mining Company | Nevada, USA; September 28, 1992 | September 22, 2002 | 100%(1) |
Silver Standard Durango S.A. de C.V. | Mexico; January 21, 2004 | January 21, 2004 | 100% |
Silver Standard Mexico | Mexico; January 18, 1995 | January 18, 1995 | 100% |
Silver Standard Australia Pty Limited | Australia; June 26, 1987 | August 22, 1997 | 100% |
Sunshine Argentina, Inc. | Delaware, USA September 8, 1994 | October 22, 2004 | 100%(2) |
(1) | We owned a 90.56% interest on acquisition, which increased to 100% on February 4, 2002. |
(2) | We acquired a 43.4% interest on June 27, 2001 and acquired the remaining 56.6% interest on October 22, 2004. |
(1) We owned a 90.56% interest on acquisition, which increased to 100% on February 4, 2002.
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D. | Property, Plant and Equipment |
D. Property, Plant and Equipment
Principal Properties
Pirquitas Project
Manantial Espejo Project
Location, Access and Infrastructure
Our 50% owned Manantial Espejo property is located in southern Argentina in the province of Santa Cruz, centered at longitude 69º 30' west and latitude 48º 46’ north. The nearest major city is Puerto San Julian, located on the Atlantic coast, 160 kilometers east of the property. See the following Manantial Espejo Project, Location Map.
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Rio Gallegos, 360 kilometers south and Comodoro Rivadavia, 420 kilometers north, from Puerto San Julian, are served by daily flights to Buenos Aires. Access to the property is from Provincial Route 25, a maintained gravel road, which runs from San Julian on the coast to Gobernador Gregores, some 60 kilometers beyond the property. Within the property, gravel and dirt roads provide good access to the resource area, which is 9 kilometers from the main road. In winter or during infrequent rainstorms 4-wheel drive is recommended.
There are no nearby power lines or telecommunication lines. A natural gas transmission line is located within 150 kilometers of the property, passing just west of San Julian. There is no history of mining in the area, but local laborers can be found in Gobernador Gregores.
Land Tenure
The Manantial Espejo property consists of 19 mineral concessions covering a total of 23,615 hectares, extending 36 kilometers east-west and 19 kilometers north-south. In order to maintain our rights to these concessions we are required to make “canon” payments to the Argentine government.
In August 2001, we acquired, together with Triton Mining through Minera Triton, two ranches totalling 28,000 hectares (108.1 square miles) for US$575,000, including buildings and improvements, payable over three years. The two ranches cover the main areas of defined mineralization at Manantial Espejo.
History
Exploration was first carried out on the property in the 1970s by the Argentine government. The following is a chronological description of mineral exploration on the Manantial Espejo property:
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To date, a total of 508 drill holes totalling 55,449 meters have been completed on the Manantial Espejo Project, excluding the wagon drill holes completed by St. Joe Minerals Corp. The greater the number of drill holes and closer the spacing between holes, the greater the knowledge of the deposit.
Geology and Mineralization
The structural setting of the known mineralization is related to the continental extension and volcanism that occurred during the mid-late Jurassic age. North-northwest trending rift structures, up to 20 kilometers wide, host many of the known precious metal occurrences. These major structures are associated with west-northwest trending faults, and the mineralization at Manantial is thought to be associated with the intersection of the structures.
Volcanic rocks constitute the main bedrock type of the area. These rocks are in the order of 400 meters thick in the project area and are overlain by or may grade laterally into the fine tuffs, tuffaceous sandstones and conglomerates of the Middle to Upper Jurassic age. The currently known epithermal prospects within the area are hosted in these rock formations.
Mineralization at Manantial is hosted in three main veins: the Maria Vein, Karina/Union Vein and Concepcion Vein. The majority of the mineralization outlined to date is in the Maria Vein. The vein is a thick multiphase silica vein exposed on surface for more than 1.0 kilometer and has been intersected at a depth of up to 275 meters. This vein is up to 40 meters thick on surface and averages 8 meters in thickness, with the true width ranging from 0.63 meters to 20 meters, with an average true width of 7.8 meters. The vein is open to the east and at depth.
The Maria Vein exhibits two quartz textures, older quartz which may also contain grey silica, amethyst and vuggy quartz, and younger sulphide-rich vein quartz breccia that often crosscuts the earlier vein and carries fragments of it. Sulphide content is low and is primarily 3-5 percent pyrite. Minor amounts of galena, sphalerite, chalcopyrite, bornite, chalcocite and covellite have been observed.
Gold occurs as electrum inclusions contained in pyrite. Very minor visible gold in the 200-micron size has been observed in drill core along goethite-coated fractures. The silver occurs as electrum along with minor amounts of argentite, acanthite, sulfosalts, and prousite-pyrargerite.
The Karina/Union Vein is exposed on surface for a distance of 850 meters and has been drilled to a depth of 150 meters. The host rocks, alteration and mineralogy of the vein is similar to the Maria Vein.
The Concepcion Vein is a single quartz vein mineralized over a distance of 300-meters. Mineralization is open at depth and at both ends. The host rocks, mineralogy and alteration are similar to the other veins on the property.
Resource Estimates
As of the date of this report, the Manantial Espejo Project is without known Mineral Reserves and any activity carried out on the property is exploratory in nature.
Three veins: Maria, Karina/Union, and Concepcion, have been investigated in sufficient detail to enable a resource to be estimated by Pincock, Allen & Holt, a division of Hart Crowser Inc., ("PAH") in reports dated April 6, 2001, June 27, 2001, July 17, 2001 and July 27, 2001. In PAH’s opinion, the Mineral Resource set out below has been prepared according to accepted industry standards using accepted practices, and that the work completed has been both thorough and as accurate as possible given the available database. It is also PAH’s opinion that the classification of Measured, Indicated and Inferred Mineral Resources as estimated herein, meet the definitions of Measured, Indicated, and Inferred Mineral Resources as stated by Canadian National Instrument 43-101 and defined by the CIM Standards.
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Table 6Silver Standard Resources Inc.Manantial Espejo PropertyMeasured and Indicated Mineral Resource Estimate(165 g/t Silver - Equivalent Cutoff Grade - Cutoff Ratio is 55:1 Silver:Gold)
| Classification | Tonnes | Silver Grade (g/t) | Gold Grade (g/t) |
| Measured & Indicated | 4,391,000 | 263.8 | 4.51 |
Table 7Silver Standard Resources Inc.Manantial Espejo PropertyInferred Mineral Resource Estimate(165 g/t Silver - Equivalent Cutoff Grade - Cutoff Ratio is 55:1 Silver:Gold)
| Classification | Tonnes | Silver Grade (g/t) | Gold Grade (g/t) |
| Measured & Indicated | 1,594,000 | 258.5 | 3.65 |
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Bowdens Silver Project
Location and Access
Our Bowdens property is located approximately 200 kilometers northwest of Sydney in eastern New South Wales, Australia, near latitude 32º 39‘S, longitude 149º 52‘E. Access is by the paved road between Mudgee (population 7,500) and Rylstone (population 750) and by numerous gravel and dirt roads that criss-cross the area. See the following Bowdens Property General Location Map.
The area includes sheep ranches, farms and weekend cottages. Several large coal mines and limestone quarries are found both south of Rylstone and north of the property. The rail line between Mudgee–Lue-Rylstone-Kandos has recently reopened allowing rail access to Sydney via Kandos and Lithgow. A high-tension power line crosses the property. Skilled workers are available from Mudgee and other nearby towns.
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Land Tenure
The Bowdens Property consists of one exploration tenement covering 379 square kilometers held 100 percent by Silver Standard Australia Pty. Ltd, our wholly-owned subsidiary. In order to maintain our interest in the property, we are required to make annual work expenditures on the property. For the years ended January 31, 2003 and January 31, 2004 minimum required expenditures are A$85,000 per year.
In April 1999, we purchased the 133.75 hectare farm that overlies the mineralization and a large portion of the area currently being considered for the process plant, waste dumps and tailings pond. The surface rights to the adjoining 50.05 hectare farm, which is the proposed location for the planned mill facilities, were purchased in 2001. In March, 2003, we completed the purchase of a third farm covering an area of 1,140 hectares, which provides us with surface rights for the location of the waste dumps and tailings pond and adjoins the previously purchased farms.
History
The original tenements covering the mineralization of the Bowdens property were granted to CRA Exploration Pty Limited (“CRA Exploration”) during 1989 and 1990. The following is a chronological description of mineral exploration on the Bowdens Project:
To December 31, 2003, a total of 409 holes totalling 44,391 metres have been completed on the Bowdens Project since 1989.
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Regional Geology and Mineralization
The Bowdens Project is located within a shallow depression that formed during the Late Silurian to Middle Devonian ages. Other rocks exposed in the area include Devonian age marine sediments, Middle Carboniferous age granite intrusives and the Permian age Rylstone volcanics.
Outcropping along the eastern margin of the depression are volcanic rocks. Mineralization at Bowdens is hosted by the rocks near the base of this formation.
Our geologists have identified three styles of mineralization and alteration. First, a silica alteration that is best developed within the volcanics with pervasive silica forming up to 60 percent of the rock. Visible sulfides comprise 5 to 7 percent of the rock and are composed of mainly fine-grained pyrite with minor galena and sphalerite. Occasionally quartz-sulfide veinlets form stockworks and sheeted zones within this style of mineralization. Second, a quartz vein or vein-breccia style of alteration is well developed in an area of mineralization. Vein widths range from 5.0 centimeters up to 1.5 meters and consist of fine layers of chalcedonic and crystalline quartz with thin rhodochrosite bands. Sulphides are associated with quartz and sometimes form bands of pyrite, sphalerite and galena. Third, a sericitic green clay alteration is best developed in the crystal tuff and ignimbrites and consists of sericite, carbonate, epidote, and minor 1 to 2 percent pyrite.
Resource Estimates
As of the date of this report, the Bowdens Silver Project is without known Mineral Reserves and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Bowdens Property in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards. Roscoe Postle Associates Inc. reviewed and confirmed James A. McCrea's classification of Measured, Indicated and Inferred Mineral Resources for the Bowdens Project, in a report dated March 18, 2004.
Table 8Silver Standard Resources Inc.Bowdens PropertyMeasured and Indicated Mineral Resource Estimate(40 g/t Silver-Equivalent Cutoff Grade - capped)
| Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) |
| Measured & Indicated | 47.6 | 51.9 | 0.30 | 0.41 |
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Table 9Silver Standard Resources Inc.Bowdens PropertyInferred Mineral Resource Estimate(40 g/t Silver-Equivalent Cutoff Grade - capped)
| Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) |
| Inferred | 13.4 | 40.9 | 0.21 | 0.32 |
Pirquitas Project
Location, Access and Infrastructure
Our 43.4%100% owned Pirquitas Project is a polymetallic (silver, tin, and zinc) deposit situated in the Puna de Atacama of northwestern Argentina, in the Province of Jujuy. The project site is located approximately 355 km northwest of the city of San Salvador de Jujuy. Access to the site is on public roads. The project is located in mountainous terrain with elevations ranging from 4,100 to 4,400 meters above mean sea level. There are no nearby power lines or telecommunication lines.lines; however, a natural gas pipeline passes within 40 kilometres of the project. See the following Pirquitas Project, Location Map.
Land Tenure
The Pirquitas Project consists of 47 mineral concessions covering a total of 3,841 hectares. In order to maintain our rights to these concessions we are required to make “canon” payments to the Argentine government.
The Pirquitas Project also includes surface rights covering an area of approximately 7,498 hectares, which can be used for purposes such as housing, infrastructure facilities, processing plants, waste and tailing disposal sites, and other facilities to support mining operations.
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Table of ContentsHistory
History
Pirquitas is the largest historical producer of tin and silver in Argentina. The following is a chronological description of mining on the Pirquitas Project:
1932-1935 |
|
1935-1990 | The source of the tin placers was discovered in 1935 and mining of the tin and silver lodes started in 1935. Twelve mines operated in the area and it was often found that mineralization from one mine would turn out to be the same zone as in another, leading to the eventual interconnecting of the mines. The largest mines were San Miguel, Chocaya, Llallagua, and Potosí. Reported total production during this time is estimated to be 777,600 kg of silver, 9,100 tonnes of tin from placer deposits, and 18,200 tonnes of tin mined from the vein |
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1995-2003 | Sunshine Argentina acquired the Pirquitas property in a bankruptcy auction in November 1995. |
2004-2005 | With the acquisition of a 100% interest in the Pirquitas property, we have commenced updating the feasibility |
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Geology and Mineralization
Geology in northwestern Argentina is divided into three subparallel north by northeasterly-oriented structural belts: the Sub-Andean Range, the Eastern Cordillera, and the Puna, in which Pirquitas is located. These belts are defined by differences in mineral deposits, tectonic activity, and rock types.
The Sub-Andean Range is approximately 110 kilometers wide, with elevations ranging from 300 to 2,500 meters. This belt is mostly void of known mineral deposits, and is characterized by thick sequences of sedimentary rocks that have large open folds. The rocks range from Proterozoic to Recent, have no sign of volcanic activity and very little intrusive activity.
The Eastern Cordillera is 70 to 130 kilometers wide, with elevations ranging from 1,300 to 6,200 meters. Mineral deposits are mostly base metals. This belt contains granites intruding sedimentary rocks. Regional high angle reverse faulting and associated uplift are present, separating it from the Sub-Andean Range to the east.
The Puna is 90 to 240 kilometers wide, with elevations ranging from 3,900 to 6,700 meters. Mineral deposits are dominated by base and precious metals but sulfur and borax deposits also exist. Proterozoic rocks are dominant and include interbedded sandstone and shale. Pirquitas mineralization is located in the latter unit.
Mineralization is controlled by the dominant structural fabric and, to a lesser extent, by the permeability and porosity characteristics of the host rocks. Silver, tin, and zinc are spatially associated in a broad sense, but locally, the relationship is tenuous; there are veinlets with only one, all three, or any combination of the three metals. There are also veinlets devoid of any silver, tin, and zinc.
There appear to be three principal styles of mineralization: low-grade disseminated/weak, discontinuous stockwork, sheeted zones of microveinlets, and veins/veinlets. The broad, low-grade halo of silver mineralization is centered on San Miguel, but in general, also encompasses the Potosí vein. Isolated, discontinuous zones of higher-grade micro-stockwork sporadically occur within this broad halo of low-grade mineralization.
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The tin mineralization includes a poorly defined, broad, low-grade zone of mineralization with very tight, narrow zones of higher grade veinlets and veins, similar to the silver mineralization. In the central core of the deposit these higher-grade zones exhibit good continuity and correlate well through the deposit.
Zinc mineralization has an inverted bowl-shaped geometry with a weakly to unmineralized core. Higher-grade zones also seem to trend east-southeast, but these merge into broad zones toward the west end of San Miguel. These broad zones of higher-grade mineralization are open-ended. Underground, veinlet mineralization occurs in a similar fashion to the silver and tin, but high-grade zinc is not confined to the narrow veinlets.
Resource Estimates
As of the date of this report, the Pirquitas Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Mine Development Associates of Reno, Nevada completed the following resource estimate for the Pirquitas Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated May 16, 2003.August 19, 2004.
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Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table 6 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 6
Silver Standard Resources Inc.
Pirquitas Project
Measured and Indicated Mineral Resource Estimate -– In Situ Resource
(Diluted Resource, All Metals, Based on Silver Cutoff of 30 g/t Silver)
Classification | Tonnes | Silver Grade | Tin Grade | Zinc Grade |
Measured | 5,349,000 | 158 | 0.21 | 0.65 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
| Classification | Tonnes | Silver Grade (g/t) | Tin Grade (%) | Zinc Grade (%) |
| Measured & Indicated | 33,765,000 | 139 | 0.15 | 0.56 |
Table 7 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 7
Silver Standard Resources Inc.
Pirquitas Project
Indicated Mineral Resource Estimate – In Situ Resource
(Diluted Resource, All Metals, Based on Silver Cutoff of 30 g/t Silver)
Classification | Tonnes | Silver Grade | Tin Grade | Zinc Grade |
Indicated | 28,416,000 | 136 | 0.14 | 0.55 |
In addition to these in situ resource, Mine Development Associates also reported that the Winters Company, an independent consulting firm reported that recent sampling and metallurgical test work completed by Sunshine Argentina has enabled the jig tailings to be classified as MeasuredIndicated Mineral Resources.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 8 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and Indicated.required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
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Table 11
8
Silver Standard Resources Inc.
Pirquitas ProjectMeasured and
Indicated Mineral Resource Estimate -– Jig TailTailss(1)
| Classification | Tonnes | Silver Grade (g/t) | Tin Grade (%) | Zinc Grade (%) |
| Measured & Indicated | 593,000 | 234 | 0.37 | 0.127 |
Classification | Tonnes | Silver Grade | Tin Grade | Zinc Grade |
Indicated | 593,000 | 234 | 0.37 | 0.127 |
(1) | During 2005, we reached agreement with a third party that claimed it held the rights to approximately one-third of the jig tails. Under the agreement, we agreed to allow the third party access to the Pirquitas property to remove up to 60,000 tonnes of jig tails. |
La Pitarrilla PropertyProject
Location, Access and Infrastructure
The Pitarrilla PropertyProject is located in the northern part of the State of Durango, Mexico, approximately 150 kilometers north of Durango City. The property can be accessed from several all-weather roads. Electrical power is generated at a dam at Palmito located 30 kilometers to the north. See the following Pitarrilla PropertyProject Location Map.
Land Tenure
The Pitarrilla PropertyProject is comprised of twosix mineral claims covering an area of approximately 7,16611,700 hectares and a mineralan application has been filed for an additional claim applicationhas been filed covering an additional 4,200area of 17,960 hectares. In order to maintain our rights to these concessions we are required to make “canon” paymentspay surface mining taxes to the Mexican government.
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Table of ContentsHistory
History
In the late 1990‘s,1990’s, Monarch Resources drill tested several gold anomalies on the eastern flank of the Cerro La Pitarrilla. We acquired the property by staking in late 2002 and shortly thereafter undertook two programs of mapping and prospecting. This work located the three known zones of silver mineralization (Cordon Colorado, Peña Dyke and Javelina Creek), and subsequent programs located two additional zones of which have been tested by 97silver mineralization (Breccia Ridge and South Ridge). Drilling of the Breccia Ridge and South Ridge zones is continuing at the property. As of January 31, 2006, a total of 186 reverse circulation drill (described below) holes totalling approximately 11,000 metres.20,500 metres have been completed and a total of 92 diamond drill (described below) holes totalling approximately 20,600 metres have been completed. The greater the number of drill holes and closer the spacing between holes, the greater the knowledge of the mineral deposit.
Reverse circulation drilling utilizes a rotary percussion drill in which the drilling mud and cuttings return to the surface through the drill pipe. Diamond drilling utilizes a type of rotary drill in which the cutting is done by abrasion using diamonds embedded in a matrix with the drill cutting a core of rock which is recovered in long cylindrical sections. Diamond drilling provides a greater degree of information than reverse circulation drilling about the geology of a potential mineral deposit.
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Geology and Mineralization
SilverThe silver mineralization at the Cordon Colorado and Peña Dyke zones is localized in a porphyry sill. The silver mineralization at the other three known zones, Javelina Creek, Breccia Ridge and South Ridge, is hosted by a combination of brecciated volcanic rock bed, formingrocks and porphyry sills. At Breccia Ridge and South Ridge, the Cordon Colorado zone,silver mineralization is locally associated with significant values of zinc and to a volcanic rock dyke in the Peña Dyke area. Bothlesser extent with lead. All areas of mineralization formed as part of a large volcanic complex measuring 2.5 kilometers by 4 kilometers. Silver mineralization is restricted to the volcanic rock phases.
Resource Estimates
As of the date of this report, the Pitarrilla PropertyProject is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Pitarrilla PropertyProject in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards.Standards, in a report dated March 13, 2006.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
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Table 12Silver Standard Resources Inc.La Pitarrilla PropertyIndicated Mineral Resource Estimate(40 g/t Silver - Cutoff Grade)
| Classification | Tonnes millions | Silver Grade (g/t) |
| Indicated | 10.3 | 124.2 |
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Table 13
9 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 9
Silver Standard Resources Inc.La
Pitarrilla PropertyInferredProject
Indicated Mineral Resource Estimate
(40 g/t Silver - Cutoff Grade)
| Tonnes | Silver Grade |
Indicated | 18.6 | 112.4 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 10 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 10
Silver Standard Resources Inc.
Pitarrilla Project
Inferred Mineral Resource Estimate
(40 g/t Silver - Cutoff Grade)
| Tonnes | Silver Grade |
Inferred | 32.4 | 124.8 |
Secondary Properties
Bowdens Project
Location and Access
Our Bowdens Project is located approximately 200 kilometers northwest of Sydney in eastern New South Wales, Australia, near latitude 32° 39’S, longitude 149° 52’E. Access is by the paved road between Mudgee (population 7,500) and Rylstone (population 750) and by numerous gravel and dirt roads that criss-cross the area. See the following Bowdens Project General Location Map.
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| Classification | Tons millions | Silver Grade (g/t) |
| Inferred | 3.4 | 120.3 |
The area includes sheep ranches, farms and weekend cottages. Several large coal mines and limestone quarries are found both south of Rylstone and north of the property. The rail line between Mudgee–Lue-Rylstone-Kandos has recently reopened allowing rail access to Sydney via Kandos and Lithgow. A high-tension power line crosses the property. Skilled workers are available from Mudgee and other nearby towns.
Land Tenure
The Bowdens Project consists of one exploration tenement covering 188 square kilometers held 100 percent by Silver Standard Australia Pty. Ltd, our wholly-owned subsidiary. In order to maintain our interest in the property, we are required to make annual work expenditures on the property. For the years ended January 31, 2005 and January 31, 2006 minimum required expenditures are A$95,000 per year. We incurred all required work expenditures during the period ended January 31, 2006, and submitted our application for a renewal of the exploration tenement on December 21, 2005.
In April 1999, we purchased the 133.75 hectare farm that overlies the mineralization and a large portion of the area currently being considered for the process plant, waste dumps and tailings pond. The surface rights to the adjoining 50.05 hectare farm, which is the proposed location for the planned mill facilities, were purchased in 2001. In March, 2003, we completed the purchase of a third farm covering an area of 1,140 hectares, which provides us with surface rights for the location of the waste dumps and tailings pond and adjoins the previously purchased farms.
History
The original tenements covering the mineralization of the Bowdens Project were granted to CRA Exploration Pty Limited (“CRA Exploration”) during 1989 and 1990. The following is a chronological description of mineral exploration on the Bowdens Project:
1989 - 1992 | CRA Exploration completed rock chip and soil sampling, geological mapping, induced polarization surveys, 33 reverse circulation drill holes totalling 3,438 meters and five diamond drill core holes for 842 meters. |
1994-1996 | GSM Exploration Pty Limited (“GSM Exploration”) acquired the project and completed 17 reverse circulation holes totalling 2,413 meters and five diamond drill holes for 665 meters. GSM Exploration also completed a scoping study, which included a mineral resource estimate, metallurgical testing and environmental studies. |
1997-1998 | We acquired GSM Exploration and carried out exploration programs over the two main prospects of the Bowdens Project and a regional reconnaissance program to expand on previous reconnaissance work. In May 1998, our board of directors approved a US$2.7 million feasibility study of the economics of the Bowdens Project, and we commenced a reserve definition drill program to expand indicated and inferred silver resources and to provide additional geological and metallurgical information. A feasibility study is required to be completed for the Bowdens Project before any reserves can be designated for the project. |
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1999-2001 | We completed preliminary resource modelling, which indicated that additional in-fill drilling was required prior to completion of the final reserve estimate, and prospecting in the area west of the known mineralization indicated the potential for locating additional tonnage. (A feasibility study is required to be completed for the Bowdens Project before any reserves can be designated for the project.) Drilling in this area was carried out in 2000. In 2001, we completed a two phase drilling program consisting of 19 reverse circulation drill holes totalling 2,711 metres on the Bowdens Project. Based on the results of the drill programs, we initiated an updated block model resource estimate for the Bowdens Project, which was completed in October 2001. |
2002 - 2004 | We completed an in-fill drill program in order to better define silver resources on the property for completion of the feasibility study on the Bowdens Project and continued work on elements of the feasibility study. |
2005 | We completed an airborne geophysics survey and a drill program to follow up on drill targets identified by the airborne survey. No significant intersections were achieved in this regional drill program. |
As of December 31, 2005, a total of 420 drill holes totalling 45,327 metres, including water exploration holes, have been completed on the Bowdens Project since 1989.
Regional Geology and Mineralization
The Bowdens Project is located within a shallow depression that formed during the Late Silurian to Middle Devonian ages. Other rocks exposed in the area include Devonian age marine sediments, Middle Carboniferous age granite intrusives and the Permian age Rylstone volcanics.
Outcropping along the eastern margin of the depression are volcanic rocks. Mineralization at Bowdens is hosted by the rocks near the base of this formation.
Our geologists have identified three styles of mineralization and alteration. First, a silica alteration that is best developed within the volcanics with pervasive silica forming up to 60 percent of the rock. Visible sulfides comprise 5 to 7 percent of the rock and are composed of mainly fine-grained pyrite with minor galena and sphalerite. Occasionally quartz-sulfide veinlets form stockworks and sheeted zones within this style of mineralization. Second, a quartz vein or vein-breccia style of alteration is well developed in an area of mineralization. Vein widths range from 5.0 centimeters up to 1.5 meters and consist of fine layers of chalcedonic and crystalline quartz with thin rhodochrosite bands. Sulphides are associated with quartz and sometimes form bands of pyrite, sphalerite and galena. Third, a sericitic green clay alteration is best developed in the crystal tuff and ignimbrites and consists of sericite, carbonate, epidote, and minor 1 to 2 percent pyrite.
Resource Estimates
As of the date of this report, the Bowdens Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Bowdens Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards. Roscoe Postle Associates Inc. reviewed and confirmed James A. McCrea’s classification of Measured, Indicated and Inferred Mineral Resources for the Bowdens Project, in a report dated March 18, 2004.
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Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table 16 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 16
Silver Standard Resources Inc.
Bowdens Project
Measured Mineral Resource Estimate
(40 g/t Silver-Equivalent Cutoff Grade – capped)
Classification | Tonnes | Silver Grade | Lead | Zinc |
Measured | 22.9 | 50.4 | 0.33 | 0.46 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 17 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 17
Silver Standard Resources Inc.
Bowdens Project
Indicated Mineral Resource Estimate
(40 g/t Silver-Equivalent Cutoff Grade – capped)
Classification | Tonnes | Silver Grade | Lead | Zinc |
Indicated | 24.7 | 53.33 | 0.26 | 0.36 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 18 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
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Table 18
Silver Standard Resources Inc.
Bowdens Project
Inferred Mineral Resource Estimate
(40 g/t Silver-Equivalent Cutoff Grade – capped)
Classification | Tonnes | Silver Grade | Lead | Zinc |
Inferred | 13.4 | 40.9 | 0.21 | 0.32 |
Shafter Silver Project
Location, Access and Infrastructure
The Shafter Silver Project is located in south central Presidio County, in southwestern Texas, at latitude 29°30’30' north and longitude 104°20’20' west. The town of Shafter, at the eastern border of the district, is 43 miles south of Marfa, and 18 miles northeast of Presidio on the Mexico border, at the northeast border of the Mexican State of Chihuahua. The Big Bend National Park is about 60 miles to the southeast of Shafter. Access to the property is by paved roads from El Paso via Marfa. The closest major airport is at El Paso. See the following Shafter Silver Project Location Map.
Land Tenure
The Shafter Silver Project is on private land in the State of Texas, other than a narrow strip of land leased from the state. We control approximately 3,500 acres of private land on and around the mine sites. We also have the right to acquire, via a lease option taken out in April 1998 by Rio Grande Mining Company (“Rio Grande”), now our indirect subsidiary, a contiguous 16,000-acre tract of private ranch land (single owner), which includes the Red Hills copper-molybdenum deposit and several miles of land on-trend between Shafter and Red Hills.
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Table of ContentsHistory
History
The mineralized areas in the Shafter district were first explored in 1880 by John Spencer, and his Mexican workers. It is thought that some old workings near the Perry Mine may date back to early prospecting by Spanish explorers. The first official mining company was the Presidio Mining Company organized in 1881. The following is a chronological description of mineral exploration in the Shafter district:
1883-1926 | Production began from the Mina Grande deposit in 1883 but was not profitable until 1888. Ore was mined continually from 1883 until 1913, with ore generally averaging 20 to 30 ounces silver per ton, with annual mine output about 20,000 tons per year. A cyanide mill was built in 1913, and mine output increased to 84,000 tons per year through to 1926, but grade decreased to 17 ounces silver per ton. |
1926-1942 | In 1926, the property was transferred to American Metal Co. of Texas and annual production decreased to 50,000 tons at a grade of over 20 ounces silver per ton. Production continued through to 1940 except for a period in 1930 |
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1950’s | After World War II, the Shafter district was quiet until Phelps Dodge commenced evaluation of the Red Hills intrusive 5 miles west of Presidio, Texas when the copper price increased in the 1950s. |
1970’s | Duval Corporation drilled approximately 80 holes into the Red Hills intrusive and outlined an area of copper-molybdenum mineralization. Duval also undertook a regional exploration program involving geochemical and geophysical surveys to search for other mineralized zones. |
1977-1982 | In 1977, Gold Fields Mining Company (“Gold Fields”) acquired the property from Cyprus Amax, (the parent company of American Metals Co. of Texas). From 1977 to 1982, Gold Fields spent over $20 million on exploration and development work in the Shafter |
2000-2005 | Since our acquisition of the project, we have focused our efforts on completing the permitting to place the Shafter Silver Project in production. We have also acquired and transported to Shafter a used 800 ton-per-day |
Geology and Mineralization
Many of the world’s largest carbonate-hosted silver-lead-zinc deposits occur in northern Mexico, and some have been in production since the 1600‘s.1600’s. These deposits occur in thick Jurassic age to Cretaceous age sedimentary depressions overlying older Paleozoic age rocks. The regional geology in the area of south western Texas is similar to that described above with a thick Jurassic-Cretaceous age sedimentary depression overlying the older Paleozoic age basement rocks. Thick carbonate sequences extend over 1,600 kilometers in length from southeastern Arizona and southern New Mexico, through northern Mexico and southwestern Texas. The carbonate formations often exceed 3,000 meters in thickness, and consist of continuous sections of limestone with minor dolomite. The silver-lead-zinc deposits in these areas are referred to as “carbonate-hosted deposits” because of their irregular but sharp contact with their enclosing carbonate host rocks.
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The mineral deposits in the Shafter Mining Districtdistrict occur in the upper units of the Permian age limestone, mainly as replacement bodies. The mineralization took place after the intrusion of dikes and sills of Tertiary age. The ore minerals have all had some oxidation and much of the silver is in argentite and cerargyrite. There is little evidence in the Shafter Mining Districtdistrict to indicate the source of the mineralizing solutions that formed the silver-lead-zinc deposits. No evidence of contact metamorphism has been noted, and this may indicate that the mineralizing solutions have travelled some distance, either horizontally or vertically through the carbonate rocks.
Mineralogy is fairly consistent within the whole district. Locally at the Presidio Depositdeposit the principal silver minerals are argentite and minor native silver. Other minerals are quartz, calcite, goethite, and some dolomite, hemimorphite, willemite, galena and sphalerite. Secondary minerals are cerusite, goethite and hematite. The Shafter depositSilver Project is an eastward extension of the previously mined Presidio Deposit.deposit.
Resource Estimates
As of the date of this report, the Shafter Silver Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
PAH
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Pincock, Allen & Holt, a division of Runge, Inc. (“PAH”) developed a three-dimensional computerized model of the Shafter silver depositSilver Project that was used in the development of the geologic resource estimate. PAH’s estimated geologic resource includes all material in the model without regard to mineability. The resource estimation does not provide for any dilutional effects that will be experienced during mining and is based on a density factor of 12.0 cubic-feet per ton applied to all material. PAH, in a report dated April 10, 2001, believes that the classification of the resources meets the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table 14
19 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 19
Silver Standard Resources Inc.
Shafter Silver Project
Measured and Indicated Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
|
| Silver Grade |
Measured | 658,000 | 9.89 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 20 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 20
Silver Standard Resources Inc.
Shafter Silver Project
Indicated Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
|
| Silver Grade |
Indicated | 1,427,000 | 10.14 |
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| Classification | Tons | Silver Grade (g/t) |
| Measured & Indicated | 2,085,000 | 10.06 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 21 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 21
Silver Standard Resources Inc.
Shafter Silver Project
Inferred Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
|
| Silver Grade |
Inferred | 1,572,000 | 12.83 |
San Luis Project
Location, Access and Infrastructure
The San Luis Project in Peru is a newly discovered gold-silver property located in the Ancash Department of central Peru, approximately 25 kilometers northwest of Barrick Gold Corporation's Pierina gold mine. Property elevations range from 3,800 to 4,700 meters above sea level. The project can be accessed from an all-weather road. See the following San Luis Property Location Map.
Land Tenure
The San Luis Project is comprised of 12 mineral concessions covering an area of approximately 10,100 hectares. Application has been made for an additional four concessions covering an area of approximately 2,900 hectares. In order to maintain our rights to these concessions we are required to pay a mining good standing fee in respect of each concession to the government of Peru.
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History
The veins that form the San Luis Project were discovered in mid-2005 by an Esperanza field crew carrying out an evaluation program under the evaluation agreement between Esperanza and Silver Standard. In September 2005, Esperanza announced the following assays from channel samples taken by its exploration crews from the Ayelén vein, one of the five veins that comprise the project.
Table 11
Silver Standard Resources Inc.
San Luis Project
Channel Sample Results – Ayelén Vein
| Sample No. | Sample Length (vein width in meters) | Gold Grade (g/tonne) | Silver Grade (g/tonne) |
| C-A1 | 4.2 | 40.7 | 1,198 |
| C-A2 | 4.6 | 27.1 | 694 |
| C-A3 | 4.6 | 1.8 | 29 |
| C-A4 | 7.0 | 84.8 | 1,628 |
In March 2006, Esperanza announced the results from a follow-up channel sampling program initiated in January 2006. Channel samples were spaced approximately every 82 feet (25 meters) along the strike length of the Ayelén vein. Individual channels were cut perpendicular to the strike of the vein allowing the full thickness of the vein to be sampled. The channels vary in length from 13.5 to 119.4 feet (4.1 to 36.4 meters). Individual samples within each channel are approximately 3.3 feet (one meter) in length.
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Table 12
Silver Standard Resources Inc.
San Luis Project
Channel Sample Results –Ayelén Vein
|
| Channel Length | Gold Grade | Silver Grade | ||
| A1(1) | Best sample | 0.1 | 5.3 | ||
| A2(1) | Best sample | 1.2 | 64.0 | ||
| A3 | 0.99 | 5.7 | 396.0 | ||
| A4(1) | Best sample | 0.5 | 46.0 | ||
| A5 | 1.59 | 7.3 | 644.0 | ||
| A6(1) | Best sample | 0.1 | 12.0 | ||
| A7(1) | Best sample | 0.4 | 24.0 | ||
| A7-1(1) | Best sample | 3.8 | 110.0 | ||
| A8 | 1.86 | 10.7 | 272.0 | ||
| A9 | 2.52 | 58.0 | 1,961.0 | ||
| A10 | 4.23 | 134.0 | 2,246.0 | ||
| and | 1.64 | 12.5 | 102.0 | ||
| A11 | 5.99 | 78.4 | 2,082.0 | ||
| and | 0.98 | 18.2 | 180.0 | ||
| A12 | 8.59 | 36.4 | 719.0 | ||
| A13 | 7.14 | 33.3 | 704.0 | ||
| A14 | 2.64 | 23.2 | 265.0 | ||
| A15 | 1.07 | 26.5 | 272.0 | ||
| A16 | 2.09 | 19.6 | 309.0 | ||
| (1) | Best sample means the best sample obtained from the channel. |
| |||
The follow-up channel sampling is continuing and an initial environmental impact study has been submitted for approval. On approval of the initial environmental impact study, a drill program will be initiated on the project.
Geology and Mineralization
Geological mapping has only been recently initiated at the San Luis Project. Gold and silver veins are hosted within Tertiary-age volcanic rocks. Five separate veins have been identified so far with a cumulative strike length of over 5,000 meters. The veins are several hundreds of meters to over 2,000 meters in length and up to 10 meters or more wide.
Mineralization within the veins is typical of classic quartz-adularia or low-sulfidation epithermal systems. Vein textures such as well developed banding and brecciation indicate that repeated episodes of gold and silver deposition have occurred in the veins. Early investigations at San Luis suggest that concentrations of precious metals will likely form ore shoots within the veins.
As of the date of this report, the San Luis Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
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Manantial Espejo Project
Location, Access and Infrastructure
Our 50% owned Manantial Espejo Project is located in southern Argentina in the province of Santa Cruz, centered at longitude 69° 30’ west and latitude 48° 46’ south. The nearest major city is Puerto San Julian, located on the Atlantic coast, 160 kilometers east of the property. See the following Manantial Espejo Project, Location Map.
Rio Gallegos, 360 kilometers south and Comodoro Rivadavia, 420 kilometers north, from Puerto San Julian, are served by daily flights to Buenos Aires. Access to the property is from Provincial Route 25, a maintained gravel road, which runs from San Julian on the coast to Gobernador Gregores, some 60 kilometers beyond the property. Within the property, gravel and dirt roads provide good access to the resource area, which is 9 kilometers from the main road. In winter or during infrequent rainstorms 4-wheel drive is recommended.
There are no nearby power lines or telecommunication lines. A natural gas transmission line is located within 150 kilometers of the property, passing just west of San Julian. There is little mining history in the area with the exception of active Anglo-Ashanti’s Cerro Van Guardia and Coeur d Alene’s Martha mines. A small labor force can be found in Gobernador Gregores.
Land Tenure
The Manantial Espejo Project consists of 17 mineral concessions covering a total of 25,533 hectares, extending 36 kilometers east-west and 19 kilometers north-south. In order to maintain our rights to these concessions we are required to make “canon” payments to the Argentine government as well as complete a 3 year (2003-2005) investment of $2.5 million. Both of these requirements have been met.
In August 2001, we acquired, together with Triton Mining through Minera Triton, two ranches totalling 26,750 hectares (103.3 square miles) for US$575,000, including buildings and improvements, payable over three years. The two ranches cover the main areas of defined mineralization at Manantial Espejo. These payments have been made and title is in the name of Minera Triton. In 2005, Minera Triton acquired an adjacent ranch for US$340,000 to secure a water supply for the project.
History
Exploration was first carried out on the property in the 1970s by the Argentine government. The following is a chronological description of mineral exploration on the Manantial Espejo Project:
1991-1995 | St. Joe Minerals Corp., Lac Minerals Ltd. and Barrick Gold Corporation collectively completed mapping, trenching, sampling, 38 reverse circulation drill holes totalling 3,256 meters, 215 wagon drill holes (short, small diameter, percussion drill holes) totalling 3,282 meters, and 45 diamond drill holes totalling 6,000 meters. Eleven trenches were completed on the Maria Vein, the main area of mineralization, including two large metallurgical samples. |
1996-1997 | Triton Mining entered into an option agreement with Barrick Gold to earn the right to acquire an 80 percent interest in the project for a total cost of $2,500,000 and completed 104 diamond drill holes totalling 16,448 meters (14,728 meters on the Maria Vein and 1,720 meters on the Karina/Union and Concepcion Veins). In October 1997, Kilborn Engineering Pacific Ltd. completed for Triton a pre-feasibility study on the Maria Vein. |
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1998-2001 | In April 1998, Triton Mining exercised its option and acquired its 80 percent ownership in the property and in November 1998 we acquired an option to |
2002-2005 | In 2002, we formed a 50%-50% joint venture with Pan American for the |
As of March 14, 2005, a total of 685 drill holes totalling approximately 75,000 meters have been completed on the Manantial Espejo Project, including metallurgical, geotechnical and condemnation drill holes, but excluding the wagon drill holes completed by St. Joe Minerals Corp. A large component of drilling in 2004 was dedicated to infill drilling successfully improving confidence in the mineral resource estimation necessary to development mining plans. Additional infill drilling was completed in 2005 along with condemnation and exploration drilling.
Geology and Mineralization
Mineralization at the Manantial Espejo Project is hosted in epithermal systems: the Maria Vein, Karina/Union Vein, Mellissa Vein and Concepcion Vein. The largest zone of mineralization outlined to date is in the Maria Vein. The vein is a thick multiphase quartz-adularia vein exposed on surface for more than 1.0 kilometer and has been intersected to a depth of 275 meters below surface. This vein averages 7.8 meters in true thickness but ranges from 0.63 meters to 20 meters thick.
The Maria Vein exhibits two quartz textures, older quartz which may also contain grey silica, amethyst and vuggy quartz, and younger sulphide-rich vein quartz breccia that often crosscuts the earlier vein and carries fragments of it. Sulphide content is low and is primarily 3-5 percent pyrite. Minor amounts of galena, sphalerite, chalcopyrite, bornite, chalcocite and covellite have been observed.
Gold occurs as electrum inclusions contained in pyrite. Very minor visible gold in the 200-micron size has been observed in drill core along goethite-coated fractures. The silver occurs as electrum along with minor amounts of argentite, acanthite, sulfosalts, and prousite-pyrargerite.
The Karina/Union Vein is exposed on surface for a distance of 850 meters and has been drilled to a depth of 150 meters. The host rocks, alteration and mineralogy of the vein is similar to the Maria Vein. Several interconnected high-grade silver-gold epithermal veins in a stockwork like system, produce drill intersections in excess of twenty meter true widths.
The Melissa Vein has a faint surface expression that rarely outcrops. The trend of 1.5 to 2.5 meter-wide high-grade silver-gold epithermal system has an N080 degree strike with a steep northerly dip. The mineralization and host geology is very similar to that encountered at the Maria Vein. Structurally, Melissa is thought to be the extensional component to the Maria shear system. The Melissa Vein has been defined by drill holes along a 300 meter strike length and 200 meters down dip.
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The Concepcion Vein is a quartz-adularia composite lode-system mineralized by breccia veins containing high-grade silver-gold mineralization over a strike distance of 600 meters. Mineralization is open at depth and at both ends. The host rocks, mineralogy and alteration are similar to the other veins on the property. The Concepcion vein system is stratigraphically and structurally controlled within units of the Chon Aike Formation.
As of the date of this report, the Manantial Espejo Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Disclosure regarding resource estimates by Pan American have been deleted.
Tertiary Properties
Diablillos Project
The Diablillos Project is located on the Puna Plateau in the province of Salta in northwestern Argentina near its border with Chile. The project consists of seven concessions totalling 13.9 square miles (3,600 hectares) and is accessible by road. In order to maintain our rights to these concessions we are required to make “canon” payments to the Argentine government. See the following Diablillos Project Location Map.
The silver-dominant mineralization at the Diablillos Project is hosted by a high sulphidation epithermal system in volcanic rocks. The mineralization is largely confined between two northeast-striking faults approximately 1,300 feet (400 metres) apart.
Silver mineralization in the Oculto deposit (the main area of mineralization) occurs as native silver, chlorargyrite and matildite. As mineralization is both oxide and sulphide, recoveries in heap leach tests were sufficiently low to recommend milling as the optimal method of recovery.
Much of the recent work on the Oculto deposit at the Diablillos Project was completed by Barrick Gold Corporation. The Oculto deposit is defined by 17 diamond drill holes totalling 3,010 metres and 79 reverse circulation holes totalling 19,114 metres. Barrick drilled altogether 24 diamond drill holes and 150 reverse circulation holes. In 2003, we drilled 20 holes totaling 3,046 meters, chiefly to test geophysical anomalies outside of the Oculto deposit and to test for continuity of several high grade trends within the zone. The peripheral drilling intersected several areas with anomalous values. The drilling within the zone confirmed continuity of the target mineral trends.
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As of the date of this report, the Diablillos Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Mine Development Associates of Reno, Nevada completed the following resource estimate for the Oculto deposit within the Diablillos Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated August 3, 2001.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 22 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
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Table 22
Silver Standard Resources Inc.Shafter Silver
Diablillos Project
Inferred Mineral Resource Estimate
(5.0 oz/ton42 g/t Silver Cutoff Grade - 0.7 g/t Gold Cutoff Grade)
|
| Silver Grade | Gold Grade |
Inferred* | 41,979,000 | 69.5 |
|
Inferred* | 24,883,000 |
| 1.02 |
* | overlapping mineralized zones. |
Berenguela Project
The Berenguela Project is located three miles northeast of Santa Lucia, in the Province of Lampa on the Altiplano of southern Peru and is comprised of two mining concessions covering an area of approximately 200 hectares. The project can be accessed from a major paved highway adjacent to the project, and a main-line railway passes within 5 kilometers of the project. See the following Berenguela Project Location Map.
The mineral deposit that comprises the Berenguela Project is hosted by limestone overlying a layer of gypsum. The limestone varies in thickness from 30 meters to 100 meters. Mineralization consists of massive replacement of the limestone by manganese dioxide minerals and variable amounts of silver and copper. The deposit is a tabular body that occurs at surface over an area of approximately 75 hectares and is accessible by underground workings and several open pits.
The project was mined continuously from 1905 to 1965 by Lampa Mining Company, of Britain, as a silver-copper mine. In the 1960’s, Charter Consolidated Mining Co. and Asarco Inc. each explored the Berenguela Project. The two companies completed a total of 6,600 meters of diamond drilling and channel-sampled underground workings at 1.5-meter intervals over 5,108 meters. In 1968, Charter Consolidated developed an open pit plan and calculated a mineable ore reserve for the project. Since the completion of the mineable ore reserve estimate, no significant amount of ore has been mined from the project. The ore reserve calculated by Charter Consolidated does not comply with Canadian National Instrument 43-101 and the CIM Standards. Under Canadian National Instrument 43-101 and the CIM Standards, the mineable reserve would be classified as a mineral resource.
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| Classification | Tons | Silver Grade (oz/ton) |
| Inferred | 1,572,000 | 12.83 |
In the late 1960’s the Peruvian Government nationalized the Berenguela Project. SOMINBESA acquired the project from Minero-Peru (a state owned mining company) in 1995 and has completed engineering studies for the development of the project. Under our option agreement, we agreed to undertake additional drilling and prepare a resource estimate for the project in accordance with Canadian National Instrument 43-101 and the CIM Standards.
In late 2004 through mid 2005, we completed a reverse circulation drill program that totaled 19,029 meters in 222 holes. The program objectives were: (1) to twin historic, wider-spaced drilling to verify the grade of mineralization, and (2) to complete sufficient additional infill drilling in two areas of mineralization on the project to determine the scope of future drilling requirements for a measured, indicated and inferred resource.
Resource Estimates
As of the date of this report, the Berenguela Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Berenguela Project, in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards,in a report dated October 26, 2005.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 23 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 23
Silver Standard Resources Inc.
Berenguela Project
Indicated Mineral Resource Estimate
(50 g/t Silver Cutoff Grade – capped)
Classification | Tonnes | Silver Grade | Copper |
Indicated | 15.6 | 132.0 | 0.924 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 24 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S.
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Secondary PropertiesSecurities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 24
Silver Standard Resources Inc.
Berenguela Project
Inferred Mineral Resource Estimate
(50 g/t Silver Cutoff Grade – capped)
Classification | Tonnes | Silver Grade | Copper |
Inferred | 6.0 | 111.7 | 0.74 |
Veta Colorada Project
The Veta Colorada Project is located in the Parral District in Chihuahua State, Mexico, approximately 210 kilometers south of Chihuahua City. The project can be accessed from paved Highway 24 that connects the City of Hidalgo del Parral, Mexico and Durango City, Mexico. The Veta Colorada Project is comprised of nine mining concessions covering an area of approximately 4,244 hectares. In order to maintain our rights to these concessions we are required to pay surface mining taxes to the Mexican government.
Veta Colorada is the principal vein structure in the district, oriented north/south and traceable for over 10 kilometers. The footwall vein is a typical banded quartz vein measuring one to four meters in thickness. The hanging wall is brecciated up to 30 meters in thickness and is mineralized with lower grade material that was generally left in place by previous miners.
Mining in the Parral District commenced in the late 1500's when high-grade silver-gold mineralization was discovered in the Veta Colorada vein system, which was mined up until the 1990’s. We are currently carrying out a due diligence review of the Veta Colorada Project.
As of the date of this report, the Veta Colorada Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Challacollo Project
The Challacollo projectProject is located 130 kilometres southeast of Iquique and 15 kilometres east of the Pan American Highway at an elevation is 4,900 feet (1,500 meters) above sea level in the Region of Tarapaca (Region One) in northern Chile and covers an area of approximately 14.5 square miles (37.5 square kilometres). The project can be accessed by a dirt road off of the Pan American Highway. In order to maintain our rights to the concessions that comprise the project, we are required to pay annual patentes (taxes) to the Chilean government. See the following Challacollo Project Location Map.
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The Challacollo depositProject consists of four main north-south trending veins. The principal vein, Lolon is 2,000 metres in length and has historically been prospected and developed along 700 metres. Mineralization is hosted in a dominant quartz-rich zone that averages up to 13 metres in width and crosscuts volcanic rocks. During the 1990‘s,1990’s, 22 holes, along with significant underground sampling was undertaken by various exploration groups.
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In late 2001 and early 2002, we completed an extensive sampling program of the underground workings at 25 metre intervals comprised of over 1,000 samples and a seven hole, 746-metre drill program which tested approximately 600 metres of strike length of the Lolon vein that extends on surface for 2,000 metres. In 2003, a 5,685 metre drill program of infill and step out drilling was completed and a resource estimate for the project was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards.
As of the date of this report, the Challacollo Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
We completed an updated polygonal estimate of the resources for the Challacollo Project in July 2003, which included the results of the 2001 and 2002 underground sampling and drill programs and the 2003 drill program. The resource estimate is based on a cut-off of 50 gramsg/t of silver per tonne and was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards. Sundance Ventures reviewed and confirmed our classification of Indicated and Inferred Mineral Resources for the Challacollo Project, in a report dated September 17, 2003.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 25 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
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- 46 -
Table 16
25
Silver Standard Resources Inc.
Challacollo Project
Silver Standard Indicated Mineral Resource Estimate with Sundance Review
(50 g/t Silver Cutoff Grade)
|
| Silver Grade |
Indicated | 3,390,000 | 170.6 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 17
26 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 26
Silver Standard Resources Inc.
Challacollo Project
Silver Standard Inferred Mineral Resource Estimate with Sundance Review
(50 g/t Silver Cutoff Grade)
|
| Silver Grade |
Inferred | 4,569,000 | 160.7 |
Diablillos Project
The Diablillos silver-gold project is located on the Puna Plateau in the province of Salta in northwestern Argentina near its border with Chile. The property consists of seven concessions totalling 13.9 square miles (3,600 hectares) and is accessible by road. In order to maintain our rights to these concessions we are required to make “canon” payments to the Argentine government. See the following Diablillos Project Location Map.
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The silver-dominant mineralization at Diablillos is hosted by a high sulphidation epithermal system in volcanic rocks. The mineralization is largely confined between two northeast-striking faults approximately 1,300 feet (400 metres) apart.
Silver mineralization in the Oculto deposit (the main area of mineralization) occurs as native silver, chloragerite and matildite. As mineralization is both oxide and sulphide, recoveries in heap leach tests were sufficiently low to recommend milling as the optimal method of recovery.
Much of the recent work on the Oculto deposit at Diablillos was completed by Barrick Gold Corporation. The Oculto deposit is defined by 17 diamond drill holes totalling 3,010 metres and 79 reverse circulation holes totalling 19,114 metres. Barrick drilled altogether 24 diamond drill holes and 150 reverse circulation holes. In 2003, we drilled 20 holes totaling 3,046 meters, chiefly to test geophysical anomalies.
As of the date of this report, the Diablillos Property is without known Mineral Reserves and any activity carried out on the property is exploratory in nature.
Mine Development Associates of Reno, Nevada completed the following resource estimate for the Oculto deposit in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated August 3, 2001.
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Table 18Silver Standard Resources Inc.Diablillos PropertyInferred Mineral Resource Estimate(42 g/t Silver Cutoff Grade - 0.7 g/t Gold Cutoff Grade)
| Classification | Tonnes | Silver Grade (g/t) | Gold Grade (g/t) |
| Inferred* | 41,979,000 | 69.5 | |
| Inferred* | 24,883,000 | 1.02 |
* overlapping mineralized zones.
Maverick Springs Project
The Maverick Springs Project is located approximately half-way between Elko and Ely, Nevada and covers approximately 3,970 acres within the prospective region of gold/silver mineralization known as the Carlin Trend. The project can be accessed year-round by fifteen miles of gravel road from the Ruby Lakes National Wildlife Refuge, located west of the Maverick Springs Project. See the following Maverick Springs Project Location Map. The Carlin Trend is thought to mark a deep penetrating fault that separates relatively thick and stable continental crust to the east from a zone of thinned transitional crust to the west.
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The Maverick Springs Project is underlain primarily by sediments covered by local basin-fill volcanic rocks. Limestones and sediments are the dominant hosts to the silver-gold mineralization at the Maverick Springs.Springs Project. The mineralization does not crop outoutcrop and has been delineated by programs of reverse circulation and diamond core drill holes. The mineralization trends north-northeast and occurs as a gently-folded sub-horizontal zone, of dimensions of approximately 8,000 feet in length and 2,500 feet wide. The zone of mineralization is approximately 200 feet thick and occurs at depths of 500 feet to 600 feet below surface.
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Prior to Vista and VNC acquiring the option on the property from Newmont, geological mapping, soil and stream geochemical surveys, and a substantial amount of drilling were carried out on the property. A total of 130 drill holes were completed during this period, of which 37 were shallow conventional rotary or percussion holes, 39 were reverse circulation holes, and 54 were diamond core holes. Following the acquisition of the option from Newmont, Vista completed a wide-spaced seven hole reverse circulation drill program to test for continuation of the previously identified mineralized zone. In 2003, 2004 and 2005, Vista completed an additional 16 and 13, respectively, reverse circulation holes to further test for the continuation of mineralization.
As of the date of this report, the Maverick Springs Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Snowden Mining Industry Consultants of Vancouver, British Columbia completed the following resource estimate for the Maverick Springs Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated April 13, 2004.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 27 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
-59 - |
- 50 -
Table 19
27
Silver Standard Resources Inc.
Maverick Springs Project
Indicated Mineral Resource Estimate
(1 oz/ton Silver-Equivalent Cutoff Grade)
| Tons | Silver Grade | Gold Grade |
Indicated | 69.63 | 1.0 | 0.010 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
| Classification | Tonnes (millions) | Silver Grade (oz/ton) | Gold Grade (oz/ton) |
| Indicated | 69.63 | 1.0 | 0.010 |
Table 20
28 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 28
Silver Standard Resources Inc.
Maverick Springs Project
Inferred Mineral Resource Estimate
(1 oz/ton Silver-Equivalent Cutoff Grade)
| Classification | Tonnes (millions) | Silver Grade (oz/ton) | Gold Grade (oz/ton) |
| Inferred | 85.55 | 1.0 | 0.008 |
| Tons | Silver Grade | Gold Grade |
Inferred | 85.55 | 1.0 | 0.008 |
Berenguela Project
The Berenguela project is located 50 km west of Juliaca, in the Province of Lampa on the Altiplano of southern Peru and is comprised of two mining concessions covering an area of approximately 200 hectares. Access is good with a major paved highway adjacent to the property and a main-line railway passes within 5 kilometers of the property. See the following Berenguela Project Location Map.
- 51 -
The Berenguela deposit is hosted by limestone overlying a layer of gypsum. The limestone varies in thickness from 30 meters to 100 meters. Mineralization consists of massive replacement of the limestone by manganese dioxide minerals and variable amounts of silver and copper. The deposit is a tabular body that occurs at surface over an area of approximately 75 hectares and is accessible by underground workings and several open pits.
The property was mined continuously from 1905 to 1965 by Lampa Mining Company, of Britain, as a silver-copper mine. In the 1960‘s, Charter Consolidated Mining Co. and Asarco Inc. each explored the Berenguela property. The two companies completed a total of 6,600 meters of diamond drilling and channel-sampled underground workings at 1.5-meter intervals over 5,108 meters. In 1968, Charter Consolidated developed an open pit plan and calculated a mineable ore reserve for the property. Since the completion of the mineable ore reserve estimate, no significant amount of ore has been mined from the property. The ore reserve calculated by Charter Consolidated does not comply with Canadian National Instrument 43-101 and the CIM Standards. Under Canadian National Instrument 43-101 and the CIM Standards, the mineable reserve would be classified as a mineral resource.
In the late 1960‘s the Peruvian Government nationalized Berenguela. SOMINBESA acquired the property from Minero-Peru (a state owned mining company) in 1995 and has completed engineering studies for the development of the property. Under our option agreement, we have agreed to undertake additional drilling and prepare a resource estimate for the project in accordance with Canadian National Instrument 43-101 and the CIM Standards.
As of the date of this report, the Berenguela Project is without known Mineral Reserves and any activity carried out on the property is exploratory in nature.
San Marcial Silver Project
The San Marcial silver projectProject is located in Sinaloa State, Mexico 56 miles (90 kilometres) due east of Mazatlan in the Sierra Madre Mountains in west central Mexico and is comprised of two claims covering an area of 4.8 square mile (1,250 hectare). The concession is generally road accessible year round except during the rainy season when 4-wheel drive vehicles are required. See the following San Marcial Silver Project Location Map. In order to maintain our rights to these concessions we are required to make “canon” paymentspay surface mining taxes to the Mexican government.
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The geology at the San Marcial Project can be sub-divided into two distinct underlying rock types, an upper volcanic group of rocks occurring in the higher and more mountainous portions of the propertyproject in the northeast, and the underlying lower volcanic group of rocks that occur at lower elevations. The known silver prospects at the San Marcial Project are hosted along what appears to be a narrow set of northwest trending fault structures in two known vein systems;systems, both of which outcrop at surface and can be identified by small historical diggings over a strike length of approximately 300 metres. Prior to our acquisition of the property,project, Gold-Ore carried out regional stream sediment sampling, geological mapping, rock sampling, trenching and completed the drilling of six holes totaling 601.7 metres. Following acquisition, we completed two drill programs totalling 2526.82,526.8 meters in 14 holes.
-60 - |
As of the date of this report, the San Marcial Silver Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
We completed an estimate of the resources for the San Marcial Silver Project in August 2002. The resource estimate is based on a cut-off of 30 gramsg/t of silver per tonne and was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards. Sundance Ventures reviewed and confirmed our classification of Indicated and Inferred Mineral Resources for the San Marcial Silver Project in a report dated October 15, 2002.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 29 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
-61 - |
- 53 -
Table 21
29
Silver Standard Resources Inc.
San Marcial Silver Project
Silver Standard Inferred Mineral Resource Estimate with Sundance Review
(30 g/t Silver Cutoff Grade -– uncapped)
| Tonnes | Silver Grade | Lead | Zinc |
Inferred | 2.31 | 191.79 | 0.32 | 0.66 |
San Agustin Property
The San Agustin Property is comprised of two mineral claims covering an area of approximately 575 hectares and is located 85 kilometers north of Durango City in the State of Durango. Infrastructure is close bylocated nearby and paved Highway 45 passes 10 kilometers east of the property. See the following San Agustin Property Location Map. In order to maintain our rights to these concessions, we are required to make “canon” paymentspay surface mining taxes to the Mexican government.
The local geology consists of a volcanic dome complex resting on fine sedimentary rocks. Blocks of the sedimentary rocks are locally separated by volcanic rocks. The entire package was structurally brecciated and mineralized with gold and silver, which outcrops at surface. Surface oxidation averages 20 meters to 30 meters in depth.
Prior to our staking the property, exploration activities were completed on the property in the 1990‘s1990’s consisting of mapping, soil sampling and 69 drill holes totaling 10,400 meters outlining the San Agustin gold silver mineralization.. We recentlyIn early 2004, we completed a reverse circulation drill program, which totaled 3,890 meters in 24 holes. The results of this program, along with the prior drill holes, have been used to calculate a preliminary resource.
- 54 -
As of the date of this report, the San Agustin Property is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
-62 - |
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following polygonal preliminary resource estimate for the San Agustin Property, in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards.Standards, in a report dated April 16, 2004.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 22
30 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 30
Silver Standard Resources Inc.
San Agustin Property
Preliminary Inferred Mineral Resource Estimate
(0.5 g/t Gold Cutoff Grade)
| Classification | Tonnes (millions) | Silver Grade (g/t) | Gold Grade (g/t) | Tonnes | Gold Grade | Silver Grade |
| Inferred | 11.2 | 0.962 | 12.86 | 11.2 | 0.96 | 12.86 |
Silvertip Property
The Silvertip Property is located in northern British Columbia approximately 85 km (50 miles) south of Watson Lake, Yukon Territory. The property can be accessed by a 25 kilometer dirt road that connects to the Alaska Highway. See the following Silvertip Property Location Map.
Silvertip is a high grade carbonate replacement deposit. Exploration work to date has included 71,472 meters of drilling in 491 holes and 2.67 kilometers of underground development. We have not carried out any work on the Silvertip Property since our acquisition of the property.
-63 - |
- 55 -
As of the date of this report, the Silvertip Property is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Imperial Metals Corporation, the parent company of the former owner of the Silvertip Property, prepareddisclosed the following resource estimate for the property in accordance with CIM Standards in its Annual Information Form filed on www.sedar.com on October 30, 2002.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 31 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian National Instrument 43-101regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the CIM Standards.mineral deposits in this category will ever be converted into reserves.
|
Table 23
31
Silver Standard Resources Inc.
Silvertip Project
Indicated Mineral Resource Estimate
| Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) | Gold Grade (g/t) | Tonnes | Silver Grade | Lead | Zinc | Gold Grade |
| Indicated | 1.12 | 378 | 7.7 | 9.5 | 0.85 | 1.12 | 378 | 7.7 | 9.5 | 0.85 |
-64 - |
- 56 -
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 24
32 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 32
Silver Standard Resources Inc.
Silvertip Project
Inferred Mineral Resource Estimate
| Tonnes | Silver Grade | Lead | Zinc | Gold Grade |
Inferred | 1.45 | 284 | 5.4 | 8.3 | 0.46 |
Sunrise Lake PropertyDeposit
The Sunrise Lake PropertyDeposit is located about 130 kilometers by air east-northeast of Yellowknife, Northwest Territories, Canada. Access to the property is typically by ski-ski or float equippedfloat-equipped aircraft. The Sunrise Lake PropertyDeposit consists of 6 mining leases, which form a contiguous block with an aggregate area of 1618 ha.hectares.
The Sunrise depositLake Deposit consists of a lens of polymetallic massive sulphides overlying stringer zones of low-grade mineralization. The massive sulphide lens is 3 meters to 4 meters thick and has a strike length of about 120 meters at the surface. At depth it is up to 190 meters long. The deposit remains open down plunge.
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Hemisphere and Aber discovered the Sunrise depositLake Deposit in October 1987. During 1987 and 1988, they drilled a total 18,951 meters in 65 diamond drill holes on the Sunrise depositLake Deposit and 1,280 meters in 12 holes on peripheral targets. In 1998, they completed an additional seven diamond drill holes aggregating 1,543 meters. We have not carried out any exploration activities on the property since acquisition.
As of the date of this report, the Sunrise Lake PropertyDeposit is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
We completed an updated polygonal estimate of the resources for the Sunrise Lake PropertyDeposit in August 2003. The resource estimate is based on a cut-off of 30 gramsg/t of silver per tonne and was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards. Roscoe Postle Associates Inc. reviewed and confirmed our classification of Indicated and Inferred Mineral Resources for the Sunrise PropertyLake Deposit in a report dated September 3, 2003.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 25
33 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 33
Silver Standard Resources Inc.
Sunrise Lake Property
Deposit
Silver Standard Indicated Mineral Resource Estimate with Roscoe Postle Review
(30 g/t Silver Cutoff Grade - Uncut)
|
| Silver Grade | Lead | Zinc | Copper | Gold Grade |
Indicated | 1,522,000 | 262 | 2.39 | 5.99 | 0.08 | 0.67 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 34 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
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Table 26
34
Silver Standard Resources Inc.
Sunrise Lake Property
Deposit
Silver Standard Inferred Mineral Resource Estimate with Roscoe Postle Review
(30 g/t Silver Cutoff Grade - Uncut)
|
| Silver Grade | Lead | Zinc | Copper | Gold Grade |
Inferred | 2,555,000 | 169 | 1.92 | 4.42 | 0.07 | 0.51 |
Long-Term Properties
Candelaria Mine
The Candelaria mine is located in the Candelaria Hills in west central Nevada approximately 55 miles south of Hawthorne, Nevada and approximately five miles west of Highway 95, which connects Reno, Nevada to Las Vegas, Nevada. Access to the property is by paved road from Highway 95. The mine site is connected to the local power grid and has water wells and pumping equipment in place. See the following Candelaria Minemine Location Map.
The Candelaria District developed into the richest silver district in the State of Nevada, following discovery of high grade veins in 1864. From then until 1954, the property produced 22 million ounces of silver. The property was acquired by Occidental Minerals and later Nerco Minerals, who built the presenta processing facility and operated the mine from 1980 until 1989. During that time they produced over 33 million ounces of silver. Kinross Candelaria Mining Company, an indirect wholly owned subsidiary of
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Kinross Gold Corporation, (“Kinross”) purchased the propertyCandelaria mine in 1994 and operated the mine until January 1999. Kinross produced over 13 million ounces of silver, bringing the total historical production for the property to over 68 million ounces of silver.
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Mineralization within the district is confined to the Candelaria Shear. High grade veins form along contacts of intrusive dikes within the host volcanics. Lower grade, bulk tonnage mineralization extends as a halo from the veins into the surrounding shear zone. The main ore bodies vary in width from 80 to 120 feet averaging 3.5 to 4.1 ounces of silver per ton.
Reclamation of the siteCandelaria mine has been ongoing for the past several years. The mine dumps have been recontoured and re-seeded, and both of the heap leach piles have been rinsed with fresh water and re-seeded. Kinross completed re-contouring and re-seeding of the leach ponds in the first quarter of 2002. We have completed an environmental audit of the property.mine. The environmental audit did not identify any significant environmental issues and confirmed that the substantial amount of reclamation work completed to date met all state and federal guidelines. See Item 4.B —- “Business Overview”.
As of the date of this report, the Candelaria Minemine is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Sulphurets Project
The Sulphurets Project is located in the Coast Range Mountains of northwestern British Columbia approximately 900 kilometers north of Vancouver and 240 kilometers north of the town of Prince Rupert. Latitude and longitude are 56 degrees 29 minutes north and 129 degrees 13 minutes west, respectively.
Access from the town of Stewart (62 kilometers south-southeast of the property) is currently by helicopter. During the underground exploration period in the late 1980s, freight, supplies and personnel were transported from Stewart overland via paved Highway 37, then by gravel road to Bowser Lake, then by barge along Bowser Lake (25 kilometers) then by road along Bowser River and finally by tracked vehicle up the Knipple Glacier (15 kilometers) and a further 3.0 kilometers of gravel roads to the camp site.
The towns of Terrace and Smithers are located in the same general region as the Sulphurets Project. Both are directly accessible by daily air service from Vancouver. Stewart has good road access but does not have scheduled air service.
The Sulphurets Project consists of 28 recorded claims covering an area of 2,968 hectares. The claims are in good standing until 2010 and, thereafter, can be maintained in good standing by carrying out additional work on the property or paying a fee to the Government of British Columbia. The area encompassing the Sulphurets propertyProject has been intermittently explored for precious and base metals for more than 100 years.
A north-trending zone of intense quartz-sericite-pyrite alteration 100 to 450 meters wide and 4.5 kilometers long cuts through the central part of the claim group. The alteration is pervasive and hosts over 40 known zones of structurally controlled quartz-carbonate gold-silver bearing veins, stockworks and breccias. The most important ore-bearing structures occur within a complex vein system and can range from a few centimeters up to 50 meters wide and can contain up to 60 percent quartz. Individual mineralized zones range in length from several meters to several hundred meters.
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The propertyproject was actively explored from the 1970‘s1970’s to 1994. Newhawk acquired its initial interest in the property in 1984 and carried out a series of exploration programs that included mapping, trenching, sampling, underground development on the West Zone of the property,project, and both surface and underground diamond drilling. A feasibility study was completed in 1990. Prior to our acquisition of Newhawk, in excess of $40 million had been spent on the exploration and development of the property.project. We have not carried out any exploration work on the propertyproject since we acquired it in 1999.
As of the date of this report, the Sulphurets Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Office Space
UntilOn March 31, 2003, we leased, along with Repadre Capital Corporation (now known as IAMGold Corporation) (“Repadre”), 3969renewed the lease of our head office, 3,969 square feet of office space in Vancouver, British Columbia at 1180 – 999 West Hastings Street, Vancouver, British Columbia under the terms of aColumbia. The lease which expiredexpires March 31, 2003. Our share2008. On June 30, 2004, we leased the 3,230 square feet of the rent for the office space was $6,194 per month. Following March 2003, we assumed responsibility for the lease of the entireadjoining our head office space and entered into a furtheran amendment to lease dated June 30, 2004, which provides for lease payments $4,796 per month for our existing space plus operating costs and property taxes of $5,302 per month and $4,576 per month for the premises expiringadjoining space plus operating costs and property taxes of $4,315 per month until August 31, 2007. Following this date and until March 31, 2008, with monthly rent of $9,700. Thethe combined payment for both spaces will be $18,988 per month, plus operating costs and property is used as our head office.taxes.
In April 1999, Repadre acquired Golden Knight Resources Inc. (“Golden Knight”), a mining company whose shares were listed on the Toronto Stock Exchange. Prior to Golden Knight’s acquisition by Repadre, we shared office space with Golden Knight and had two common directors, Robert Quartermain, who was President and CEO of Golden Knight, and Gordon Davis. Following the acquisition of Golden Knight, Repadre continued to pay for Golden Knight’s share of the leased premises until March 2003 and Robert Quartermain was appointed a director of Repadre. See Item 6D. – “Employees”.
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Item 5 | Operating and Financial Review and Prospects |
A. | Operating Results |
Item 5 Operating and Financial Review and Prospects
A. Operating Results
Management’sThis management discussion and analysis (“MD&A”) provides a detailed analysis of our businessaudited consolidated operating results and compares our 2003 financial results with thosecondition for twelve months ended December 31, 2005 and 2004 is prepared as of the previous two years. In order to better understand the MD&A, itMarch 22, 2006 and should be read in conjunction with the consolidated financial statements and the related notes. We prepare and file with various Canadian regulatory authorities our consolidated financial statements and MD&A in Canadian dollars andnotes thereto, which have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”).principles. All dollar amounts referred to in this discussion and analysis are expressed in Canadian dollars except where indicated otherwise. Reference should be made to note 1819 of the consolidated financial statements for a discussion of material measurement differences between Canadian and U.S. GAAPgenerally accepted accounting principles and their effect on the consolidated financial statements. Our Annual InformationAdditional information relating to us, including our annual information form, is available free of charge on our website at www.silverstandard.com, on the Canadian Securities Administrators’ website at www.sedar.com, and on the EDGAR section of the United States Securities and Exchange Commission’s website at www.sec.gov. The information contained on or accessible through our web site is not part of this Form is filed on SEDAR atwww.sedar.com.20-F.
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The MD&A contains certain forward-looking statements such as our future plans, objectives and goals. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and resources, exploration results and future plans and our objectives are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements and information. We do not undertake to update or re-issue the forward-looking statements and information that may be contained herein, whether as a result of new information, future events or otherwise.
Business Overview
We are a company focused exclusively on the acquisition of and exploration for silver-dominant projects, with a portfolio of core properties in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States. Our strategy is to acquire, hold and advance high quality geopolitically diverse silver projects with defined resources in anticipation of higher silver prices. Our common stock is quoted on the Nasdaq National Market under the trading symbol SSRI and on the Toronto Stock Exchange under the symbol SSO.
Financial Overview for 2005
Total cash expenditures on mineral properties in 2005 was a record $20,933,000, exceeding our previous record of $12,796,000 incurred in 2004. Of the current year’s expenditures, 80% were incurred on four projects – the Pirquitas and Manantial Espejo Projects in Argentina, the Pitarrilla Project in Mexico and the Berenguela Project in Peru.
We ended 2005 with a strong working capital position of $40,344,000 compared to $61,582,000 in 2004 and no debt. Cash at December 31, 2005 was $23,030,000 compared to $45,703,000 at December 31, 2004 and the carrying value of our unrestricted silver bullion at December 31, 2005 was $14,095,000 compared to $13,487,000 at December 31, 2004. The market value of the silver bullion was $17,939,000 at December 31, 2005 compared to $13,693,000 at December 31, 2004.
Subsequent to December 31, 2005, $25,653,000 in cash proceeds was received on the exercise of the share purchase warrants resulting in the issue of 1,386,625 of our common shares. Our cash position as of March 21, 2006 was $36,705,000.
On March 22, 2006, we announced the sale of our 50% interest in the Manantial Espejo Project in Argentina to our joint venture partner, Pan American, for 1.95 million common shares of Pan American, having a value of US$46.3 million as of March 21, 2006.
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Critical accounting policies and changes in accounting policiesAccounting Estimates
Our accounting policies are described in Note 2 to the consolidated financial statements.
Use of estimates
The preparation of our consolidated financial statements in conformity with generally accepted accounting principles requires management to makeuse estimates and assumptions that affect the reported amountamounts of assets and liabilities, as well as revenues and disclosure of contingent assets and liabilities at the dateexpenses. Our accounting policies are set out in full in note 2 of the consolidated financial statements andstatements.
Mineral Property Costs
One of the reported amountsmost critical areas where estimates are used is in the area of revenues and expenditures during the reporting period. Actual results could differ from those reported.
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Mineralthe carrying value of mineral property costs
Wecosts. Under Canadian GAAP, we record our interests in mineral properties at cost. The costs of acquiring mineral properties and related exploration and development expenditures are deferred and willwould be amortized against future production following commencement of commercial production or are written off if the properties are sold, allowed to lapse or abandoned. General exploration, overhead and administration costs are expensed in the period they are incurred.
Management of the companyOur management regularly reviews the net carrying value of each mineral property. Where information is available and conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated future prices, proven and probable reserves, weighted probable outcomes and operating capital and reclamation costs on an undiscounted basis. Reductions inIf management determined that the future cash flows are less than the carrying value, of each property would be recordeda write-down to the extentestimated fair value is expensed for the net book value of the investment exceeds the estimated future cash flows.period. We presently have no proven or probable reserves. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if carrying valuevalues can be recovered.
Management’s estimates of mineral prices, If the carrying values exceed estimated recoverable proven and probable reserves, and operating, capital and reclamationvalues, then the costs are subjectwritten-down to certain risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its bestestimated recoverable values with the write-down expensed for the period.
Asset Retirement Obligations
We estimate of these factors, it is possible that changes could occur in the near term that could adversely affect management’s estimate of the net cash flows to be generated from its properties. We presently have no proven or probable reserves.
Option payments received are treated as a reduction of the carrying value of the related mineral property and deferred costs until the payments are in excess of costs incurred, at which time they are then credited to income.
Provision for reclamation
On January 1, 2003, we adopted a new standard of accounting for asset retirement obligations. A description of this policy and the impact it had on adoption is discussed in the Financial Results section which follows.
Recently issued accounting policies
The Canadian Institute of Chartered Accountants (CICA) has issued amendments to Section 3870 – “Stock-based Compensation and Other Stock-based Payments”, which require an expense to be recognized in financial statements for all forms of employee stock-based compensation, including stock options. We will be required to adopt the standard on January 1, 2004, which will result in compensation expense on stock options granted to directors and employees, previously only disclosed on a pro forma basis, to be charged to earnings. Had we followed the fair value method for valuing stock options granted to directorsof site restoration and officers, an additional compensationclean-up costs on acquisition of mineral properties and reflect this amount in the cost of $2,840,000 (2002 — $1,664,000) would have been recorded in 2003.
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2003 Compared with 2002
Selected Financial datathe mineral property acquired.
(expressed in thousands of Canadian dollars, except per share amounts)
| 2003 | 2002 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | Year | Q1 | Q2 | Q3 | Q4 | Year | |||
| Revenues | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||
| Loss | 1,087 | 1,140 | 429 | 282 | 3,938 | 314 | 1,487 | 369 | *28 | 2,198 | ||
| Basic and diluted loss | 0.03 | 0.03 | 0.01 | 0.03 | 0.10 | 0.01 | 0.04 | 0.01 | 0.00 | 0.06 | ||
| per common share | ||||||||||||
| Total assets | 74,279 | 74,435 | 77,772 | 85,213 | 85,213 | 47,289 | 68,285 | 68,823 | 74,748 | 74,748 | ||
| Long-term financial liabilities | 213 | 144 | 91 | 75 | 75 | 136 | 129 | 135 | 249 | 249 | ||
| Cash dividends | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||
* Investment gains of $516,000 and foreign exchange gains of $352,000 were recorded in the fourth quarter of 2002.
For the year ended December 31, 2003, we incurred a loss of $3,938,000 or $0.10 per share compared to a loss of $2,198,000 or $0.06 per share in 2002. The greater loss is due to a combination of lower investment income, a greater foreign exchange loss and cost increases in certain categories of expenditures. An analysis of the constituent parts of expenses follows:
| Exploration and mineral property costs: | 2003 | 2002 |
| Property examination and exploration | $465,000 | $279,000 |
| Mineral property costs written off | -- | 53,000 |
| Reclamation | 507,000 | 420,000 |
| $972,000 | $752,000 |
With the increase in the price of both precious and base metals, the price of in-ground silver resource ounces available for acquisition increased. As an alternative, to create shareholder value, we increased our expenditures on grass roots exploration resulting in our success at La Pitarrilla and expansion of our activities in Mexico. We expense these costs until such time as a property is acquired. In 2003, exploration costs were $465,000, representing a $186,000 increase from the prior year. We incurred $293,000 of our 2003 exploration costs in Mexico. In 2004, Mexico will continue to be the focus of a significant portion of our exploration efforts. We will also have exploration programs in Chile and Argentina.
In 2003, we did not abandon or write off any property costs. In 2002, the Bluey’s property was written off at a cost of $53,000.
On January 1, 2003, we adopted the new standard of accounting for asset retirement obligations which harmonizes with U.S. GAAP. The new standard requires the recognition ofrecognize a liability for our legal obligations associated with the retirement of fixed assetsproperty, plant and equipment when the liability is incurred. A liability is recognized initially at fair value if a reasonable estimate of the fair value can be made and the resulting amount iswould be capitalized as part of the asset.mineral property cost. The liability is accreted over time through periodic charges to earnings where the assets have previously been written-off or to mineral property costs.costs where the assets are in the pre-production stage. In subsequent periods, we adjust the carrying amounts of the asset and the liability for changes in estimates of the amount or timing of underlying future cash flows. The cumulative effectfair value of the legal obligation for asset retirement is assessed annually.
It is reasonably possible that our estimates of our ultimate reclamation and site restoration liability could change through January 1, 2003, which was recordedas a result of changes in 2003, was to increase mineral propertyregulations or cost by $17,000estimates.
Stock-Based Compensation
We use the Black-Scholes valuation model for valuing options granted. Option pricing models require the input of highly subjective assumptions, such as expected price volatility and reclamation by $21,000.expected life of the option. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options granted/vested during the year.
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ReclamationIncome Taxes
The liability method of income tax allocation is used, based on differences between financial reporting and tax bases of assets and liabilities. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using the tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Future tax assets are recognized to the extent that they are considered more likely than not to be realized.
Significant Changes in Accounting Policies
Comparative Figures
We have restated certain comparative figures on the December 31, 2004 balance sheet including amounts relating to future income tax liabilities by increasing mineral property costs and future income tax liabilities by $7,357,000. This non-cash adjustment has no impact on shareholders’ equity, net loss, net cash flows or cash balances previously reported. All amounts included within these consolidated financial statements and accompanying notes have been adjusted to reflect this change.
Stock-Based Compensation
Effective January 1, 2004, we adopted the Canadian Institute of Chartered Accountants (“CICA”) amendments to Section 3870, “Stock-based Compensation and Other Stock-based Payments”, which requires an expense to be recognized in the financial statements for all forms of employee stock-based compensation, including stock options, as well as other stock-based payments made in exchange for goods and services. The adoption of the fair value method resulted in a cumulative increase of $4,504,000 to the opening deficit at January 1, 2004 and increases of $335,000 to capital stock and $4,169,000 to value assigned to stock options, respectively, at January 1, 2004.
Consolidation of Variable Interest Entities
The CICA has issued Accounting Guideline 15, “Consolidation of Variable Interest Entities”, which became effective for annual and interim periods beginning on or after November 1, 2004. This guideline addresses the application of consolidation principles to entities that are subject to control on a basis other than ownership of voting interests. We adopted the guideline during the year ended December 31, 2005. The adoption of this guideline did not have any impact on our consolidated financial statements.
Financial Results
For the year ended December 31, 2005, the net loss for the year 2003 was $5,870,000 or $0.11 per common share compared to $1,518,000 or $0.03 per common share for the year ended December 31, 2004. The increase in the loss for the current year relates to a number of factors with the main two being lower income from the sale of marketable securities and mineral properties and higher non-cash stock-based compensation expenses.
The following table sets forth selected financial data from our audited consolidated financial statements and should be read in conjunction with these statements:
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| Year ended December 31, | ||
| 2005 $ | 2004 $ | 2003 $ |
Total revenues | nil | nil | nil |
Loss for year | (5,870,000) | (1,518,000) | (3,938,000) |
Basic and diluted loss per share | (0.11) | (0.03) | (0.10) |
Total assets | 219,288,000 | 217,457,000 | 92,812,000 |
Working capital | 40,344,000 | 61,582,000 | 16,893,000 |
Cash dividends declared | nil | nil | nil |
The following table sets forth selected quarterly financial information for each of our last eight quarters:
Quarter ending (unaudited) | Total Revenues $ | Income (Loss) $ | Income (Loss) Per Share $ |
December 31, 2005 | nil | (1) (3,908,000) | (0.07) |
September 30, 2005 | nil | (2)21,000 | 0.00 |
June 30, 2005 | nil | (1,040,000) | (0.02) |
March 31, 2005 | nil | (943,000) | (0.02) |
December 31, 2004 | nil | (3) (2,947,000) | (0.06) |
September 30, 2004 | nil | (4) 1,004,000 | 0.02 |
June 30, 2004 | nil | (5) (195,000) | (0.00) |
March 31, 2004 | nil | (6) 620,000 | 0.01 |
Explanatory notes:
(1) | Includes $2,986,000 in non-cash expenses relating to values assigned to stock options. |
(2) | Includes $1,323,000 in gains on sale of marketable securities. |
(3) | Includes $2,072,000 in non-cash expenses relating to values assigned to stock options. A further $241,000 in bonus payments to staff was expensed. |
(4) | Includes a $1,710,000 gain on sales of marketable securities. |
(5) | Includes $439,000 in gains on the sale of marketable securities and $462,000 in gains on sale of mineral properties. |
(6) | We recorded investment income of $325,000, gains on sale of marketable securities of $348,000, gains on sale of mineral properties of $437,000 and foreign exchange gains of $212,000, resulting in income being reported in the quarter |
The following is a summary and discussion on the various components of the expenses and income items recorded during the year compared to the prior year:
| Year ended December 31, | |
Exploration and mineral property costs | 2005 $ | 2004 $ |
Property examination and exploration | 434,000 | 471,000 |
Mineral property costs written-off | 372,000 | - |
Reclamation and accretion | 507,000 | 252,000 |
| (1,313,000) | (723,000) |
We continued our effort to find new silver resources through generative grass roots exploration programs and these costs are expensed until such time as a property is acquired. A total of $434,000 was spent in 2005 compared to $471,000 in 2004. The focus of our 2005 generative programs continued to be in Mexico where we spent $213,000. The balance was spent primarily in Peru, where we entered into a 50/50 evaluation agreement with Esperanza Silver Corporation for the exploration of mineral properties in Peru. Under this agreement, we agreed to contribute US$300,000 and Esperanza US$200,000 and certain know-how to carry out agreed-upon evaluation programs for mineral properties, with Esperanza acting as operator. The San Luis Project in Peru was discovered under the evaluation agreement. Going forward in 2006, our exploration efforts will be directed primarily towards programs in Mexico and Peru.
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Our management regularly reviews the net carrying value of each mineral property to assess if the carrying values can be recovered. In 2005, we wrote-off $372,000 in costs relating to three of our mineral properties. There were no mineral property write-offs in 2004.
Reclamation and accretion expense in 2005 amounted to $507,000 compared to $420,000$252,000 in 2002 for an increase2004. The various components of $87,000 for the year.
| Expenses: | 2003 | 2002 |
| Depreciation | $ 30,000 | $ 24,000 |
| General and administration | 1,579,000 | 1,404,000 |
| Professional fees | 143,000 | 153,000 |
| Salaries and employee benefits | 654,000 | 434,000 |
| Stock-based compensation | 169,000 | 132,000 |
| $2,575,000 | $2,147,000 |
Expenses were $2,575,000expense were: $44,000 of accretion in 20032005 compared to $2,147,000$78,000 of accretion in 2002, an increase2004, $63,000 of $428,000.cash site restoration and clean-up costs in 2005 compared to $75,000 of cash site restoration and clean-up costs in 2004 and $400,000 of changes in estimates of the amount or timing of underlying future cash flows in 2005 compared to $99,000 of changes in estimates of the amount or timing of underlying future cash flows in 2004. The two areas contributingchanges in estimates primarily relate to the majorityDuthie and Silver Standard Mine properties in British Columbia.
| Year ended December 31, | ||
| 2005 | 2004 | |
| Expenses | $ | $ |
| Salaries and employee benefits | 1,031,000 | 692,000 |
| Salaries and employee benefits - stock-based compensation | 3,468,000 | 1,783,000 |
| Depreciation | 74,000 | 57,000 |
| Internal control over financial reporting | 226,000 | -- |
| Professional fees | 176,000 | 122,000 |
| General and administration - other | 2,172,000 | 2,202,000 |
| General and administration - stock-based compensation | 567,000 | 668,000 |
| (7,714,000) | (5,524,000) | |
Salaries and employee benefits for 2005 were $1,031,000 compared to $692,000 in 2004. The $339,000 increase in salaries and benefits is the result of additional staff and the increaseimpact of salary adjustments that were ineffective at the areasbeginning of general and administration costs and2005. Partially offsetting the cost increases were salary allocations based on employees' time spent on mineral properties. The increased level of salaries and employee benefits.benefits will continue into 2006.
GeneralDepreciation expense during 2005 was $74,000 compared to $57,000 recorded in 2004, due to the fact that we expanded our corporate office space in 2004 and administrativepurchased additional computer hardware and software.
We incurred $226,000 in internal control over financial reporting costs increased $175,000during 2005 compared to nil in 20032004. We established this new cost category to record both internal and were $1,579,000external readiness costs associated with compliance with Section 404 of the Sarbanes-Oxley Act in the United States and Multilateral Instruments 52-109 and 52-111 in Canada. Our costs to date are broken down into $89,000 for allocations of our staff time and $137,000 for services of external consultants. These costs will continue in 2006 as we will be subject to Sarbanes-Oxley Section 404 certification in 2006.
Professional fees include fees for the year. Insurance expenseannual audit, accounting, tax and legal services. Total costs for the year increased $67,000 during the year2005 were $176,000 compared to $205,000. Premium increases$122,000 in 2004. Higher audit, accounting and tax service fees were the main reason for this additional expensethe $54,000 increase and costs in this areathese cost levels are not expected to declinecontinue.
General and administrative expenses for 2005 were $2,172,000 compared to $2,202,000 in 2004. In comparing the near future. Coststwo years, there were a number of cost increases which will continue into 2006 that were offset by cost reductions in other areas. Directors’ expenses for 2005 were $57,000 compared to $8,000 in 2004. We commenced paying directors fees on January 1, 2005 and these expenses will continue in 2006. Office rent for the Vancouver office was $244,000 for 2005 compared to $141,000 in 2004, reflecting expanded office size. Shareholders expense for 2005 was $367,000 which was an increase of $24,000 over the $343,000 incurred in 2004. The costs relating to shareholderinvestor relations which includesin 2005 were $964,000 compared to $863,000 spent in 2004. These costs associatedrelate to maintaining relationships with preparinginvestors through presence at key investor conferences, investor and mining-related internet sites and publications and silver research support. The main reason for the increase in expenditures related to higher staff salaries.
The two main areas where there have been cost reductions in our annualgeneral and quarterly reports and the mailing thereof, increased $112,000 in the year to $319,000. As our number of shareholders increased 25% over the past year, so did the costs of keeping our shareholders informed. The costs of preparing our annual and quarterly reports increased $49,000 in 2003 with mailing costs increasing $46,000 from $86,000 to $132,000. In 2003, the company incurred $649,000administrative expenses were in the area of investor relationslisting and filing fees and office expense recoveries. In 2005, we incurred $160,000 in listing and filing fees and this was comparable to 2002 costs. Greatera reduction of $239,000 from the $399,000 spent in 2004. In 2004, we paid $282,000 in non-recurring costs were incurred relating to meetings with institutional investorsinitial listing fees on both the Toronto Stock Exchange and shareholders. Our presidentthe Nasdaq National Market. We allocate certain of our office overhead costs based on employees’ time spent on mineral property related activities. In 2005, we had a totalrecoveries of twelve meetings with shareholders in various U.S. cities in 2003. Offsetting these cost increases were lower costs$322,000 compared to $202,000 in the areasprior year and this increased recovery rate is expected to continue into 2006.
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Table of capital taxes and donations.Contents
Professional fees were $143,000Stock-based compensation expense for 20032005 was $4,035,000 compared to $153,000$2,451,000 in 2002. Cost increases2004. Of the expense for accounting2005, $567,000 related to general and audit services were more than offset by a $49,000 reduction in the cost of legal services. In early 2003, the company hired in-house legal counsel, which resulted in a reduction in the use of external counsel.
Salariesadministration and $3,468,000 related to salaries and employee benefits for the year were $654,000 compared to $434,000the expense for 2004 where $668,000 related to general and administration and $1,783,000 related to salaries and employee benefits. We value stock options granted to employees, directors and consultants using the Black-Scholes pricing model. Non-cash expenses for 2005 relate to the value of options granted and vested during 2005, expenses relating to unvested options granted in 2002 – an increase of $220,000. The two main reasons for the increaseprior years that are the addition of the in-house legal counsel mentioned abovebeing expensed over their vesting period and salary increases that took place at the beginning of 2003. Bonus payments for staff for 2003expenses relating to options repriced and extended. An additional $159,000 in option values were $155,000assigned to mineral property costs in 2005 compared to $101,000$67,000 in 2002.2004.
| Year ended December 31, | |
Other income (expenses) | 2005 $ | 2004 $ |
Investment income | 879,000 | 1,151,000 |
Gain on sale of marketable securities and investment write-downs | 2,274,000 | 2,525,000 |
Gain on sale of mineral properties | 20,000 | 931,000 |
Foreign exchange (loss) gain | (18,000) | 171,000 |
Other | 2,000 | (49,000) |
| 3,157,000 | 4,729,000 |
Investment income was $879,000 for 2005 compared to $1,151,000 in 2004. The lower interest income earned results from less funds available for investment.
We recorded $2,274,000 in gains on the sale of marketable securities and investment write-downs in 2005 compared to $2,525,000 in gains and investment write-downs recorded in 2004. The company granted 66,500 (2002 – 74,900) stock optionscomponents are $2,288,000 in gains on sale of marketable securities and $14,000 in investment write-downs in 2005 compared to non-employees$2,577,000 in 2003. The fairgains on sale of marketable securities and $52,000 in investment write-downs in 2004. We were able to generate sufficient income to cover our general and administrative expenditures from sales of marketable securities in both 2005 and 2004. Although we cannot provide any assurance with respect to future periods at December 31, 2005, our investments in marketable securities with a carried value of these options was $187,000 (2002 — $161,000), with the company expensing $169,000 (2002 — $132,000)$4,985,000 had a quoted market value of this assigned value and deferring $18,000 (2002 — $29,000) into mineral property costs.$15,087,000.
| Other income (expenses): | 2003 | 2002 |
| Investment income | $ 379,000 | $ 305,000 |
| (Loss) gain on sale of marketable securities and investment write-downs | (101,000) | 544,000 |
| Fixed asset write-downs and loss on sale | -- | (19,000) |
| Interest expense | -- | (92,000) |
| Foreign exchange gain (loss) | (669,000) | (37,000) |
| $ (391,000) | $ 701,000 |
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In 2003, we incurred net other expenses of $391,000 compared to other income of $701,000 in 2002. In 2003, we had investment income of $379,000 compared to income of $305,000 in the prior year. Lower short-term interest rates were more than offset by higher cash and investment balances. In 2002,2005, we recorded gains on the sale of marketable securities of $544,000. In 2003, we did not sell any of our marketable securities, but we did write-down $101,000 of our investments. At December 31, 2003, we held marketable securities carried at a cost of $1,457,000 with a market value of $9,730,000. In 2002 we recorded interest of $92,000 relating to interest on a convertible debenture obligation. There was no interest expense for 2003 as the debenture had been converted to common stock in late 2002. The foreign exchange loss for 2003 was $669,000 compared to a loss of $37,000 in 2002. The large increase in the loss for the year was a direct result of the impact that the strengthening Canadian dollar had on our U.S. cash and cash equivalent balances at the beginning of 2003. At December 31, 2002, we held US $5,800,000, which had been received as subscriptions for our common stock. As we require U.S. dollars to meet our various property obligations, the funds were not converted to Canadian dollars. During 2003, the Canadian dollar appreciated 22% against the U.S. dollar, with the majority of this increase occurring by mid-year. Going forward, we have adopted a policy that will limit foreign exchange losses and gains.
2002 Compared with 2001
For the year ended December 31, 2002, we incurred a loss of $2,198,000 or $0.06 per share compared to a loss of $3,377,000 or $0.13 per share in 2001. The lower loss is mainly a result of lower mineral property write-offs and gains on sales of marketable securities in 2002 offset by cost increases for certain other categories of expenses.
Expenditures on grass roots exploration and property examinations increased to $279,000 from the $107,000 recorded in 2001. This increase reflected increased activities in Mexico and Chile as we made an effort to locate potential new properties through exploration as well as acquisitions. We have been successful in this regard as three new properties were staked in Mexico and two in Chile. Once a property has been acquired, the acquisition costs are deferred as mineral property costs. In 2002, the Bluey’s property in Australia was abandoned and we wrote-off our $53,000 investment. In 2001, we wrote-off $1,744,000 relating to our remaining investment in the El Asiento property in Bolivia.
Reclamation costs expensed in 2002 were $420,000 compared to $201,000 – an increase of $219,000. On-going environmental and reclamation expenditures were $322,000 reflecting greater activity at sites in British Columbia. In 2002, unlike 2001, there were excellent weather conditions for reclamation at the Duthie property. In 2002 we reviewed our environmental obligations and accrued an additional $98,000 provision (2000 — $nil) on reclamation in British Columbia.
At December 31, 2002, we had accrued $843,000 relating to our various reclamation obligations. Of this amount, $357,000 related to the Duthie property, $240,000 related to the Silver Standard Mine property, $112,000 related to the Silvertip property in British Columbia and $89,000 related to the Candelaria Mine property in Nevada, with the balance relating to our other properties. The Duthie property and Silver Standard Mine property accruals were charged to earnings in 1995 and 1996. The Candelaria Mine property accrual was established in 2002. The Diablillos property and Silvertip property accruals were established in conjunction with their acquisition in 2001 and 2002, respectively. The accruals cover monitoring costs.
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Expenses were $2,147,000 during 2002 compared to $1,517,000, an increase of $630,000. Of the increase, $298,000 related to general and administrative costs including depreciation, $73,000 for professional fees, $127,000 for salary and employee benefits and $132,000 for stock-based compensation for non-employees.
General and administrative costs were $1,404,000 compared to $1,105,000 in 2001. Approximately $100,000 of the increase was in the area of investor and shareholder relations, including consulting. This increase related to costs associated with the private placement in the second quarter of 2002 and a number of other investor and shareholder awareness initiatives undertaken in 2002. These shareholder awareness costs continued in 2003. The other areas where there have been increases are in the areas of insurance, capital tax and transfer agent and filing fees.
Professional fees were $153,000 in 2002 compared to $80,000 in 2001. The increase relates to the requirement for more accounting, audit and legal professional services and the increased costs for these services.
Salaries and employee benefits expensed were $434,000 in 2002 compared to $307,000 in 2001. During the second quarter of 2002, $101,000 in bonus payments were made to nine employees and our relatively low salaries compared to peer companies were increased. The costs of our benefit plans were $32,000 higher than in 2001.
Effective January 1, 2002, we adopted the new accounting standard for stock-based compensation. We granted 74,900 stock options to non-employees in 2002. The fair value of these options was $161,000 and we expensed $132,000 of this assigned value and deferred $29,000 into mineral property costs. As permitted under the standard, we elected not to follow the fair value method of accounting for stock options granted for directors and employees. Had we followed the fair value method, an additional compensation cost of $1,664,000 would have been recorded.
Other income for 2002 was $701,000 compared to $192,000 in 2001. Investment income was $305,000 in 2002 compared to $176,000 in 2001. Lower short-term interest rates were more than offset by higher cash and investment balances. We recorded gains on the disposal of marketable securities in the amount of $544,000 in 2002. There were no gains in 2001. Interest expense for 2002 was $92,000 compared to $nil in 2001. During 2002, we issued a 10% US $1,340,000 convertible debenture in relation to our acquisition of a 43.4% interest in the Pirquitas property. By the end of the year, this debenture was converted to equity.
B. Liquidity and Capital Resources
3. FINANCIAL POSITION AND LIQUIDITY
Cash From Operations
Cash flow from operations was a usage of $3,303,000 in 2003, compared to usages of $2,250,000 in 2002 and $1,646,000 in 2001.
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Investing Activities
Total cash invested in mineral property costs including acquisitions over the last three years are detailed below:
| 2003 | 2002 | 2001 | |
| Manantial Espejo | $ 830,000 | $ 1,588,000 | $2,312,000 |
| Shafter | 743,000 | 841,000 | 804,000 |
| Candelaria | 476,000 | 419,000 | 654,000 |
| Bowdens | 1,485,000 | 751,000 | 670,000 |
| Challacollo | 2,532,000 | 1,560,000 | -- |
| San Marcial | 93,000 | 1,032,000 | -- |
| Silvertip | 21,000 | 1,209,000 | -- |
| Diablillos | 666,000 | 87,000 | 2,404,000 |
| Pirquitas | 119,000 | 4,745,000 | -- |
| Sunrise | 687,000 | -- | -- |
| La Pitarrilla | 677,000 | 48,000 | -- |
| Maverick Springs | 868,000 | 3,000 | -- |
| Other | 636,000 | 236,000 | 372,000 |
| $ 9,833,000 | $12,519,000 | $7,216,000 |
The above table reflects cash expenditures by property. It does not include the value of shares issued for mineral properties and other non-cash charges.
Acquisitions
See Item 4.A — “General Background”.
Marketable Securities
Other investing activities in 2003 included the purchase of $1,042,000 (2002 — $527,000; 2001 – nil) in marketable securities.
We sold certain of our marketable securities in 2002 to realize proceeds of $757,000 with a$20,000 gain on the sale of $544,000. There were no similar sales in 2003 or 2001. At December 31, 2003, the quoted market value of the marketable securities was $9,730,000 (2002 — $1,358,000) compared to the carried cost of $1,457,000 (2002 — $313,000).
Financing Activities
During 2003, we raised a total of $13,229,000 from new equity compared to $26,725,000 in 2002 and $11,174,000 in 2001. Although there were no funds raised through private placements in 2003, we incurred $54,000 in share issuance costs. These costs related to registration costs for a private placement that closed in December 2002.
| 2003 | 2002 | 2001 | |
| Private placements | $ - | $19,979,000 | $ 4,495,000 |
| Exercise of stock options | 2,140,000 | 1,827,000 | 3,976,000 |
| Exercise of warrants | 11,089,000 | 4,919,000 | 2,703,000 |
| $13,229,000 | $26,725,000 | $11,174,000 |
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In mid Januarymineral property. During 2004, we closed a private placement of 2,955,000 units at a price of $14.80 per unit for gross proceeds of $43,734,000. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant is exercisable on payment of $18.50 into one of our common shares for a period of two years. Robert Quartermain, our President and one of our directors, acquired 25,000 units under the private placement. The common shares, the common share purchase warrants and the common shares deliverable upon exercise of any of the warrants have not been and will not be registered under the U.S. Securities Act of 1933, and, subject to certain exceptions, may not be offered or sold within the United States. Finders’ fees of 5%interests in units, 5% in both cash and warrants (each whole warrant entitling the holder to acquire one common share for a period of two years at a price of $18.50) and 4.25% in cash are payable on various portions of the placement.
In addition, at December 31, 2003, the company had received $455,000 on the exercise of 92,900 common share purchase warrants. The common shares were not issued until subsequent to year-end.
Cash Resources and Liquidity
At December 31, 2003,four non-core properties that we had working capitalheld for many years, carried at nil value, for shares in a publicly-traded company to realize a gain of $16,893,000. This working capital compares to $16,430,000 at the same time in 2002 and $5,520,000 in 2001.$931,000.
We have planned expenditures on propertiesImpact of approximately $8,200,000 in 2004, with other planned expenditures of $2,500,000 for administration, reclamation and capital programs. Many of the $8,200,000 in planned property expenditures are discretionary.
A summary of our contractual obligations is as follows:
| Payments Due by Period | |||||
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years |
| Long Term Debt | $141,000 | $ 66,000 | $ 32,000 | $ 22,000 | $21,000 |
| Operating Leases | 492,000 | 116,000 | 232,000 | 144,000 | -- |
| Total Contractual Obligations | $633,000 | $182,000 | $264,000 | $166,000 | $21,000 |
With our strong working capital position, the closing of the $43,734,000 private placement in January 2004, our marketable securities and in-the-money warrants outstanding, we will be able to meet all of our obligations for the foreseeable future.
4. STRATEGYInflation
Since 1990, demand for silver has exceeded the combination of silver mine supply and scrap recycling. To the end of 2003, surface stockpiles of silver which had accumulated during the 1970s and 1980s declined by more than 1.6 billion ounces. Since surface stockpiles are finite, we believe the gap between supply and demand must inevitably be met through higher silver prices that will encourage increased production. Since three-quarters of current mine supply of silver is a by-product of gold or base metal operations, the beneficiaries of higher silver prices will be companies focused primarily on silver.
We commenced acquiring and developing a diverse portfolio of silver-dominant properties in 1993 with the expectation that a pipeline of primary silver operations would be developed with increasing higher silver prices. Criteria for the acquisition of key projects have included: sufficient drilling to warrant a resource calculation, thereby reducing technical risk; a relatively low acquisition cost on a per resource ounce basis in order to enhance the economics of future operations; good exploration potential; metallurgy that favors low environmental impact when production commences; and limited environmental impact from any historic operations in order to minimize future contingencies or obligations.
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As our resource base has grown, and leverage on a per share basis has increased, our common shares have behaved like an open-ended call option or proxy on silver prices which has enhanced our ability to finance growth.
Since April of 2003, the Commodities Research Bureau Index for basic materials (which are priced in U.S. dollars), frequently used as an indicator of future inflation, has advanced close to 20%. The Index indicates stronger demand for basic materials worldwide as well as a 12% decline in the trade-weighted value of the U.S. dollar.
In the same time frame, spot silver prices have risen from approximately US$4.60 per ounce to US$6.90 per ounce, an increase of 50%. The combination of strong fundamentals for silver, strong demand for industrial metals, including silver, and devaluation of the U.S. dollar appear to be important factors in continued strengthening of silver prices.
As these higher silver prices have enhanced the economics of our projects, we must evaluate the most effective opportunities for deploying shareholder capital. Since the beginning of 2003, our market capitalization has more than tripled, indicating heightened interest in our prospects.
Depending on market conditions and our determination of the most effective use of shareholder capital, production financing may be provided from then current cash; equity and/or debt financing; sale of a partial property interest to another mining company in exchange for construction funding; or sale on non-core assets.
5. RISKS AND UNCERTAINTIES
6. IMPACT OF INFLATION
Currently, inflation in Canada is similar to that in the U.S. Inflation is not expected to have a material impact on us beyond the impact on all businesses generally, such as higher cost of materials, services and salaries.
B. | Liquidity and Capital Resources |
We had working capital of $40,344,000 at December 31, 2005, of which $23,030,000 was in cash and cash equivalents compared to working capital of $61,582,000 at December 31, 2004, of which $45,703,000 was in cash and cash equivalents. We believe our working capital, along with the exercising of $25,653,000 in warrants that occurred in January 2006, is sufficient to see us through 2006 and into 2007 for all our planned exploration and development expenditures, property holding costs and administrative expenditures. Additional equity capital will be required in the event our projects are developed into production. Although we have been successful in raising additional capital in the past, we cannot provide any assurance we will be able to do so in the future.
A summary and discussion of our cash position at December 31, 2005, cash inflows and outflows for 2005, silver bullion and other capital resources follows:
Operating Activities
Cash flow from operations was a usage of $2,951,000 in 2005, compared to a usage of $2,506,000 in 2004. This increase resulted from increased salary costs of $339,000 and increased readiness costs of $226,000 associated with Section 404 of the Sarbanes-Oxley Act and Multilateral Instruments 52-107 and 52-111.
Financing Activities
During 2005, a total of $1,795,000 was raised by issuing new equity compared to $60,334,000 in 2004. The following table shows how the funds were raised:
| Year ended December 31, | |
| 2005 $ | 2004 $ |
Private placement | - | 43,951,000 |
Exercise of stock options | 1,610,000 | 2,963,000 |
Exercise of warrants | 185,000 | 13,420,000 |
| 1,795,000 | 60,334,000 |
There were no private placements in 2005. In 2004, we issued 2,955,000 units at $14.80 per unit for gross proceeds of $43,951,000.
A total of 259,269 shares were issued on the exercise of stock options for total proceeds received of $1,610,000 in 2005 compared to 525,700 shares issued on the exercise of stock options for total proceeds received of $2,963,000 in 2004. The weighted average price received on the exercise of options was $6.21 per share in 2005 compared to $5.64 in 2004. A further 10,000 shares were issued in 2005 for proceeds of $185,000 on the exercise of share purchase warrants, with a weighted average price received of $18.50 per share, compared to 2,686,620 shares issued in 2004 for proceeds of $13,420,000 on the exercise of share purchase warrants, with a weighted average price received of $4.99 per share.
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C. Research Table of Contents
Investing Activities |
Mineral Properties
Total cash invested in mineral properties in 2005 compared to 2004 is as follows:
| Year ended December 31, | |
| 2005 $ | 2004 $ |
Pirquitas | 4,271,000 | 539,000 |
Pitarrilla | 5,789,000 | 3,693,000 |
Bowdens | 308,000 | 868,000 |
Shafter | 365,000 | 454,000 |
San Luis | 135,000 | - |
Manantial Espejo | 3,691,000 | 3,037,000 |
Diablillos | 534,000 | 187,000 |
Berenguela | 2,947,000 | 933,000 |
Veta Colorada | 569,000 | - |
Challacollo | 695,000 | 230,000 |
Maverick Springs | 341,000 | 947,000 |
San Marcial | 22,000 | 535,000 |
San Agustin | 68,000 | 454,000 |
Candelaria | 375,000 | 422,000 |
Other | 823,000 | 497,000 |
| 20,933,000 | 12,796,000 |
The above table reflects cash expenditures by property. It does not include the value assigned to shares issued for mineral propertiesand Development, Patentsother non-cash charges.
We spent a record $20,933,000 on our various mineral properties in 2005 compared to the previous record of $12,796,000 set in 2004. At our 100%-owned Pitarrilla Project in Mexico, we spent $5,789,000 during 2005 on exploration and Licenses, etc.land acquisitions. In 2005, we reported the discovery of three new silver zones and these zones significantly enhanced the project’s resource potential. This project now hosts five drill-defined zones of silver mineralization that will continue to be explored in 2006. The second most active property, as far as expenditures in 2005, was our 100%-owned Pirquitas property in Argentina. We spent $4,271,000 at this project in 2005 compared to $539,000 in 2004. In October 2004, we acquired a 56.6% interest in the Pirquitas property to hold a 100% interest. Following this acquisition, we commenced construction in 2005 of an underground ramp to provide a platform for underground drilling, if required, to better define the base of the open pit as proposed in the 1999/2000 feasibility study. The ramp would also provide access to the Oploca vein mineralization, which is located outside the proposed open pit. In addition, we undertook surface diamond drilling and refurbished old facilities into a modern camp. Also during the year, we awarded to Hatch Ltd. the contract for the feasibility study update that is scheduled for completion in the first half of 2006.
A total of $3,691,000 was spent at our 50%-owned Manantial Espejo Project in Argentina in 2005 compared to an expenditure of $3,037,000 in 2004. Exploration and infill drilling completed in the first half of the year has significantly increased the joint venture’s confidence in the overall resource estimate. The feasibility study will be completed shortly. In 2005, we spent $2,947,000 at our Berenguela Project in Peru compared to $933,000 in 2004. The expenditures in 2005 related to our agreement to explore this project prior to the exercising of our option to acquire the silver resources of this project. In January 2006, we acquired the Berenguela Project for cash consideration of US$2,000,000 and US$8,000,000 in our common shares. As part of the acquisition, $700,000 (US$600,000) of the cash consideration was paid in 2005. See Item 4.B - “Business Overview”.
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As mentioned earlier, we have entered into an evaluation agreement with Esperanza Silver for mineral properties in Peru. The San Luis Project was acquired as a result of this initiative. Under the terms of the evaluation agreement, we entered into a joint venture agreement for this project and elected to fund the first US$500,000 in exploration expenditures to increase our interest from 50% to 55%. As at the end of 2005, we had incurred $135,000 (US$108,000) of this amount. Following the funding of US$500,000, we will incur with Esperanza the next US$1,500,000 of expenditures in proportion to our respective interests. We may elect to increase our interest in the joint venture to 70% by paying all costs to complete a feasibility study and may elect to increase our interest in the joint venture to 80% by paying all costs required to place the project into commercial production. See Item 4.B - “Business Overview”.
In July 2005, we entered into agreements to acquire a 100% interest in the Veta Colorada Project located in the State of Chihuahua, Mexico. Under the agreements, we agreed to pay a total of US$3,500,000, subject to a due diligence review. As of December 31, 2005, we had incurred $569,000 of expenditures relating to this project, including US$170,000 in non-refundable payments. The closing date for the transaction is expected to occur on or before March 31, 2006. Assuming a positive due diligence review, we will pay the vendors US$3,330,000 on closing. See Item 4.B - “Business Overview”.
Property, Plant and Equipment
A total of $1,202,000 was spent during 2005 on property, plant and equipment, compared to $710,000 in 2004. Of the amounts spent in 2005, $1,047,000 related to a purchase of mobile equipment relating to the Manantial Espejo Project, $103,000 related to office furniture, equipment and computers and $52,000 related to the purchase of exploration vehicles in Mexico.
Silver Bullion
We hold 1,953,985 ounces of silver valued at $15,787,000 at the end of the year. The average cost of our silver bullion is $8.08 (US$5.85) per ounce. Our silver bullion is carried on the balance sheet at the lower of cost or net realizable value. The market value of our silver bullion was $20,093,000 for an unrealized gain of $4,306,000 at December 31, 2005 compared to a market value of $16,028,000 for an unrealized gain of $241,000 at December 31, 2004. The purchase of silver bullion was made, in part, to recognize that silver is an investment alternative for our cash reserves and to provide maximum exposure to silver.
Marketable Securities
We purchased $2,459,000 in marketable securities during 2005 compared to $2,755,000 in 2004. These investments were made in various mineral exploration companies. Our marketable securities had a carried cost of $4,985,000 and a market value of $15,087,000 for an unrealized gain of $10,102,000 at December 31, 2005 compared to a carried cost of $1,329,000 and a market value of $4,122,000 for an unrealized gain of $2,793,000 at December 31, 2004.
We received proceeds on the sale of marketable securities of $3,077,000 in 2005 compared to proceeds of $4,319,000 in 2004.
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Long-term Contractual Obligations
The following table discloses our contractual obligations for office rent of our Vancouver office and operating equipment leases relating to our Pirquitas Project:
| Payments due by Period | |||||
| Total $ | Less Than 1 Year $ | 1-3 Years $ | 4-5 Years $ | After 5 Years $ | |
| Lease obligations | 863,000 | 572,000 | 291,000 | - | - |
Financial Instruments and Other Instruments
Our financial instruments consist of cash and cash equivalents, silver bullion, marketable securities, accounts receivable and accounts payable. It is management’s opinion that we are not exposed to significant interest, currency or credit risks arising from our cash and cash equivalents, accounts receivable and accounts payable.
Marketable securities and silver bullion are, by their nature, subject to market price and exchange rate fluctuations. We value our marketable securities and silver bullion at the lower of cost and market. There were unrealized gains of $10,102,000 relating to marketable securities and $4,306,000 relating to silver bullion at December 31, 2005 compared to unrealized gains of $2,793,000 relating to marketable securities and $241,000 relating to silver bullion at December 31, 2004. In 2005, $14,000 in write-downs were recorded against the carrying value of marketable securities compared to $52,000 in write-downs in 2004. There were no provisions made against the carried value of silver bullion.
We are exposed to currency risk on the acquisition and exploration expenditures on our properties since we have to settle expenditures either in local currency or U.S. dollars. Our expenditures are negatively impacted by increases in value of either the U.S. dollar or local currencies versus the Canadian dollar.
Risks and Uncertainties
As a mineral exploration company, we are exposed to a number of risks and uncertainties. See Item 3.D.-“Risk Factors”.
C. | Research and Development, Patents and Licenses, etc. |
We are a mineral exploration company with no producing properties and, as such, the information required by this item is inapplicable.
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D. | Trend Information |
We are a mineral exploration company with no producing properties, and, as such, the information required by this item is inapplicable.
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E. | Off-Balance Sheet Arrangements |
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
F. Tabular disclosure of contractual obligations.
F. | Tabular Disclosure of Contractual Obligations. |
See Item 5.B – “Liquidity and Capital Resources”.
Item 6
| Directors, Senior Management and Employees |
A. | Directors and Senior Management |
The following table lists as of April 30, 2003February 28, 2006 the names of our directors and senior management. Each of the directors and senior officers has served in his or her respective capacity since his or her election and/or appointment and will serve until the next annual general meeting of shareholders or until a successor is duly elected, unless the office is vacated in accordance with our Articles.
Table No. 27
35
Our Directors and Senior Management
| Position with Silver | Date of First |
|
John R. Brodie FCA(1) (2)(3) (4) | Director | January 2006 | 61 |
R.E. Gordon Davis(1) (2) (3) (4) | Director | February 1996 | 67 |
David L. Johnston | Director | May 2000 | 66 |
William Meyer(1) (2)(3) (4) | Director | March 1993 | 68 |
Robert A. Quartermain | President and Director | January 1985 | 51 |
Catherine McLeod-Seltzer(1) | Director | January 2002 | 46 |
Kenneth C. McNaughton(1) | Vice President, Exploration | July 1991 | 47 |
Ross A. Mitchell(1) | Vice President, Finance | January 1996 | 57 |
Joseph J. Ovsenek(1) | Senior Vice President | February 2003 | 47 |
R. Michael Robb(5) | Vice President, Project Development | May 1, 2005 | 65 |
Linda J. Sue(1) | Corporate Secretary | November 1985 | 51 |
(1) | Resident of Canada |
(2) | Member of the Audit Committee |
(3) | Member of the Compensation Committee |
(4) | Member of the Nominating Committee |
(5) | |||
Resident of the United States | |||
(1) Member
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(2) Resident of Canada
(3) Member of the Compensation CommitteeContents
Our Board of Directors and Senior Management
The following is a brief description of the principal business activities ofour directors and senior management:
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Robert A. QuartermainJohn R. Brodie FCA
Mr. Quartermain is responsible for our dayBrodie has been the President of John R. Brodie Capital Inc., a private consulting firm, since 2003. From 1975 to day operations2003, Mr. Brodie was a partner at KPMG and from 1987 to 1995 served as well as strategic planning anda director of KPMG. Mr. Brodie graduated from the raising of capital to fund our operations. Mr. Quartermain devotes approximately 95% of his time to our business. The remainder of Mr. Quartermain’s time is divided equally between Canplats Resources Corporation (“Canplats”) and Radiant Resources Inc., formerly known as Pacific Sapphire Company Ltd., (“Radiant”). We have employed Mr. Quartermain in this capacity since January 1985 and have entered into an employment agreement with him. See “Executive Compensation – Employment Agreements
Mr. Quartermain graduated in 1977 from University of New BrunswickManitoba with a Bachelor of Science Degree in geology1967 and from Queen’sattended the Stanford Executive Program at Stanford University in 1981 with a Master of Science Degree in mineral exploration and1982. He is a registered member of the AssociationCanadian Institute of Professional EngineersChartered Accountants, British Columbia Institute of Chartered Accountants and Geoscientistsa lifetime member of Certified Fraud Examiners. Mr Brodie was elected a Fellow and awarded the FCA designation by the Institute of Chartered Accountants of British Columbia. From 1976Columbia in 2003 for distinguished service to 1982 he worked for the Geological Survey of Canada and in private industry on mapping and exploration programs.accounting profession. Mr. QuartermainBrodie is also worked for Teck Corp. before becoming president of the Company in 1985. Mr. Quartermain serves as a director and officer of Radiant and as a director of Canplats, IAMGoldFar West Mining Inc., Ag Growth Income Fund, Rubicon Minerals Corporation, (formerly Repadre Capital Corporation), Vista Gold Corporation, Rare ElementCopper Belt Resources Ltd. (formerly Paso Rico Resources Ltd.), Esperenza Silver Corporation (formerly Reliant Ventures Ltd.) and Strathmore Minerals Corp.Pacific Safety Products.
R.E. Gordon Davis
Mr. Davis graduated with a Bachelor of Applied Science Degree in Geological Engineering in 1962 and is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. He was a Director and Senior Executive with Dynasty Explorations Ltd. and its successor corporation, Cyprus Anvil Mining Corporation from 1964 to 1982. Since 1982, Mr. Davis has been a director of a number of resource companies including Pine Point Mines Ltd., Cabre Exploration Ltd., Golden Knight Resources Inc. and Northern Crown Mines Ltd. In addition, Mr. Davis has been a director of Canplats Resources Corporation (“Canplats”) since October 1999 and President of Canplats since March 2000, a mineral resource exploration company whose shares are listed on the TSX Venture Exchange.
David L. Johnston
Mr. Johnston is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia with a lengthy career in senior management at several major Canadian major mining companies. Prior to his election to our board, Mr. Johnston was president and general manager from 1996 to 2000 of Highland Valley Copper Corporation, operator of North America’s third largest open pit copper mine. From 1990 to 1996, he served as vice president of Cominco Metals and from 1985 to 1990, he was president of Pine Point Mines Limited, operator of a significant open pit lead-zinc mine in Canada’s Northwest Territories. Mr. Johnston is also a director of Eagle Plains Resources Ltd.
William Meyer
Mr. Meyer was formerly vice president, explorationVice President, Exploration for Teck Corporation and presidentPresident of Teck Exploration Ltd. He graduated from the University of British Columbia with a Bachelor of Science Degree in geologyGeology in 1962. After graduation, he was employed as an exploration geologist with Phelps Dodge Corporation of Canada and later as senior geologist with Gibraltar Mines Ltd. In 1967, he joined the consulting firm of Western Geological Services as a partner and in 1975 formed his own consulting firm, W. Meyer and Associates. Mr. Meyer joined Teck Corporation in 1979 as exploration manager for Western Canada and the United States. In 1991, he was appointed vice president, exploration, for Teck Corporation responsible for the direction of exploration activities for Teck and its associated companies worldwide. He retired from Teck in 1999. Mr Meyer is also a director of Minco Mining and Metals Corporation, Minco Silver Corporation, GGL Diamond Corporation, Cantech Ventures Inc., Transamerica Resources Corporation and Lysander Minerals Corp.
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Robert A. Quartermain
Mr. Quartermain is responsible for our day to day operations as well as strategic planning and the raising of capital to fund our operations. Mr. Quartermain devotes all of his time to our business. We have employed Mr. Quartermain in this capacity since January 1985 and have entered into an employment agreement with him. See “Compensation – Employment Agreements”.
Mr. Quartermain graduated in 1977 from University of New Brunswick with a Bachelor of Science Degree in Geology and from Queen’s University in 1981 with a Master of Science Degree in Mineral Exploration and is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. From 1976 to 1982 he worked for the Geological Survey of Canada and in private industry on mapping and exploration programs. Mr. Quartermain also worked for Teck Corp. before becoming president of the Company in 1985. Mr. Quartermain serves as a director and officer of Radiant and as a director of Canplats, IAMGold Corporation, Vista Gold Corporation and Minco Silver Corporation.
Catherine McLeod-Seltzer
Ms. McLeod-Seltzer has been President and directorwas appointed Chair of the board of directors Pacific Rim Mining Corp. (“Pac Rim”), a Toronto Stock Exchange listed mining company, since 1997.on January 9, 2006. From 1997 up to her appointment as Chair, Ms. Mcleod-Seltzer served as President and director of Pac Rim. She is also Co-Chairman and a director of Stornoway Ventures Ltd.Diamond Corporation and a director of Bear Creek Mining Corporation, Peru Copper Inc. and Miramar Mining Corp. Ms. McLeod-Seltzer graduated from Trinity Western University in 1984 with a Bachelor of Arts Degree in Business Administration.
Linda J. SueKenneth C. McNaughton
Ms. SueMr. McNaughton devotes approximately 90% of her time to our business, with the remainder of her time split between Canplats and Radiant. Ms. Sue has been employed by us since 1981. Her responsibilities include management of our land titles system.
Ross A. Mitchell
Mr. Mitchell devotes approximately 90%80% of his time to our business, with the remainder of his time split between Canplatsallocated to Canplats. Mr. McNaughton earned a Bachelor of Applied Science Degree and Radiant.Master of Applied Science Degree in Geological Engineering in 1981 and 1983, respectively, from the University of Windsor and is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. Before joining us, he worked as contract engineer for Oretech Engineering and worked on exploration programs for three bulk mineable gold or copper/gold deposits in Arizona and British Columbia. From 1984 to 1989, he was employed by Corona Corporation and its affiliate Mascot Gold Mines Ltd. as a project geologist and engineer for projects in British Columbia.
Ross A. Mitchell
Mr. Mitchell devotes approximately 95% of his time to our business, with the remainder of his time allocated to Canplats. Prior to his appointment in 1996, Mr. Mitchell was employed by Westmin Resources and its predecessor Western Mines Ltd. from 1975. He held various financial positions including controller treasurer of Western Mines from 1975 to 1980 and assistant treasurer and controller of the mining division at Westmin until 1985. He was then appointed treasurer of Westmin and became vice president and treasurer in 1989, the position he held until 1995. He earned a Bachelor of Commerce Degree from the University of British Columbia in 1971 and a C.A. from the Institute of Chartered Accountants of British Columbia in 1973.
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Kenneth C. McNaughtonTable of Contents
Mr. McNaughton devotes approximately 75% of his time to our business, with the remainder of his time allocated to Canplats. Mr. McNaughton earned a Bachelor of Applied Science Degree and Master of Applied Science Degree in geological engineering in 1981 and 1983, respectively, from the University of Windsor and is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. Before joining Silver Standard, he worked as contract engineer for Oretech Engineering and worked on exploration programs for three bulk mineable gold or copper/gold deposits in Arizona and British Columbia. From 1984 to 1989, he was employed by Corona Corporation and its affiliate Mascot Gold Mines Ltd. as a project geologist and engineer for projects in British Columbia.
Joseph J. Ovsenek
Mr. Ovsenek devotes 95% of his time to our business, with the remainder of his time allocated to Canplats. Mr. Ovsenek has served in this capacity since February 2003. Mr. Ovsenek graduated from the University of British Columbia with a Bachelor of Applied Science Degree in Mechanical Engineering in 1983 and from the University of Toronto with a Bachelor of Laws Degree in 1989 and is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. Prior to joining us, he was a partner with the law firm of Bragagnolo & Ovsenek, Solicitors. Mr. Ovsenek is a director of Esperanza Silver Corporation and Nova Uranium Corp.
R. Michael Robb
Mr. Robb devotes 100% of his time to our business. Mr. Robb earned a Bachelor of Science Degree (Mining) from the University of Idaho in 1963 and has done Masters of Business Administration Work at the Universities of Arizona and New Mexico. He is also a registered professional engineer in Arizona, Maine, Nevada, New Mexico and Virginia. Mr. Robb has been actively involved in the mining industry since the late 1960’s, with his more recent positions including Vice President of Operations, Mexico, for Eldorado Gold Corp. from 1995 to 1997, Vice President of Operations for Fischer-Watt Gold Company from 1997 to 2001 and Vice President and General Manager for Queenstake Resources from 2001 to 2003.
Linda J. Sue
Ms. Sue devotes approximately 80% of her time to our business, with the remainder of her time allocated to Canplats. Ms. Sue has been employed by us since 1981. Her responsibilities include management of our land titles system.
There are no family relationships among the members of our board of directors or the members of our senior management.
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B. | Compensation |
We have no formal plan for compensating our directors for their services in their capacity as directors. The board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. Other than indicated below, no director received any compensation for his or her services as a director, including committee participation and/or special assignments.
Compensation of Named Executive Officers
We currently have threefour named executive officers, Robert Quartermain, our President, Joe Ovsenek, our Senior Vice President, Ross Mitchell, our Vice President, Finance and Ken McNaughton, our Vice President, Exploration (the “Named Executive Officers”). The following table sets out the compensation awarded, paid to or earned by our Named Executive Officers during the fiscal year ended December 31, 2003:2005:
Table No. 28Summary Compensation Table
| Name and Principal Position | Year (1) | Salary ($)(2) | Bonus ($) | Other Annual Compen sation | No. of Securities under option | Restricted Shares or restricted share units | LTIP Pay Outs | All Other Compen- sation(3) ($) |
|---|---|---|---|---|---|---|---|---|
| R.A. Quartermain President | 2003 2002 2001 | 204,697 136,259 123,153 | 50,000 50,000 0 | 0 0 0 | 540,000 470,000 411,200 | 0 0 0 | 0 0 0 | 10,177(3) 9,563(3) 8,751(3) |
| J. Ovsenek Senior Vice President | 2003 | 100,230 | 20,000 | 0 | 130,000 | 0 | 0 | 5,892(4) |
| K. McNaughton Vice President, Exploration | 2003 | 91,385 | 25,000 | 0 | 148,600 | 0 | 0 | 8,002(5) |
|
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Table No. 2936
Summary Compensation Table
|
| Annual Compensation | Long Term Compensation |
| ||||
| Awards | Pay |
| |||||
|
|
|
| Outs |
| |||
Name and Principal | Fiscal Year Ending(1) | Salary(2) | Bonus |
|
| Restricted Shares or Restricted Share Units | LTIP Pay-Outs |
|
Robert Quartermain | 2005 | $250,000 | $175,000 | 0 | 200,000 | 0 | 0 | $10,060 |
President | 2004 | $200,000 | $80,000 | 0 | 100,000 | 0 | 0 | $9,537 |
| 2003 | $204,697 | $50,000 | 0 | 180,000 | 0 | 0 | $8,779 |
Joe Ovsenek | 2005 | $175,000 | $60,000 | 0 | 120,000 | 0 | 0 | $8,899 |
Senior Vice President | 2004 | $130,000 | $50,000 | 0 | 60,000 | 0 | 0 | $6,958 |
| 2003 | $110,000 | $20,000 | 0 | 130,000 | 0 | 0 | $5,592 |
Ross Mitchell | 2005 | $130,000 | $25,000 | 0 | 50,000 | 0 | 0 | $8,002 |
Vice President, Finance | 2004 | $100,000 | $25,000 | 0 | 40,000 | 0 | 0 | $6,161 |
Ken McNaughton | 2005 | $130,000 | $40,000 | 0 | 75,000 | 0 | 0 | $9,377 |
(1) | Fiscal years ended December 31, 2005, December 31, 2004 and December 31, 2003. |
(2) | A portion of the salaries of our Named Executive Officers are recovered from various outside companies, some of which are related. |
(3) | All Other Compensation is comprised of term life insurance payments and group registered retirement savings plan (“RRSP”) payments made on behalf of the employee by us. |
Long-Term Incentive Plans - Awards in Most Recently Completed Fiscal Year
We have no long-term incentive plans in place and therefore there were no awards made under any long-term incentive plan to the Named Executive Officers during our most recently completed fiscal year. A “Long-Term Incentive Plan” is a plan under which awards are made based on performance over a period longer than one fiscal year, other than a plan for options, SARs (stock appreciation rights) or restricted share compensation.
SARs Granted During the Most Recently Completed Fiscal Year
During the most recently completed fiscal year, no SARs (stock appreciation rights) were granted to the Named Executive Officers.
Option Grants During the Most Recently Completed Fiscal Year
The following stock options were granted to the Named Executive Officers and our directors during the year ended December 31, 2005:
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Table No. 37
Options Granted for the Fiscal Year Ended December 31, 20032005
| |||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(1) Each option is exercisable into one common share in our capital stock.
Aggregated OptionOption/SAR Exercises in Last FinancialDuring the Most Recently Completed Fiscal Year andFinancial Year-End Option Fiscal Year End Option/SAR Values
The following table sets out details of all exercises ofincentive stock options during the year ended December 31, 2003exercised by the Named Executive Officers, andduring the financial year-endmost recently completed fiscal year as well as the fiscal year end value of unexercisedstock options on an aggregated basis:held by the Named Executive Officers. During this period, no outstanding SARs were held by the Named Executive Officers.
Table No. 30
38
Option Exercises / Year-End Option Values
| Name | Securities Acquired on Exercise (#)(1) | Average Value Realized ($)(2) | Unexercised Options at Financial Year-End (#) Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Financial Year-End ($) (3) Exercisable/ Unexercisable |
|---|---|---|---|---|
| R. A. Quartermain | 110,000 | 940,450 | 540,000 exercisable 0 unexercisable | 4,408,738 0 |
| J. Ovsenek | 40,000 | 195,600 | 130,000 exercisable 0 unexercisable | 636,700 0 |
| K. McNaughton | 22,000 | 173,800 | 148,600 exercisable 0 unexercisable | 1,166,108 0 |
|
|
| Unexercised Options at | Value of Unexercised |
Robert Quartermain | 107,500 | 1,248,321 | 412,500 exercisable | 2,465,750 exercisable |
|
|
| 150,000 unexercisable | 272,000 unexercisable |
Joseph Ovsenek | 10,000 | 90,800 | 170,000 exercisable | 783,400 exercisable |
|
|
| 90,000 unexercisable | 163,200 unexercisable |
Ross Mitchell | 0 | 0 | 159,700 exercisable | 1,231,110 exercisable |
|
|
| 45,000 unexercisable | 92,900 unexercisable |
Ken McNaughton | 13,000 | 160,680 | 137,500 exercisable | 764,850 exercisable |
|
|
| 57,500 unexercisable | 106,150 unexercisable |
Directors (4) | 62,600 | 373,662 | 232,200 exercisable | 1,126,288 exercisable |
|
|
| 130,000 unexercisable | 63,600 unexercisable |
(1) | Number of |
(2) | Calculated using the closing prices for a board lot of |
(3) | As freestanding SARs have not been granted, the number of shares relate solely to stock options. |
(4) | Value using the closing price of |
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Compensation to Directors and Executive Officers
TotalDuring 2005, we had no arrangements, standard or otherwise, pursuant to which we or our subsidiaries compensated our directors for their services in their capacity as directors, or for committee participation, involvement in special assignments or for services as consultants or experts, other than the grant of stock options and as described below. On December 20, 2005, each director was granted stock options to acquire 30,000 shares of the Company at a price of $16.73 for a period of five years.
Effective January 1, 2005, the board of directors adopted a policy on board compensation to provide an annual retainer of $10,000 to each independent board member, with a further $2,000 to the lead director. Members of board committees will receive an additional $1,000 per annum and the committee chairman will be paid a further $1,000 per annum. In January 2006, the board of directors amended its policy on board compensation by increasing the annual retainer to $15,000 for all directorseach independent board member, with an additional $5,000 to the lead director. Members of board committees will also receive an additional $2,000 per annum and senior officers during the year ended December 31, 2003 totalled $652,300.Chair of the Audit Committee will receive an additional $5,000 per annum.
Executive Benefits
We do not have not instituted any pension plansa defined benefit or retirement benefit plans, other than a group RRSP,actuarial plan under which benefits are determined primarily by final compensation and years of service and none are proposed at this time. We have a group RRSP available to all full-time employees after one year of service. We do not provide retirement benefits for directors. Other than as disclosed in this Annual Report, we have not paid any additional compensation to our directors and senior officers for the fiscal year ended December 31, 2003.2005.
Employment Agreements
We engaged Robert A. Quartermain to act as our chief executive officer under an agreement dated January 1, 2003. The agreement provides for Mr. Quartermain to receive a base salary of $180,000 per year for a period of one year to be renewed for further one-year terms on agreement between the parties. Mr. Quartermain must devote at least 20 days per month in performance of his duties and responsibilities with any additional time compensated at a rate of $500 per day or equivalent time off. Upon termination, Mr. Quartermain may receive, depending on the circumstances, a payment of up to two times his base salary. Effective January 1, 2004, we entered into a further agreement with Mr. Quartermain to act as our chief executive officer.2004. The agreement provides for Mr. Quartermain to receive a base salary of $200,000 per year for a period of two years to be renewed for further one-year terms on agreement between the parties. Upon termination, Mr. Quartermain may receive, depending on the circumstances, a payment of up to two times his base salary. Commencing January 1, 2005, Mr. Quartermain’s agreement was amended to increase his base salary to $250,000, and commencing January 1, 2006, Mr. Quartermain’s agreement was amended to increase his base salary to $275,000.
Options to Purchase Securities from Company or Subsidiaries
Options Outstanding
Stock Optionsoptions to purchase our securities are granted to our directors and employees on terms and conditions acceptable to the regulatory authorities in Canada, notably the TSX Venture Exchange (the “Exchange”).Canada. At our annual general meeting held on May 14, 2003,12, 2005, our shareholders approved the adoption of a stock option plan that reserves for issuance up to a maximum ofreserved 8% (including existing stock options) of our issued and outstanding shares for issuance on the exercise of incentivestock options, including previously granted stock options. We did not have formal stock option plan before such date.
Under our stock option plan, (a) the maximum number of shares reserved for issuance under the plan is 8% of our issued and outstanding shares, (b) stock options in favor of any one individual may not exceed 5% of the issued and outstanding shares of common stock, (b)(c) no stock option is transferable by the optionee other than by will or the laws of descent and distribution, (c)(d) a stock option is exercisable during the lifetime of the optionee only by such optionee, (d)(e) the maximum term of each stock option is five years, with the vesting period determined at the discretion of the Board of Directors and (e)(f) the minimum exercise price for a stock option is equal to the last closingvolume weighted average trading price of our common shares on the TSX VentureToronto Stock Exchange, calculated by dividing the total value by the total volume of common shares traded, for the 5 trading days immediately preceding the granting of the option.
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The number of stock options and the number of common shares subject to such stock options granted to executive officers as a group, to directors who are not executive officers as a group and employees and consultants as a group are set out below as of December 31, 2003.2005. The exercise price of the stock options is stated in Canadian dollars.
Table No. 39
Outstanding Stock Options
| Number of Options Outstanding | Exercise Price | Expiry Date |
Executive Officers | 7,800 | $3.01 | November 6, 2006 |
| 59,300 | $4.25 | January 1, 2007 |
| 185,000 | $8.00 | August 2, 2007 |
| 260,000 | $9.10 | January 31, 2008 |
| 125,000 | $12.85 | December 22, 2008 |
| 260,000 | $14.47 | December 31, 2009 |
| 75,000 | $14.00 | May 12, 2010 |
| 470,000 | $16.73 | December 20, 2010 |
|
|
|
|
Directors who are not | 12,200 | $4.25 | January 1, 2007 |
Executive Officers | 30,000 | $8.00 | August 2, 2007 |
| 20,000 | $9.10 | January 31, 2008 |
| 40,000 | $12.85 | December 22, 2008 |
| 70,000 | $14.47 | December 31, 2009 |
| 120,000 | $16.73 | December 20, 2010 |
|
|
|
|
Employees and Consultants | 47,000 | $2.50 | August 16, 2006 |
| 20,600 | $3.01 | November 6, 2006 |
| 45,200 | $4.25 | January 1, 2007 |
| 90,400 | $8.00 | August 2, 2007 |
| 53,200 | $9.10 | January 31, 2008 |
| 26,500 | $10.35 | September 3, 2008 |
| 57,500 | $12.85 | December 22, 2008 |
| 10,000 | $20.50 | March 12, 2006 |
| 50,000 | $14.47 | September 16, 2009 |
| 45,000 | $14.47 | October 4, 2009 |
| 116,000 | $14.47 | December 31, 2009 |
| 317,500 | $16.73 | December 20, 2010 |
Total: | 2,613,200 |
|
|
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Table No. 31Outstanding Stock Options
| Number of Options Outstanding | Exercise Price | Expiry Date | |
| Executive Officers | 10,000 | $2.50 | August 16, 2006 |
| 289,100 | $3.01 | November 6, 2006 | |
| 168,600 | $4.25 | January 1, 2007 | |
| 195,000 | $8.00 | August 2, 2007 | |
| 300,000 | $9.10 | January 31, 2008 | |
| 125,000 | $12.85 | December 22, 2008 | |
| Directors who are not Executive Officers | 12,600 | $3.01 | November 6, 2006 |
| 12,200 | $4.25 | January 1, 2007 | |
| 90,000 | $8.00 | August 2, 2007 | |
| 80,000 | $9.10 | January 31, 2008 | |
| 80,000 | $12.85 | December 22, 2008 | |
| Employees and Consultants | 10,000 | $2.09 | June 5, 2005 |
| 20,019 | $1.90 | December 29, 2005 | |
| 54,000 | $2.50 | August 16, 2006 | |
| 36,850 | $3.01 | November 6, 2006 | |
| 58,100 | $4.25 | January 1, 2007 | |
| 108,400 | $8.00 | August 2, 2007 | |
| 61,600 | $9.10 | January 31, 2008 | |
| 60,000 | $10.35 | September 3, 2005 | |
| 9,200 | $10.35 | September 8, 2008 | |
| 65,000 | $12.85 | December 22, 2008 | |
| Total: | 1,845,669 | ||
In addition, as at December 31, 2003,2005, we had the following outstanding share purchase warrants, with each share purchase warrant entitling the holder thereof to acquire one of our common shares:
Table No. 32
40
Outstanding Share Purchase Warrants
| Amount | Exercise Price | Expiry Date | |
| 2,477,020 | $4.80 | May 10, 2004 | |
| 302,500 | US $5.05 | December 18, 2004 | |
| Total: | 2,779,520 | ||
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Number of Warrants Outstanding | Exercise Price | Expiry Date |
1,509,125 | $18.50 | January 15, 2006 |
Total: 1,509,125 |
|
|
(1) | Subsequent to December 31, 2005, 1,386,625 of our outstanding share purchase warrants were exercised prior to expiry on January 15, 2006 for proceeds of $25,653,000. |
C. | Board Practices |
Our directors are elected annually and hold office until the next annual general meeting of our shareholders or until their successors in office are duly elected or appointed. We do not have an executive committee. All directors are elected for a one-year term. All officers serve at the pleasure of the Board. The next annual general meeting of our shareholders has been called for June 15, 2004.May 17, 2006.
Our Board of Directors has twothree committees: the Audit Committee, the Compensation Committee and the CompensationNominating Committee. The members of the Audit Committee, Compensation Committee and CompensationNominating Committee do not have any fixed terms for holding their positions, are appointed and replaced from time to time by resolution of the Board of Directors and do not receive any separate remuneration for acting as members of the committees.
The Audit Committee, comprised of John R. Brodie FCA, R.E. Gordon Davis and William Meyer, and Catherine McLeod-Seltzer, has the responsibility of, among other things, recommending to the Board the independent auditor; determining the extent of involvement of the independent auditor in reviewing with managementunaudited quarterly financial results; evaluating the qualifications, performance and ourindependence of the independent auditors our annual financial statementsauditor; reviewing and related footnotes, management's discussion and analysis and the annual information form, for the purpose of recommending approval byto the Board of Directors.our annual and quarterly financial results and management discussion and analysis; overseeing the establishment of "whistle-blower" and related procedures. Each of the members of the Audit Committee is an independent director.
The Compensation Committee, comprised of R.E. Gordon Davis, William Meyer, and Catherine McLeod-Seltzer and John R. Brodie FCA, has the responsibility for determining executive and management direct remuneration and stock options. The President’s function in relation to the Compensation Committee is to make specific recommendations on remuneration with supporting commentary on individual performance and industry standards. Each of the members of the Compensation Committee is an independent director.
The Nominating Committee, comprised of R.E. Gordon Davis, William Meyer, Catherine McLeod-Seltzer and John R. Brodie FCA, has the responsibility of, among other things, recommending to the Board, on an annual basis, nominees for election as directors for the next annual meeting of shareholders and nominees for appointment to Committees of the Board and analyzing the needs of the Board when vacancies arise on the board and recommending nominees who meet such needs. Each of the members of the Nominating Committee is an independent director.
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Currently, we do not have service contracts with any of our directors or those of our subsidiaries providing for benefits upon termination of employment, other than Mr. Quartermain’s employment agreement in respect of his engagement as our chief executive officer (see Item 6.B – “Compensation”).
D. | Employees |
At our corporate head office in Vancouver, we had 1016 full and 3three part-time employees as at December 31, 2003,2005, including the members of senior management, threefour of whom, onetwo full time and two part time, were involved in shareholder and investor communications, threefour of whom were responsible for project exploration and development, four of whom carried out our management and executive functions and threesix of whom, twofive full time and one part time, provided administrative support. We had 12 (nine15 (12 full and three part-time) employees, including the members of senior management, as at December 31, 20022004 and 13 (ten full and three part-time) employees, including the members of senior management, as at December 31, 2001, respectively.2003.
E. | Share Ownership |
The following table sets out, as of AprilFebruary 28, 20042006, the number of our common shares beneficially owned by the Named Executive Officers, whom, to our knowledge, possess sole voting and investment power with respect to the shares shown.
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Table No. 33
41
Named Executive Officers Share Ownership
Name of Beneficial | Title of Class | Number of Securities of Class * | Percent of Class |
R.A. Quartermain | common | 647,500 | 1.2% |
R. Mitchell | common | 172,900 | 0.3% |
J. Ovsenek | common | 175,000 | 0.3% |
K. McNaughton | common | 147,500 | 0.3% |
*includes options and warrants exercisable within 60 days.
As at AprilFebruary 28, 2004,2006, our directors and officers held, as a group, directly or indirectly, an aggregate of 304,000279,200 common shares and 6,500 share purchase warrants exercisable at a price of $4.80 per share until May 10, 2004 and 12,500 share purchase warrants exercisable at a price of $18.50 per share until January 15, 2006.shares.
The total number of exercisable and unexercisable stock options and the number of common shares subject to such stock options granted to the Named Executive Officers are set out below as of April 30, 2004.February 28, 2006. The exercise price of the stock options is stated in Canadian dollars.
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Table No. 34
42
Named Executive Officers Stock Options
| Name | Number of Options Outstanding | Exercise Price | Expiry Date |
| Robert A. Quartermain | 111,200 | $3.01 | November 6, 2006 |
| 88,800 | $4.25 | January 1, 2007 | |
| 80,000 | $8.00 | August 2, 2007 | |
| 130,000 | $9.10 | January 31, 2008 | |
| 50,000 | $12.85 | December 22, 2008 | |
| J. Ovsenek | 90,000 | $9.10 | January 31, 2008 |
| 20,000 | $12.85 | December 22, 2008 | |
| K. McNaughton | 13,000 | $4.25 | January 1, 2007 |
| 35,000 | $8.00 | August 2, 2007 | |
| 25,000 | $9.10 | January 31, 2008 | |
| 20,000 | $12.85 | December 22, 2008 | |
Name | Number of Options Outstanding | Exercise Price | Expiry Date |
R.A. Quartermain | 80,000 | $8.00 | August 2, 2007 |
J. Ovsenek | 40,000 | $9.10 | January 31, 2008 |
R.A. Mitchell | 26,900 | $4.25 | January 1, 2007 |
K. McNaughton | 15,000 | $8.00 | August 2, 2007 |
Item 7 Major Shareholders and Related Party Transactions
A. Major Shareholders
Item 7 | Major Shareholders and Related Party Transactions |
A. | Major Shareholders |
To the best of our knowledge at the date of this Annual Report, no shareholder directly or indirectly owns more than 5% of our issued shares, other than Royce & Associates, LLC which held 4,646,500 of our common shares (9% of our issued and outstanding shares) as at January 31, 2006. As at February 11, 2005, Royce & Associates, LLC reported owning 4,758,700 of our common shares for 9.28% of our issued and outstanding shares.
Prior to mid-2000, Teck Corporation was a major shareholder. During Royce & Associates, LLC does not have voting rights that are different from the past three years, Teck Corporation has reduced its shareholdings from 2,275,721 on April 30, 2000 to nil on April 30, 2003.voting rights of the other holders of our common shares.
To the best of our knowledge at the date of this Annual Report, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly.
Our common stock is issued in registered form and the following information is taken from the records of Computershare Trust Company of Canada (located in Vancouver, British Columbia, Canada), the registrar and transfer agent for theour common stock.
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On December 31, 2003,2005, the shareholders’ list for our common stock showed 2,7962,523 registered shareholders and 42,604,83251,849,241 shares outstanding. 970One thousand and twenty four of these registered shareholders were U.S. residents, owning 18,024,04223,818,885 shares representing 42.3%45.9% of our issued and outstanding shares.
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B. Related Party Transactions
B. | Related Party Transactions |
Since January 1, 2003,2005, we have entered or have proposed to enter into the following transactions that have materially affected or will materially affect us in which any director, executive officer, or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest.
We provide administrative and technical services under arrangements with Canplats Resources Corporation, a publicly traded company with two common directors (Robert A. Quartermain and R.E. Gordon Davis), and Radiant Resource Inc. (formerly Pacific Sapphire Company Ltd.), a publicly traded company with one common director (Robert A. Quartermain). Under these arrangements, we are reimbursed for providing administrative and technical services, including the salaries and benefits of senior officers and staff.
In addition, Robert A. Quartermain, ourMarch 2005, we entered into an agreement with Esperanza for the evaluation of mineral prospects located in Peru. See Item 4.B - “Business Overview”. Our Senior Vice President andis a director of Esperanza.
On May 9, 2005, we acquired 960,000 special warrants of Minco Silver (with each special warrant exchangeable for one common share of Minco Silver without payment of any additional consideration) at an aggregate cost of $1.2 million. In October 2005, the special warrants were exchanged for common shares of Minco Silver. Two of our directors participated inare also directors of Minco Silver.
In September 2005, we entered into a private placementjoint venture agreement with Esperanza for the exploration of our units in January 2004 (seethe San Luis Project. See Item 5.B – “Liquidity and Capital Resources”)4.B - “Business Overview”. Our Senior Vice President is a director of Esperanza.
C. Interests of Experts and Counsel
C. | Interests of Experts and Counsel |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this sub-item.
Item 8 Financial Information A. Consolidated Statements and Other Financial Information Our audited consolidated financial statements are stated in Canadian dollars (Cdn$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles Exhibited hereto are audited consolidated financial statements prepared by our management, audited by an independent auditor and accompanied by an audit report: (a) Auditors’ Report, dated (b) Consolidated Balance Sheets as at December 31, -91 - (c) Consolidated Statements of Loss and Deficit for the years ended December 31, (d) Consolidated Statements of Cash Flows for the years ended December 31, (e) Notes to Consolidated Financial Statements for the years ended December 31, We have not paid dividends in the past five years and do not expect to pay dividends in the near future. Our present policy is to retain future earnings for use in our operations and the expansion of our business. B. Significant Changes No significant changes have occurred since the date of our most recent audited financial statements, December 31, (a) we completed we have received (c) the silver bullion that was lodged as collateral for a bank letter of credit relating to the Candelaria mine has been replaced with US dollar collateral; and (d) we have entered into an agreement with Pan American to sell to Pan American our 50% interest in the Manantial Espejo Project for 1.95 million shares of Pan American, having a value of US$46.3 million as of March 21, 2006. Item 9 The Offer and Listing A. Offer and Listing Details On October 12, 2004, our common stock commenced trading in the United States on the Nasdaq National Market (“NNM”) with the symbol “SSRI”. Prior to October 12, 2004, our shares were traded in the United States on the Nasdaq SmallCap Market (“NSM”) (together the NNM and NSM are referred to as “Nasdaq”). Our common stock was first quoted on the Nasdaq SmallCap Market on August 1, 1996. The following tables set out the reported high and low prices for (a) the five most recent fiscal years; (b) each quarterly period for the past two fiscal -92 - Table No. High and Low Price for the Five Most Recent Fiscal YearsItem 8 Financial InformationA. Consolidated Statements and Other Financial Information("GAAP"(“GAAP”), which differ in certain respects from those principles that we would have followed had our audited consolidated financial statements been prepared in accordance with US GAAP. The major measurement differences between Canadian and US GAAP, as they affect us, are disclosed in note 1819 to the audited consolidated financial statements.(a)February 20, 2004.March 2, 2006.(b)20032005 and December 31, 20022004 (in Canadian Dollars).(c)2003,2005, December 31, 20022004 and December 31, 20012003 (in Canadian Dollars).(d)2003,2005, December 31, 20022004 and December 31, 20012003 (in Canadian Dollars).(e)2003,2005, December 31, 20022004 and December 31, 20012003 (in Canadian Dollars).- 80 - Significant Changes2003,2005, other than the following:than:(a)a private placementthe acquisition of 2,955,000all of our units at a pricethe shares of $14.80 per unit, with each unit comprisedSociedad Minera Berenguela S.A., the holder of onethe Berenguela Project located in Peru, in consideration of, among other things, the payment of US$2 million and issuance of 530,504 of our common shares and one-half of one common share purchase warrant exercisable for a period of two years at a price of $18.50 per share; andshares;(b)to March 31, 2004, (b)$7,721,000$25,653,000 due to the issuance of 1,614,8871,386,625 common shares relating to the exercising of stock options and warrants.warrants;Item 9 The Offer and ListingA. Offer and Listing DetailsOurOn November 4, 2004, our common stock iscommenced trading in Canada on the Toronto Stock Exchange (“TSE”) in Toronto, Ontario, Canada, under the trading symbol “SSO” and CUSIP #82823L-10-6. Prior to November 4, 2004, our shares were listed in Canada on the TSX Venture Exchange (the “TSX”(“TSX-V”) (formerly known as the Canadian Venture Exchange Inc., the successor exchange resulting from the merger of the Vancouver Stock Exchange and Alberta Stock Exchange effective November 29, 1999) in Toronto, Ontario, Canada, having(together the trading symbol “SSO”TSE and CUSIP #82823L-10-6 and is quoted on Nasdaq SmallCap Market withTSX-V are referred to as the symbol “SSRI”“TSX”). Our common stock commenced trading on the Vancouver Stock Exchange in 19471947.years and for the first quarter of 2004;years; and (c) each month for the past six months.35
43
on the TSX (Cdn$'s)’s)
| Fiscal Year Ended | High | Low |
| December 31, 2003 | $15.75 | $5.35 |
| December 31, 2002 | $11.90 | $3.45 |
| December 31, 2001 | $4.30 | $1.87 |
| December 31, 2000 | $2.95 | $1.50 |
| December 31, 1999 | $2.90 | $1.25 |
Fiscal Year Ended | High | Low |
December 31, 2005 | $18.89 | $12.34 |
December 31, 2004 | $23.00 | $12.00 |
December 31, 2003 | $15.75 | $5.35 |
December 31, 2002 | $11.90 | $3.45 |
December 31, 2001 | $4.30 | $1.87 |
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Table No. 36
44
High and Low Price for the Five Most Recent Fiscal Years
on the Nasdaq SmallCap Market (US$'s)’s)
| Fiscal Year Ended | High | Low | High | Low |
December 31, 2005 | $16.15 | $9.71 | ||
December 31, 2004 | $17.37 | $8.65 | ||
| December 31, 2003 | $12.30 | $3.55 | $12.30 | $3.55 |
| December 31, 2002 | $7.80 | $2.16 | $7.80 | $2.16 |
| December 31, 2001 | $2.75 | $1.28 | $2.75 | $1.28 |
| December 31, 2000 | $2.00 | $1.09 | ||
| December 31, 1999 | $2.06 | $0.78 | ||
Table No. 37
45
High and Low Prices for each Quarterly Period for the Past Two Fiscal Yearsand for the First Quarter of 2004 on the TSX (Cdn$'s)’s)
| Period Ended | High | Low |
| March 31, 2004 | $23.00 | $13.35 |
| December 31, 2003 | $15.75 | $7.91 |
| September 30, 2003 | $11.75 | $6.85 |
| June 30, 2003 | $7.30 | $6.10 |
| March 31, 2003 | $9.89 | $5.35 |
| December 31, 2002 | $8.56 | $5.17 |
| September 30, 2002 | $10.70 | $5.00 |
| June 30, 2002 | $11.90 | $4.20 |
| March 31, 2002 | $4.71 | $3.45 |
Period Ended | High | Low |
December 31, 2005 | $18.89 | $14.23 |
September 30, 2005 | $17.00 | $13.10 |
June 30, 2005 | $15.81 | $12.34 |
March 31, 2005 | $18.00 | $13.29 |
December 31, 2004 | $20.95 | $14.47 |
September 30, 2004 | $20.90 | $14.08 |
June 30, 2004 | $22.75 | $12.00 |
March 31, 2004 | $23.00 | $13.35 |
Table No. 38
46
High and Low Prices for each Quarterly Period for the Past Two Fiscal Years on Nasdaq (US$’s)
Period Ended | High | Low |
December 31, 2005 | $16.15 | $12.42 |
September 30, 2005 | $14.48 | $11.05 |
June 30, 2005 | $12.85 | $9.71 |
March 31, 2005 | $14.56 | $10.80 |
December 31, 2004 | $16.60 | $11.77 |
September 30, 2004 | $16.58 | $10.52 |
June 30, 2004 | $17.30 | $8.65 |
March 31, 2004 | $17.37 | $10.21 |
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Table of 2004 on the Nasdaq SmallCap Market (US$'s)Contents
| Period Ended | High | Low |
| March 31, 2004 | $17.37 | $10.21 |
| December 31, 2003 | $12.30 | $5.81 |
| September 30, 2003 | $8.55 | $4.96 |
| June 30, 2003 | $5.43 | $4.16 |
| March 31, 2003 | $6.39 | $3.55 |
| December 31, 2002 | $5.51 | $3.22 |
| September 30, 2002 | $7.02 | $3.13 |
| June 30, 2002 | $7.80 | $2.66 |
| March 31, 2002 | $2.97 | $2.16 |
Table No. 39
47
High and Low Prices for each Month for the Past Six Months on the TSX (Cdn$'s)’s)
| Month Ended | High | Low |
| April 30, 2004 | $22.75 | $13.50 |
| March 31, 2004 | $23.00 | $19.81 |
| February 29, 2004 | $21.67 | $14.12 |
| January 31, 2004 | $17.00 | $13.35 |
| December 31, 2003 | $15.75 | $12.25 |
| November 30, 2003 | $14.24 | $8.80 |
Month Ended | High | Low |
February 28, 2006 | $21.59 | $17.47 |
January 31, 2006 | $21.88 | $17.17 |
December 31, 2005 | $18.31 | $16.03 |
November 30, 2005 | $18.89 | $15.01 |
October 31, 2005 | $16.84 | $14.23 |
September 30, 2005 | $17.00 | $14.00 |
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Table No. 40
48
High and Low Prices for each Month for the Past Six Months
on the Nasdaq SmallCap Market (US$'s)’s)
| Month Ended | High | Low |
| April 30, 2004 | $17.30 | $10.05 |
| March 31, 2004 | $17.37 | $14.65 |
| February 29, 2004 | $16.52 | $10.64 |
| January 31, 2004 | $13.67 | $10.21 |
| December 31, 2003 | $12.30 | $9.30 |
| November 30, 2003 | $6.99 | $6.60 |
Month Ended | High | Low |
February 28, 2006 | $18.90 | $15.12 |
January 31, 2006 | $19.18 | $14.93 |
December 31, 2005 | $16.10 | $13.92 |
November 30, 2005 | $16.15 | $13.00 |
October 31, 2005 | $14.34 | $12.42 |
September 30, 2005 | $14.48 | $11.71 |
B. | Plan of Distribution |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
C. | Markets |
See the first paragraph of this Item 9.
D. | Selling Shareholders |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
E. | Dilution |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
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E. DilutionTable of Contents
F. | Expenses of the Issue |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
A. Share Capital This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item. B. Memorandum and Articles of Association We were incorporated in British Columbia, Canada, under Certificate of Incorporation number 21492 on December 11, 1946. We do not have any stated “objects” or “purposes” as such are not required by the corporate laws of the Province of British Columbia. Rather, we are, by such corporate laws, entitled to carry on any activities whatsoever, which are not specifically precluded by other statutory provisions of the Province of British Columbia. Powers and Functions of the DirectorsF. Expenses of the IssueB. Memorandum and Articles of AssociationIncorporationIncorporation
The powers and functions of the directors are set out in our Articles, which were adopted and filed Julyby our shareholders on May 12, 1979.2005. They provide:
(a) | a director is obligated to disclose his potential interest in a proposal, arrangement or contract being considered by us, and may not vote on any proposal, arrangement or contract proposed, but such director shall be counted in the quorum at the meeting of the directors at which the proposal, arrangement or contract is approved; |
(b) | the directors may, in the absence of an independent quorum, vote compensation to themselves; |
(c) | there are no limitations on the exercise by the directors of our borrowing powers; |
(d) | there are no provisions for the retirement or non-retirement of directors under an age limit; and |
(e) | there is no requirement for a director to hold any of our shares. |
Rights and Restrictions Attached to the Shares
As all of our authorized and issued shares are of one class there are no special rights or restrictions of any nature or kind attached to any of the shares. All authorized and issued shares rank equally in respect to the declaration and receipt of dividends, the rights to share in any profits or surplus on our liquidation, dissolution or winding. Each share has attached to it one non-cumulative vote.
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Alteration of Share Rights
To alter the rights of holders of our issued shares such alteration must be approved by the majority vote of 75%two-thirds of our issued shares attending and voting at a meeting of our shareholders.
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Annual General Meetings
Annual general meetings are called and scheduled upon decision by the Board of Directors. The directors may convene an extraordinary general meeting of the shareholders. The holders of not less than 5% of our issued shares may requisition an extraordinary meeting of the shareholders. All meetings of the shareholders may be attended by registered shareholders or persons who hold powers of attorney or proxies given to them by registered shareholders.
Foreign Ownership LimitationLimitationss
Our Memorandum and Articles do not contain limitations prohibiting shares being held by non-residents, foreigners or any other group.
Change of Control
There are no provisions in our Memorandum and Articles that would have an effect of delaying, deferring or preventing a change in our control, or that would operate with respect to any proposed merger, acquisition or corporate restructuring.
Share Ownership Reporting Obligations
There are no provisions in our Memorandum and Articles requiring share ownership to be disclosed. The securities laws of the Province of British Columbia require disclosure of shareholdings by:
(a) | persons who are our directors or senior officers; and |
(b) | a person who has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control or direction over our securities carrying more than 10% of the voting rights attached to all of our outstanding voting securities. |
Differences from U.S. Law
The threshold of share ownership percentage requiring disclosure of ownership is higher in the home jurisdiction of British Columbia than the U.S. where U.S. securities law prescribes a 5% threshold for ownership disclosure.
C. | Material Contracts |
The following is a summary of each material contract, other than contracts entered into in the ordinary course of business, to which we or any member of the group is a party, for the two years immediately preceding publication of the document, including dates, parties, general nature of the contracts, terms and conditions, and amount of any consideration passing to or from us or any other member of the group.
1. |
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Option agreement dated March 31, 2004 among Sociedad Minera Berenguela S.A., Fossores Ltd., Silver Standard Peru S.A. and Silver Standard. See Item 4.B under the heading “Berenguela Project” for a description of the |
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2. | Funding agreement dated March 31, 2004 among Fossores Ltd. and Silver Standard. See Item 4.B under the heading “Berenguela Project” for a description of the funding agreement. |
3. | Strategic alliance agreement between Minco Mining & Metals Corporation and Silver Standard. See Item 4.B under the heading “Minco Silver – Strategic Alliance” for a description of the agreement. |
4. | Purchase agreement dated October 20, 2004 among Elliott International L.P., The Liverpool Limited Partnership, Highwood Partners, L.P. and Silver Standard. See Item 4.B under the heading “Pirquitas Project” for a description of the purchase agreement. |
5. | Mineral prospect evaluation agreement dated March 22, 2005 with Esperanza Silver Corporation. See Item 4.B under the heading “San Luis Project” for a description of the agreement. |
6. | Joint venture agreement dated September 6, 2005 with Esperanza Silver Corporation. See Item 4.B under the heading “San Luis Project” for a description of the agreement. |
7. | Purchase agreement dated December 30, 2005 with Daniel W. Kappes, Michael W. Cassiday, Victor Raul Eyzaguirre. See Item 4.B under the heading “Berenguela Project” for a description of the purchase agreement. |
8. | Purchase agreement dated March 21, 2006 with Pan American Silver Corp. See Item 4.B under the heading “Manantial Espejo Project” for a description of the agreement. |
D. | Exchange Controls and Investment Canada Act |
Canada has no system of exchange controls. There are no exchange restrictions on borrowing from foreign countries nor on the remittance of dividends, interest, royalties and similar payments, management fees, loan repayments, settlement of trade debts, or the repatriation of capital. Any such remittances to United States residents, however, may be subject to a withholding tax pursuant to the Canadian Income Tax Act as modified by the reciprocal tax treaty between Canada and the United States. See “Item 10 E,10.E, Taxation”.
The Investment Canada Act (the “Act”), enacted on June 20, 1985, requires prior notification to the Government of Canada on the “acquisition of control” of Canadian businesses by non-Canadians, as defined in the Act. Certain acquisitions of control, discussed below, are reviewed by the Government of Canada. The term “acquisition of control” is defined as any one or more non-Canadian persons acquiring all or substantially all of the assets used in the Canadian business, or the acquisition of the voting shares of a Canadian corporation carrying on the Canadian business or the acquisition of the voting interests of an entity controlling or carrying on the Canadian business. The acquisition of the majority of the outstanding shares is deemed to be an “acquisition of control” of a corporation. The acquisition of less than a majority, but one-third or more, of the voting shares of a corporation is presumed to be an “acquisition of control” of a corporation unless it can be established that the purchaser will not control the corporation.
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Investments requiring notification and review are all direct acquisitions of Canadian businesses with assets of C$5,000,000$5,000,000 or more (subject to the comments below on WTO investors), and all indirect acquisitions of Canadian businesses (subject to the comments below on WTO investors) with assets of more than C$50,000,000$50,000,000 or with assets of between C$5,000,000$5,000,000 and C$50,000,000$50,000,000 which represent more than 50% of the value of the total international transaction. In addition, specific acquisitions or new businesses in designated types of business activities related to Canada’s cultural heritage or national identity could be reviewed if the Government of Canada considers that it is in the public interest to do so.
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The Act was amended with the implementation of the Agreement establishing the World Trade Organization (“WTO”) to provide for special review thresholds for “WTO investors”, as defined in the Act. “WTO investor” generally means (i) an individual, other than a Canadian, who is a national or a WTO member (such as, for example, the United States), or who has the right of permanent residence in relation to that WTO member, (ii) governments of WTO members, and (iii) entities that are not Canadian controlled, but which are WTO investor controlled, as determined by rules specified in the Act. The special review thresholds for WTO investors do not apply, and the general rules described above do apply, to the acquisition of control of certain types of businesses specified in the Act, including a business that is a “cultural business”. If the WTO investor rules apply, an investment in our shares by or from a WTO investor will be reviewable only if it is an investment to acquire control of Silver Standard and the value of our assets is equal to or greater than a specified amount (the “WTO Review Threshold”). The WTO Review Threshold is adjusted annually by a formula relating to increases in the nominal gross domestic product of Canada. The 20002006 WTO Review Threshold is C$192,000,000.$265,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control of Silver Standard by the acquisition of shares, but the transaction is not reviewable as described above, the non-Canadian is required to notify the Canadian government and to provide certain basic information relating to the investment. A non-Canadian, whether or not a WTO investor, is also required to provide a notice to the government on the establishment of a new Canadian business. If our business is then a prescribed type of business activity related to Canada’s cultural heritage or national identity, and if the Canadian government considers it to be in the public interest to do so, then the Canadian government may give notice in writing within 21 days requiring the investment to be reviewed.
For non-Canadians (other than WTO investors), an indirect acquisition of control, by the acquisition of voting interests of an entity that directly or indirectly controls Silver Standard, is reviewable if the value of our assets is then C$50,000,000$50,000,000 or more. If the WTO investor rules apply, then this requirement does not apply to a WTO investor, or to a person acquiring the entity from a WTO investor. Special rules specified in the Act apply if the value of our assets is more than 50% of the value of the entity so acquired. By these special rules, if the non-Canadian (whether or not a WTO investor) is acquiring control of an entity that directly or indirectly controls Silver Standard, and the value of our assets and all other entities carrying on business in Canada, calculated in the manner provided in the Act and the regulations under the Act, is more than 50% of the value, calculated in the manner provided in the Act and the regulations under the Act, of the assets of all entities, the control of which is acquired, directly or indirectly, in the transition of which the acquisition of control of Silver Standard forms a part, then the thresholds for a direct acquisition of control as discussed above will apply, that is, a WTO Review Threshold of C$192,000,000$265,000,000 (in 2000)2006) for a WTO investor or a threshold of C$5,000,000$5,000,000 for a non-Canadian other than a WTO investor. If the value exceeds that level, then the transaction must be reviewed in the same manner as a direct acquisition of control by the purchase of our shares.
If an investment is reviewable, an application for review in the form prescribed by the regulations is normally required to be filed with the Director appointed under the Act (the “Director”) prior to the investment taking place and the investment may not be consummated until the review has been completed. There are, however, certain exceptions. Applications concerning indirect acquisitions may be filed up to 30 days after the investment is consummated and applications concerning reviewable investments in culture-sensitive sectors are required upon receipt of a notice for review. In addition, the Minister (a person designated as such under the Act) may permit an investment to be consummated prior to completion of the review, if he is satisfied that delay would cause undue hardship to the acquirer or jeopardize the operations of the Canadian business that is being acquired. The Director will submit the application to the Minister, together with any other information or written undertakings given by the acquirer and any representation submitted to the Director by a province that is likely to be significantly affected by the investment.
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The Minister will then determine whether the investment is likely to be of net benefit to Canada, taking into account the information provided and having regard to certain factors of assessment where they are relevant. Some of the factors to be considered are (i) the effect of the investment on the level and nature of economic activity in Canada, including the effect on employment, on resource processing, and on the utilization of parts, components and services produced in Canada; (ii) the effect of the investment on exports from Canada; (iii) the degree and significance of participation by Canadians in the Canadian business and in any industry in Canada of which it forms a part; (iv) the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; (v) the effect of the investment on competition within any industry or industries in Canada; (vi) the compatibility of the investment with national industrial, economic and cultural policies; (vii) the compatibility of the investment with national industrial, economic and cultural policies taking into consideration industrial, economic and cultural objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment; and (viii) the contribution of the investment to Canada’sCanada's ability to compete in world markets.
The Act sets certain time limits for the Director and the Minister. Within 45 days after a completed application has been received, the Minister must notify the acquirer that (a) he is satisfied that the investment is likely to be of net benefit to Canada, or (b) he is unable to complete his review, in which case he shall have 30 additional days to complete his review (unless the acquirer agrees to a longer period), or (c) he is not satisfied that the investment is likely to be of net benefit to Canada.
Where the Minister has advised the acquirer that he is not satisfied that the investment is likely to be of net benefit to Canada, the acquirer has the right to make representations and submit undertakings within 30 days of the date of the notice (or any further period that is agreed upon between the acquirer and the Minister). On the expiration of the 30 day period (or the agreed extension), the Minister must quickly notify the acquirer (i) that he is now satisfied that the investment is likely to be of net benefit to Canada or (ii) that he is not satisfied that the investment is likely to be of net benefit to Canada. In the latter case, the acquirer may not proceed with the investment or, if the investment has already been consummated, must divest itself of control of the Canadian business.
The Act provides civil remedies for non-compliance with any provision. There are also criminal penalties for breach of confidentiality or providing false information.
E. | Taxation |
A brief description of certain provisions of the tax treaty between Canada and the United States is included below, together with a brief outline of certain taxes, including withholding provisions, to which United States security holders are subject under existing laws and regulations of Canada. The consequences, if any, of provincial, state and local taxes are not considered.
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The Company recommends security holders seek the advice of their own tax advisors, tax counsel or accountants with respect to the applicability or effect on their own individual circumstances of the matters referred to herein and of any provincial, state or local taxes.
Certain Canadian Federal Income Tax Consequences
The discussion under this heading summarizes the principal Canadian federal income tax consequences of acquiring, holding and disposing of shares of common stock of the Company for a shareholder of the Company who is not a resident of Canada but is a resident of the United States and who will acquire and hold shares of common stock of the Company as capital property for the purposes of theIncome Tax Act (Canada) (the “Canadian Tax Act”). This summary does not apply to a shareholder who carries on business in Canada through a “permanent establishment” situated in Canada or performs independent personal services in Canada through a fixed base in Canada if the shareholder’s holding in the Company is effectively connected with such permanent establishment or fixed base. This summary is based on the provisions of the Canadian Tax Act and the regulations thereunder and on an understanding of the administrative practices of the Canada Revenue Canada,Agency, and takes into account all specific proposals to amend the Canadian Tax Act or regulations made by the Minister of Finance of Canada as of the date hereof. It has been assumed that there will be no other relevant amendment of any governing law although no assurance can be given in this respect. The Company recommends security holders seek the advice of their own Canadian and U.S. tax advisors.
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The provisions of the Canadian Tax Act are subject to income tax treaties to which Canada is a party, including the Canada-United States Income Tax Convention (1980), as amended (the “Convention”).
Dividends on Common Shares and Other Income
Under the Canadian Tax Act, a non-resident of Canada is generally subject to Canadian withholding tax at the rate of 25% on dividends paid or deemed to have been paid to him or her by a corporation resident in Canada. The Convention limits the rate to 15 percent15% if the shareholder is a resident of the United States and the dividends are beneficially owned by and paid to such shareholder, and to 5 percent5% if the shareholder is also a corporation that beneficially owns at least 10 percent10% of the voting stock of the payor corporation.
The amount of a stock dividend (for tax purposes) would generally be equal to the amount by which the paid up or stated capital of the Company had increased by reason of the payment of such dividend. The Company will furnish additional tax information to shareholders in the event of such a dividend. Interest paid or deemed to be paid on the Company’s debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty.
The Convention generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization constituted and operated exclusively to administer a pension, retirement or employee benefit fund or plan, if the organization is a resident of the United States and is exempt from income tax under the laws of the United States.
Dispositions of Common Shares
Under the Canadian Tax Act, a taxpayer’s capital gain or capital loss from a disposition of a share of common stock of the Company is the amount, if any, by which his or her proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of his or her adjusted cost base of the share and reasonable expenses of disposition. The capital gain or loss must be computed in Canadian currency using a weighted average adjusted cost base for identical properties. One-half of a capital gain (the “taxable capital gain”) is included in income, and one-half of a capital loss in a year (the “allowable capital loss”) is deductible from taxable capital gains realized in the same year. The amount by which a shareholder’s allowable capital loss exceeds the taxable capital gain in a year may be deducted from a taxable capital gain realized by the shareholder in the three previous years or any subsequent year, subject to certain restrictions in the case of a corporate shareholder and subject to adjustment when the capital gains inclusion rate in the year of disposition differs from the inclusion rate in the year the deduction is claimed.
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If a share of common stock of the Company is disposed of to the Company other than in the open market in the manner in which shares would normally be purchased by the public, the proceeds of disposition will, in general terms, be considered as limited to the paid-up capital of the share and the balance of the price paid will be deemed to be a dividend. In the case of a shareholder that is a corporation, the amount of any capital loss otherwise determined may be reduced, in certain circumstances, by the amount of dividends previously received in respect of the shares disposed of, unless the corporation owned the shares for at least 365 days prior to sustaining the loss and (together with corporations, persons and other entities, with whom the corporation was not dealing at arm’s length) did not own more than five percent of the shares of any class of the corporation from which the dividend was received. These loss limitation rules may also apply where a corporation is a member of a partnership or a beneficiary of a trust that owned the shares disposed of.
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Under the Canadian Tax Act, a non-resident of Canada is subject to Canadian tax on taxable capital gains, and may deduct allowable capital losses, realized on a disposition of “taxable Canadian property.” Shares of common stock of the Company will constitute taxable Canadian property of a shareholder at a particular time if the shareholder used the shares in carrying on business in Canada, or if at any time in the five years immediately preceding the disposition 25 percent25% or more of the issued shares of any class or series in the capital stock of the Company belonged to one or more persons in a group comprising the shareholder and persons with whom the shareholder did not deal at arm’s length and in certain other circumstances. Corporations disposing of taxable Canadian property must file a Canadian tax return to report the disposition.
The Convention relieves United States residents from liability for Canadian tax on capital gains derived on a disposition of shares unless:
(a) | the value of the shares is derived principally from “real property” in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production; |
(b) | the shareholder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he or she ceased to be resident in Canada; or |
(c) | the shares formed part of the business property of a “permanent establishment” that the holder has or had in Canada within the 12 months preceding the disposition. |
United StatesCertain U.S. Federal Income Tax ConsequencesConsiderations
The following is a general discussionsummary of certain possible United Statesmaterial anticipated U.S. federal income tax consequences under current law, generally applicable to a U.S. Holder, (as hereinafter defined)as defined below, of the ownership or disposition of common shares ofstock in the Company.Company ("Common Stock"). This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences (see “Taxation – Certain Canadian Federal Tax Consequences” above).
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The following discussion is based uponon the sections of theU.S. Internal Revenue Code of 1986, as amended (the “Code”"Code"), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, publishedregulations promulgated under the Code, administrative positionspronouncements or practices, judicial decisions, the Income Tax Convention between the U.S. and Canada (the "Tax Convention"), as well as certain representations made by the Company, all as of the IRS and court decisions that are currently applicable, anydate hereof. Future legislative, judicial, or all ofadministrative modifications, revocations, or interpretations, which couldmay or may not be materially and adversely changed, possibly on a retroactive, basis, at any time and which are subject to differing interpretations. This discussion does not consideror the potential effects, both adverse and beneficial,failure of any proposed legislation which, if enacted, couldfactual representation to be applied, possibly on a retroactive basis, at any time. The Company recommends holderstrue, correct, and prospective holders of common shares of the Company consult their own tax advisors about the federal, state, local, and foreign tax consequences of purchasing, owning and disposing of common shares of the Company.
U.S. Holders
As used herein, a “U.S. Holder” means a holder of common shares of the Company who is (i) a citizen or individual resident of the United States, (ii) a corporation or partnership created or organizedcomplete in or under the laws of the United States or of any political subdivision thereof, (iii) an estate whose income is taxableall material respects, may result in the United States irrespective of source or (iv) a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging, conversion transaction, constructive sale or other arrangement involving more than one position, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets within the meaning of Section 1221 of the Code. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.
Distribution on Common Shares of the Company
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
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In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, to the extent that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of the Company generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Company may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Company) deduction of the United States source portion of dividends received from the Company (unless the Company qualifies as a “foreign personal holding company” or a “passive foreign investment company,” as defined below). The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion.
Under current Treasury Regulations, dividends paid on the Company’s common shares, if any, generally will not be subject to information reporting and generally will not be subject to U.S. backup withholding tax. However, dividends and the proceeds from a sale of the Company’s common shares paid in the U.S. through a U.S. or U.S. related paying agent (including a broker) will be subject to U.S. information reporting requirements and may also be subject to the 31% U.S. backup withholding tax, unless the paying agent is furnished with a duly completed and signed Form W-9 or the recipient is exempt from such procedures. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, providedconsequences significantly different from those discussed herein. This discussion is not binding on the required information is furnished toU.S. Internal Revenue Service (the "IRS"). No ruling has been or will be sought or obtained from the IRS. U.S. Holders are urged to consult their own tax counsel regarding the information reporting and backup withholding rules applicable to the Company’s common shares.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income taxIRS with respect to the ownership of common shares of the Company may be entitled, at the optionany of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income, ” “high withholding tax interest,” “financial services income,” “shipping income,” and certain other classifications of income. Dividends distributed by the Company will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. In addition, U.S. Holders which are corporations that own 10% or more of the voting stock of the Company may be entitled to an “indirect” foreign tax credit under Section 902 with respect to the payment of dividends by the Company under certain circumstances and subject to complex rules and limitations. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders of common shares of the Company should consult their own tax advisors regarding their particular circumstances.
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Information Reporting and Backup Withholding
U.S. Information reporting requirements may apply with respect to the payment of dividends to U.S. Holders of the Company’s common shares. Under Treasury regulations currently in effect, non-corporate holders may be subject to backup withholding at a 31% rate with respect to dividends when such holder (1) fails to furnish or certify a correct taxpayer identification number to the payor in the required manner, (2) is notified by the IRS that it has failed to report payments of interest or dividends properly or (3) fails, under certain circumstances, to certify that it has been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder generally will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is furnished to the IRS. Certain U.S. Holders, including corporations, are not subject to backup withholding.
Disposition of Common Shares of the Company
A U.S. Holder will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Company. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. This gain or loss will be capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder, which will be long-term capital gain or loss if the common shares of the Company are held for more than one year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders who are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
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Currency Exchange Gains or Losses
U.S. Holders generally are required to calculate their taxable incomes in United States dollars. Accordingly, a U.S. Holder who purchases common shares of the Company with Canadian dollars will be required to determine the tax basis of such shares in United States dollars based on the exchange rate prevailing on the settlement date of the purchase (and may be required to recognize the unrealized gain or loss, if any, in the Canadian currency surrender in the purchase transaction). Similarly, a U.S. Holder receiving dividends or sales proceeds from common shares of the Company in Canadian dollars will be required to compute the dividend income or the amount realized on the sale, as the case may be, in United States dollars based on the exchange rate prevailing at the time of receipt in the case of dividends and on the settlement date in the case of sales on an established securities exchange. Gain or loss, if any, recognized on a disposition of Canadian currency in connection with the described transactions generally will be treated as ordinary gain or loss.
Other Considerations
In the following circumstances, the above sections of this discussion may not describe the United States federal income tax consequences resulting from the holding and disposition of common shares:
Foreign Personal Holding Company
If at any time during a taxable year (i) more than 50% of the total combined voting power or the total value of the Company’s outstanding shares is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the United States and (ii) 60% (50% in some circumstances) or more of the Company’s gross income for such year was “foreign personal holding company income” (e.g. dividends, interest and similar income), the Company may be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such “foreign personal holding company income” to the extent the Company does not actually distribute such income. The Company does not believe that it currently qualifies as a foreign personal holding company. However, therediscussed herein. There can be no assurance that the CompanyIRS will not be consideredchallenge any of the conclusions described herein or that a foreign personal holding company for the currentU.S. court will not sustain such a challenge.
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This discussion does not address any U.S. federal alternative minimum tax; U.S. federal estate, gift, or other non-income tax; or any future taxable year.
Foreign Investment Company
If 50%state, local, or non-U.S. tax consequences of the ownership or disposition of Common Stock. In addition, this discussion does not address the U.S. federal income tax consequences to U.S. Holders subject to special rules, including U.S. Holders that (i) are banks, financial institutions, or insurance companies, (ii) are regulated investment companies or real estate investment trusts, (iii) are brokers, dealers, or traders in securities or currencies, (iv) are tax-exempt organizations, (v) hold Common Stock as part of hedges, straddles, constructive sales, conversion transactions, or other integrated investments, (vi) acquire Common Stock as compensation for services or through the exercise or cancellation of employee stock options or warrants, (vii) have a functional currency other than the U.S. dollar, or (viii) own or have owned directly, indirectly, or constructively 10% or more of all classes of stock in the combined voting powerCompany entitled to vote.
As used herein, "U.S. Holder" means a holder of Common Stock that is for U.S. federal income tax purposes (i) a citizen or total valueresident of the Company’s outstanding shares is held, directly or indirectly, by citizens or residentsU.S., (ii) a corporation (or other entity taxable as a corporation for U.S. federal tax purposes) organized under the laws of the UnitedU.S. or any political subdivision thereof, including the States United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the CompanyDistrict of Columbia, (iii) an estate the income of which is foundsubject to be engaged primarilyU.S. federal income tax regardless of its source, or (iv) a trust that (a) is subject to the primary jurisdiction of a court within the U.S. and for which one or more U.S. persons have authority to control all substantial decisions or (b) has a valid election in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Company mayeffect under applicable U.S. Treasury Regulations to be treated as a “foreign investment company”U.S. person. If a pass-through entity, including a partnership or other entity taxable as defined in Section 1246a partnership for U.S. federal tax purposes, holds Common Stock, the U.S. federal income tax treatment of an owner or partner generally will depend on the status of such owner or partner and on the activities of the pass-through entity. A U.S. person that is an owner or partner of a pass-through entity holding Common Stock is urged to consult its own tax advisor.
This discussion assumes that Common Stock is held as a capital asset, within the meaning of the Code, causing all or partin the hands of any gain realized by a U.S. Holder selling or exchanging common sharesat all relevant times.
U.S. HOLDERS AND ALL OTHER HOLDERS OF COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE NON-TAX CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF COMMON STOCK AND THE NON-U.S., U.S. FEDERAL, STATE, LOCAL, OR OTHER TAXING JURISDICTION CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF COMMON STOCK THAT ARE RELEVANT TO THEM AND THEIR PARTICULAR CIRCUMSTANCES.
Passive Foreign Investment Company Treatment
Special and generally unfavorable U.S. federal income tax rules may apply to be treated as ordinary income rather than capital gain. The Company does not believe that it currently qualifies as a foreign investment company. However, there can be no assurance thatU.S. Holder if its holding period in its Common Stock includes any period in which the Company will not be consideredis a passive foreign investment company for the current or any future taxable year.
Passive Foreign Investment Company
Certain United States income tax legislation contains rules governing “passive foreign investment companies” (“PFIC”(a "PFIC") which can have significant tax effects on U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders.. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United StatesU.S. and, for any taxable year, either (i) 75% or more of its gross income is “passive"passive income,”" which includes interest, dividends and certain rents and royalties or (ii) the average percentage, generally measured by fair market value, (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income”"passive income" is 50% or more. IfFor the purposes of the PFIC rules, passive income includes net gains from some commodities transactions. For a foreigntaxable year ending before January 1, 2005, net gains from commodities transactions generally may be excluded from passive income if "substantially all" of a producer's, processor's, merchant's, or handler's business is as an active producer, processor, merchant, or handler of such commodities. For a taxable year beginning after December 31, 2004, net gains from commodities transactions will not be included in passive income for the purpose of the PFIC rules if (i) they are active business gains or losses from the sale of commodities and (ii) substantially all of the corporation's commodities are stock in trade or inventory of the corporation, property used in the trade or business of the corporation, or supplies used in the ordinary course of a trade or business of the corporation. In determining whether or not it is a PFIC, the Company is required to take into account its pro rata portion of the income and assets of each entity treated as a corporation for U.S. federal tax purposes in which it owns, directly or indirectly, at least a 25% interest (measured by value of the stock a second corporation, then for purposes of the PFIC tests described above, the first corporation will be treated as owning a proportionate share of the assets of, and as receiving a proportionate share of the income of, the second corporation. The Company believes that it qualified as a PFIC for its most recently ended fiscal year and may qualify as a PFIC in subsequent fiscal years. There can be no assurance that the Company’s determination concerning its PFIC status will not be challenged or that it will be able to satisfy record keeping requirements that will be imposed on a qualified electing fund (“QEF”)value). Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.
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A U.S. Holder who holds stockThe Company believes that it was a PFIC in its 2005 taxable year and in each preceding taxable year since at least its 1996 taxable year. The Company may be a foreign corporation during anyPFIC in its 2006 and subsequent taxable years, but the Company can provide no assurance of its PFIC classification in its 2006 and subsequent taxable years, because PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the taxable year in which such corporation qualifies asquestion, and is determined annually. The Company has not determined whether or not any direct or indirect subsidiary of the Company was a PFIC or is subjectexpected to United Statesbe a PFIC in 2006 or subsequent taxable years.
In the absence of an election described below, if a U.S. Holder's holding period in its Common Stock includes any period in which the Company was or is a PFIC, special and generally unfavorable U.S. federal income taxation under onetax rules, described below in "The 'No Election' Alternative", generally apply to gain realized on a disposition of two alternative tax regimes at the election of each such U.S. Holder. The following is a discussion of such two alternative tax regimes appliedCommon Stock and certain distributions received with respect to such U.S. Holders of the Company. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (as defined below) andCommon Stock. If certain requirements are met, a U.S. Holder owns, actuallymay mitigate these consequences by timely making an election to treat the Company as a "qualified electing fund" (a "QEF"), described below in "The QEF Election Alternative", or constructively, 10% or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation (See more detailed discussion at “Controlled Foreign Corporation” below)mark its Common Stock to market, described below in "The Mark-to-Market Election Alternative".
The QEF Election Alternative
A U.S. Holder who elects in a timely manner to treat the Company as a QEF (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which the Company qualifies as a PFIC on hissuch U.S. Holder’s pro rata share of the Company’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the shareholder’ssuch U.S. Holder’s taxable year in which (or with which) the Company’s taxable year ends, regardless of whether such amounts are actually distributed.
TheAn effective QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares in the Companysuch U.S. Holder’s Common Stock (or deemed to be realized on the pledge of his shares)such U.S. Holder’s Common Stock) as capital gain; (ii) treat hissuch U.S. Holder’s share of the Company’s net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on hissuch U.S. Holder’s share of the Company’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as “personal interest” that is not deductible.
The procedure a U.S. Holder must comply with in making an effective QEF election will depend on whether the year of the election is the first year in the U.S. Holder’sHolder's holding period in which the Company is a PFIC. If the U.S. Holder makes a QEF election in such first year, i.e., a timely QEF election, then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files his tax return for such first year. If, however, the Company qualified as a PFIC in a prior year, then in addition to filing documents, the U.S. Holder mustmay elect to recognize (i) under the rules of Section 1291 of the Code (discussed herein), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if the Company is a controlled foreign corporation, the U.S. Holder’sHolder's pro rata share of the Company’sCompany's post-1986 earnings and profits as of the qualification date. The qualification date is the first day of the Company’sCompany's first tax year in which the Company qualified as a QEF with respect to such U.S. Holder. The elections to recognize such gain or earnings and profits can only be made if such U.S. Holder’sHolder's holding period for the common shares of the Companyits Common Stock includes the qualification date. By electing to recognize such gain or earnings and profits, the U.S. Holder will be deemed to have made a timely QEF election. If the QEF election is not deemed timely, then the U.S. Holder will also be subject to the rules discussed below under "The 'No Election' Alternative". A U.S. Holder who made elections to recognize gain or earnings and profits after May 1, 1992 and before January 27, 1997 may, under certain circumstances, elect to change such U.S. Holder’sHolder's qualification date to the first day of the first QEF year. U.S. Holders are urged to consult a tax advisor regarding the availability of and procedure for electing to recognize gain or earnings and profits under the foregoing rules.
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A QEF election, once made with respect to the Company, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election. If a QEF election is made by a U.S. Holder and the Company ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which the Company does not qualify as a PFIC. Therefore, if the Company again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the U.S. Holder will be subject to the rules described above for Electing U.S. Holders in such tax year and any subsequent tax years in which the Company qualifies as a PFIC. In addition, the QEF election remains in effect, although not applicable, with respect to an Electing U.S. Holder even after such U.S. Holder disposes of all of his or its direct and indirect interest in the sharesstock of the Company. Therefore, if such U.S. Holder reacquires an interest in the Company, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which the Company qualifies as a PFIC.
A U.S. Holder cannot make and maintain a valid QEF election unless the Company provides certain U.S. tax basis information and meets certain other requirements. The Company has not yet determined whether it will provide such information or meet such requirements. Therefore, the Company can provide no assurance that a U.S. Holder will be able to make a valid QEF election.
The “No Election” Alternative
If a U.S. Holder does not make a timely mark-to-market election, as discussed below, or a timely QEF election during a year in which it holds (or is deemed to have held) the common shares in question(a "Non-Electing U.S. Holder") and the Company is a PFIC, (a “Non-Electing U.S. Holder”), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reasonsreason of a pledge) of his common shares in the Companysuch U.S. Holder's Common Stock and (ii) certain “excess distributions”"excess distributions" (generally, distributions received in the current taxable year that are in excess of 125% of the average distributions received during the three preceding years or, if shorter, thesuch U.S. Holder’sHolder's holding period) by the Company.
A Non-Electing U.S. Holder generally would be required to pro rate all gains realized on the disposition of his common shares in the Companyany of its Common Stock and all excess distributions on his common shares in the Companyits Common Stock over thesuch U.S. Holder’s entire holding period for the common shares.period. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the first taxable year of the Company during such U.S. Holder’s holding period and beginning after January 1, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-Electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-Electing U.S. Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly nondeductible. The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.
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For purposes of the PFIC rules, if the Company were a PFIC, a U.S. Holder would be deemed to own an interest in any PFIC owned directly or indirectly by the Company (a "Subsidiary"). Accordingly, if the Company and a Subsidiary both were PFICs, a U.S. Holder would be deemed to own an interest in such Subsidiary for purposes of the PFIC rules. If, as a result of this rule, a U.S. Holder is treated as owning stock of a Subsidiary, such U.S. Holder may be subject to the excess distribution rules on (i) a distribution with respect to the indirectly owned stock by a Subsidiary to the Company, (ii) a disposition of the indirectly owned Subsidiary stock by the Company, and (iii) a disposition of Common Stock by the U.S. Holder that reduces or terminates the U.S. Holder's indirect ownership of Subsidiary stock.
If the Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds common shares of the Company,Common Stock, then the Company will continue to be treated as a PFIC with respect to such common shares in the Company,U.S. Holder's Common Stock, even if it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for a Non-Electing U.S. Holders)Holder) as if such common shares in the Companyits Common Stock had been sold on the last day of the last taxable year for which itthe Company was a PFIC.
- 96 -The Mark-to-Market Election Alternative
Effective for tax years of a U.S. HoldersHolder beginning after December 31, 1997, a U.S. HoldersHolder who hold,holds, actually or constructively, marketable stock (as specifically defined in the Treasury Regulations) of a foreign corporation that qualifies as a PFIC may annually elect to mark such stock to the market (a “mark-to-market election”"mark-to-market election"). If such an election is made, such U.S. Holder will generally not be subject to the special taxation rules of Section 1291 discussed above. However, if thea U.S. Holder has not made a timely QEF election and makes a mark-to-market election is made by a Non-Electing U.S. Holder after the beginning of theits holding period for the PFIC stock,in its Common Stock, then the Section 1291 rules will apply to certain dispositions of, distributions on, and other amounts taxable with respect to the common shares in the Company.such U.S. Holder's Common Stock. A U.S. Holder who makes the mark-to marketmark-to-market election will include in income for the taxable year for which the election was made an amount equal to the excess, if any, of the fair market value of the common shares of the Companyits Common Stock as of the close of such tax year over such U.S. Holder’sHolder's adjusted basis in such common shares.its Common Stock. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’sHolder's adjusted tax basis in the common sharesits Common Stock over the fair market value of such sharesits Common Stock as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the common shares in the CompanyCommon Stock included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior tax year but for the Section 1291 interest on tax deferral rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for sharesCommon Stock that were allowed as deductions for prior tax years. A U.S. Holder’sHolder's adjusted tax basis in the common shares of the Companyits Common Stock will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election. A mark-to-market election applies to marketable stock in a PFIC for the taxable year infor which the election is made and to eachany subsequent taxable year unless the common shares of the Company ceaseCommon Stock ceases to be marketable, as specifically defined, or the IRS consents to a revocation of such election. If the election. BecauseCompany ceases to be a PFIC, a U.S. Holder that has marked its Common Stock to market will not include mark-to-market gain or loss with respect to its Common Stock for any taxable year that the IRS hasCompany is not established proceduresa PFIC, and if the Company again becomes a PFIC in a taxable year after a year in which it is not treated as a PFIC, a U.S. Holder's original mark-to-market election, unless revoked or terminated, continues to apply and such U.S. Holder must include any mark-to-market gain or loss in such year.
The mark-to-market rules do not appear to prevent the application of the excess distribution rules in respect of stock in a Subsidiary that also is a PFIC. If the Company and any Subsidiary were PFICs, a U.S. Holder would be deemed to own an interest in such Subsidiary for makingpurposes of the PFIC rules. Accordingly, if the Company and any Subsidiary were PFICs and a U.S. Holder made a mark-to-market election with respect to the Company, such U.S. Holders should consult their tax advisor regardingHolder may remain subject to the mannerexcess distribution rules described above with respect to its indirectly owned stock in such Subsidiary
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Table of making such an election.Contents
Additional Considerations
Under Section 1291(f) of the Code, the IRS has issued Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases the basis of the common shares of the CompanyCommon Stock in the hands of the transferee and the basis of any property received in the exchange for those common sharessuch Common Stock would be increased by the amount of gain recognized. Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares areCommon Stock is transferred. Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.
Certain special, generally adverse, rules will apply with respect to common shares of the CompanyCommon Stock while the Company is a PFIC whether or not it is treated as a QEF. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.Common Stock.
Controlled Foreign Corporation
If more than 50% ofEach U.S. Holder is urged to consult its own tax advisor regarding the total combined voting power of all classes of shares entitled to vote or the total value of the sharesclassification of the Company is owned, actually or constructively, by citizens or residentsas a PFIC and the availability and the consequences of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined byQEF and mark-to-market elections.
Distributions on Common Stock
To the Code Section 7701(a)(31)), each of which own, actually or constructively, 10% or more of the total combined voting power of all classes of shares entitledextent that a distribution paid to vote of the Company (“United States Shareholder”), the Company could be treated as a controlled foreign corporation (“CFC”) under Subpart F of the Code. This classification would effect many complex results, one of whichU.S. Holder on its Common Stock is the inclusion of certainnot an excess distribution and is not a non-taxable distribution paid from earnings and profits previously included in income of a CFC which is subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro-rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC’s earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder that has made a QEF election, the gross amount of common sharessuch distribution (i.e., including any amount deducted in respect of the Company which is or was a United States Shareholder at any time during the five-year period ending with the sale or exchange is treatedwithholding taxes) will generally be subject to U.S. federal income tax as foreign source ordinary dividend income to the extent that such distribution is paid out of the Company’s remaining current or accumulated earnings and profits, as determined under U.S. federal income tax principles. The amount of any distribution of property other than cash will be its fair market value on its distribution date. To the extent that an amount received by a U.S. Holder exceeds such U.S. Holder’s allocable share of the Company attributableCompany’s current and accumulated earnings and profits, such excess will be applied, first, to reduce such U.S. Holder’s adjusted tax basis in its Common Stock, thereby increasing the shares soldamount of gain or exchanged. Ifdecreasing the amount of loss recognized on a foreign corporation is bothsubsequent sale, exchange, or disposition of such U.S. Holder’s Common Stock, and, second, any balance in excess of such U.S. Holder’s adjusted tax basis in its Common Stock will be treated as capital gain.
A dividend received by a PFIC and a CFC, the foreign corporation generallyU.S. Holder will not be treated aseligible for the dividends received deduction generally allowed to corporations on the receipt of dividends distributed by U.S. corporations. A dividend paid on Common Stock to a non-corporate U.S. Holder before January 1, 2009 will not be “qualified dividend income”, and therefore will not be eligible for a maximum rate of U.S. federal income tax of 15%, to such U.S. Holder if the Company is a PFIC during either the taxable year in which the distribution occurs or the preceding taxable year.
Foreign Tax Credit
Any foreign income tax withheld with respect to United States Shareholdersdividends on Common Stock may, subject to a number of complex requirements and limitations (including special limitations to coordinate with the CFC. This rulequalified dividend income rules described above), be claimed as a foreign tax credit against a U.S. Holder's U.S. federal income tax liability or may be claimed as a deduction for U.S. federal income tax purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed with respect to Common Stock generally will be effective"passive income" or, in the case of certain U.S. Holders, "financial services income" for taxable years of United States Shareholdersbeginning before January 1, 2007. For taxable years beginning after 1997 andDecember 31, 2006, dividends will be "passive category income" or "general category income" for taxable yearspurposes of computing the foreign corporations ending with or within such taxable years of United States Shareholders. Special rules apply to United States Shareholders who are subject to the special taxation rules under Section 1291 discussed above with respecttax credit allowable to a PFIC. BecauseU.S. Holder. A U.S. Holder is urged to consult its own tax advisor regarding the availability of the complexity of Subpart F, a more detailed review of these rules is outside of the scope of this discussion. The Company does not believe that it currently qualifies as a CFC. However, there can be no assurance that the Company will not be considered a CFC for the current or any future taxable year.foreign tax credit.
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Foreign Exchange Gain or Loss
Distributions with respect to a U.S. Holder’s Common Stock paid in Canadian dollars or any other non-U.S. currency must be converted to U.S. dollars to calculate such U.S. Holder’s U.S. federal income tax liability. Generally, an amount paid in foreign currency will be converted to a U.S. dollar amount by reference to the spot exchange rate in effect on the date such amount is paid, regardless of whether such payment is in fact converted to U.S. dollars. If foreign currency is converted to U.S. dollars on the date of the payment, a U.S. Holder (although subject to tax on the U.S. dollar value of the payment) generally will not be required to recognize any foreign currency gain or loss with respect to the receipt of such foreign currency. If foreign currency is converted to U.S. dollars at a later date, any currency gain or loss resulting from the conversion generally will be treated as U.S. source ordinary income or loss.
Information Reporting and Backup Withholding
Under some circumstances, a U.S. Holder may be subject to U.S. information reporting and backup withholding tax on distributions paid on, and proceeds from the disposition of, Common Stock. Information reporting and backup withholding will not apply, however, to a U.S. Holder that is a corporation or is otherwise exempt from information reporting and backup withholding and, when required, demonstrates this fact. Backup withholding also will not apply to a U.S. Holder that furnishes a correct taxpayer identification number and certifies, under penalty of perjury, that it is not subject to backup withholding on a Form W-9 or successor form, and otherwise complies with applicable requirements of the backup withholding rules. A U.S. Holder that fails to provide the correct taxpayer identification number on Form W-9 or successor form may be subject to penalties imposed by the IRS. Backup withholding, currently at a 28% rate, is not an additional tax, and any amount withheld under these rules will be allowed as a refund or credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished to the IRS.
F. | Dividends and Paying Agents |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
G. | Statement by Experts |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
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H. Documents on DisplayTable of Contents
H. | Documents on Display |
Any of the documents referred to above can be viewed at our registered office, which is located at Suite 1180, 999 West Hastings Street, Vancouver, British Columbia, Canada. All of these documents are in English.
I. | Subsidiary Information |
This information is not required for reports filed in the United States.
Item 11 Quantitative and Qualitative Disclosures About Market Risk At this time, we are not subject to any interest rate risk, foreign currency exchange rate risk or commodity price risk. Item 12 Description of Securities Other than Equity Securities Not applicable. PART II Item 13 Defaults, Dividend Arrearages and Delinquencies Not applicable. Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable. Item 15 Controls and Procedures As of December 31, In addition, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. Item 16 [Reserved] A. -108 - B. Code of Ethics. We have adopted a Code of Business Conduct that applies to our Chief Executive Officer, Chief Financial Officer and other senior financial officers performing similar functions. C. Principal Accountant Fees and Services. The following is a summary of the aggregate fees billed for each of the last two fiscal years by our principal accountant. Fiscal year ended December 31, 2005 Fiscal year ended December 31, 2004 Audit Fees(1) $75,700 $69,250 Tax Fees(2) $9,000 $5,000 All Other Fees(3) $4,832 $4,000 Total $89,532 $78,250 (1) Audit of consolidated financial statements including accounting consultations and tax services related to the audit; reviews of (2) Tax return compliance filing and corporate tax structure (3) Canadian Public Accounting Board Fee and Section 404 of the Sarbanes-Oxley Act of 2002 training Pre-Approval Policies and Procedures Our audit committee has established policies and procedures that are intended to control the services provided by our auditors and to monitor their continuing independence. Under these policies, no services may be undertaken by our auditors unless the engagement is specifically approved by our audit committee or the services are included within a category which has been pre-approved by our audit committee. The maximum charge for services is established by the audit committee when the specific engagement is approved or the category of services pre-approved. Management is required to notify the audit committee of the nature and value of pre-approved services undertaken. Our audit committee will not approve engagements relating to, or pre-approve categories of, non-audit services to be provided by our auditors (i) if such services are of a type the performance of which would cause our auditors to cease to be independent within the meaning of applicable Securities and Exchange Commission or Nasdaq rules, and (ii) without consideration, among other things, of whether our auditors are best situated to provide the required services and whether the required services are consistent with their role as auditor. All services provided by our principal accountant in D. Exemptions from the Listing Standards for Audit Committees. Not applicable. -109 - E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers. Not applicable. PART III Item 17 Financial Statements Not applicable. Item 18 Financial Statements Our audited consolidated financial statements are stated in Canadian Dollars (Cdn$) and are prepared in accordance with Canadian GAAP, which differs in certain respects from those principles that we would have followed had our audited consolidated financial statements been prepared in accordance with US GAAP. The major The financial statements and notes thereto as required under Item Item 19 Exhibits All Financial Statements and Exhibits referred to in this Item 19 are incorporated by reference into this Annual Report. -110 - Description Memorandum, Articles and Certificate of Incorporation incorporated by reference from Exhibit 1.1 to Registration Statement under the Securities Exchange Act of 1934 on Form 20-F, file no. 0-26424 filed on July 13, 1995. Notice of Articles and Articles filed under theBusiness Corporations Act (British Columbia) Certification of President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Consent of A. Financial Statements Silver Standard Resources Inc. (an exploration stage company) Consolidated Financial Statements December 31, (expressed in thousands of Canadian dollars) F-1 Management’s Responsibility for Financial Reporting The accompanying consolidated financial statements of the company have been prepared by management in accordance with accounting principles generally accepted in Canada and reconciled to accounting principles generally accepted in the United States as set out in note A system of internal The Audit Committee of the Board of Directors has met with the company’s independent auditors to review the scope and results of the annual audit, and to review the financial statements and related financial reporting matters prior to submitting the financial statements to the Board for approval. The company’s independent auditors, PricewaterhouseCoopers LLP, are appointed by the shareholders to conduct an audit in accordance with generally accepted auditing standards in Canada and the Robert A. Ross A. Mitchell President Vice President, Finance March 22, 2006 F-2 To the Shareholders of Silver Standard Resources Inc. We have audited the consolidated balance sheets of Silver Standard Resources Inc. as at December 31, We conducted our audits in accordance with auditing standards generally accepted in Canada and the In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, Chartered Accountants Vancouver, B.C., Canada March 2, 2006 (except for note 20, F-3 Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles or restatements that have a material effect on the comparability of the company’s financial statements, such as the changes described in note 3 to the financial statements. Our report to the shareholders dated March 2, 2006 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements. Chartered Accountants Vancouver, B.C., Canada March 2, 2006 (except for note 20, which is as of March 22, 2006) F-4 Silver Standard Resources Inc. (an exploration stage company) Consolidated Balance Sheets As at December 31, (expressed in thousands of Canadian 2,186 Approved by the Board of R.E. Gordon William The accompanying notes are an integral part of the consolidated financial statements. F-5 Silver Standard Resources Inc. (an exploration stage company) Consolidated Statements of Loss and Deficit For the years ended December 31, (expressed in thousands of Canadian dollars, except number of shares and per share amounts) The accompanying notes are an integral part of the consolidated financial statements. F-6 Silver Standard Resources Inc. (an exploration stage company) Consolidated Statements of Cash Flows For the years ended December 31, (expressed in thousands of Canadian dollars) The accompanying notes are an integral part of the consolidated financial statements. F-7 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( 1 The company is in the process of acquiring, exploring and holding silver mineral properties. The company hopes to ultimately develop the properties to bring them to production, structure joint ventures with others, option or lease properties to third parties, or sell the properties outright. The company has not determined whether these properties contain ore reserves that are economically recoverable and is considered to be in the exploration stage. Management has estimated that the company will have adequate funds from existing working capital to meet its corporate, administrative and property obligations for the coming year. The company will periodically need to obtain additional financing, and while the company has been successful in the past, there can be no assurance that it will be able to do so in the future. The recoverability of the amounts shown for mineral properties and related deferred costs is dependent upon the existence of economically recoverable reserves, the ability of the company to obtain necessary financing to complete the development, and upon future profitable production. The amounts shown as deferred expenditures and property acquisition costs represent net costs to date, less amounts amortized and/or written-off, and do not necessarily represent present or future values. Although the company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the company’s title. Property title may be subject to unregistered prior agreements or transfers and may be affected by undetected defects. 2 SIGNIFICANT ACCOUNTING POLICIES Generally accepted accounting principles These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). The significant differences between those principles and those that would be applied under U.S. generally accepted accounting principles and requirements promulgated by the Securities and Exchange Commission (collectively U.S. GAAP), as they affect the company, are disclosed in note 19. F-8 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( Basis of presentation The consolidated financial statements include the accounts of the company and its subsidiaries. The following table sets forth the company’s ownership of its main mineral resource interests (note 7): December 31 2005 2004 Through wholly-owned subsidiaries Diablillos 100% 100% Pirquitas 100% 100% Bowdens 100% 100% Sulphurets 100% 100% Challacollo 100% 100% Pitarrilla 100% 100% San Agustin 100% 100% San Marcial 100% 100% Berenguela (a) 100% 100% Candelaria 100% 100% Maverick Springs (a) 100% 100% Shafter 100% 100% Through direct ownership and joint ventures Manantial Espejo 50% 50% Silvertip 100% 100% Sunrise Lake 100% 100% San Luis 50% - (a) Ownership relates to silver resources. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. Significant areas where management’s judgment is applied are depreciation rates, asset impairment, stock-based compensation, future income tax valuation reserves and asset retirement obligations. Actual results could differ from those estimates. Foreign currency translation The company’s subsidiaries are integrated foreign operations and are translated into Canadian dollars using the temporal method. Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the period. Translation gains and losses are reflected in the consolidated statements of loss unless they relate to a specific mineral property in which case they are capitalized. F-9 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( Cash and cash equivalents Cash and cash equivalents include cash, bank balances and short-term investments with original maturities of three months or less and are stated at cost, which approximates market value. Silver bullion Silver bullion is valued at the lower of original cost or net realizable value. Marketable securities Marketable securities are carried at the lower of original cost and quoted market value. Property, plant and equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the declining balance method at rates ranging from 15% to 30% per annum once the asset is put in service. Leasehold improvements are amortized over the term of the lease, plus one renewal period if the renewal is reasonably assured. Depreciation charges on assets that are directly related to mineral properties are allocated to that mineral property. The company assesses if an impairment loss exists when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. The amount of the loss is measured as the amount by which long-lived asset’s carrying value exceeds its fair value. Mineral property costs The company records its interests in mineral properties at cost. The costs of acquiring mineral properties and related exploration and development expenditures, holding costs to maintain a property and related foreign exchange amounts are deferred and would be amortized against future production following commencement of commercial production or are written-off if the properties are sold, allowed to lapse or abandoned. General exploration is expensed in the period incurred. Option payments received are treated as a reduction of the carrying value of the related mineral property and deferred costs until the payments are in excess of costs incurred, at which time they are then credited to income. Options payments are at the discretion of the optionee, and accordingly, are accounted for on a cash basis or when receipt is reasonably assured. Management of the company regularly reviews the net carrying value of each mineral property. Where information and conditions suggest impairment, estimated future cash flows are calculated using estimated future prices, proven and probable reserves, weighted probable outcomes and operating capital and reclamation costs on an undiscounted basis. If it is determined that the future cash flows are less than the carrying value, a write-down to the estimated fair value is expensed for the period. The company presently has no proven or probable reserves. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if carrying values can be recovered. If the carrying values exceed estimated recoverable values, then the costs are written-down to fair values with the write-down expensed in the period. F-10 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( Management’s estimates of future mineral prices, recoverable resources, initial and operating capital and reclamation costs are subject to certain risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur that could adversely affect management’s estimate of the net cash flows to be generated from its properties. Asset retirement obligations The company recognizes a liability for its legal obligations associated with the retirement of property, plant and equipment when the liability is incurred. A liability is recognized initially at fair value if a reasonable estimate of the fair value can be made and the resulting amount would be capitalized as part of the mineral property cost. The liability is accreted over time through periodic charges to earnings where the assets have previously been written-off or to mineral property costs where the assets are in the pre-production stage. In subsequent periods, the company adjusts the carrying amounts of the asset and the liability for changes in estimates of the amount or timing of underlying future cash flows. The fair value of the legal obligation for asset retirement is assessed annually. It is reasonably possible that the company’s estimates of its ultimate reclamation and site restoration liability could change as a result of changes in regulations or cost estimates. The effect of changes in estimated costs is recognized on a prospective basis. Stock-based compensation Compensation expense for stock options is measured at the fair value at the grant date using the Black-Scholes valuation model and is recognized over the vesting period of the options granted as both stock-based compensation expense and value assigned to stock options under shareholders’ equity. In situations where stock options are granted in exchange for services related to specific mineral properties, the expense is capitalized against that mineral property. The value assigned to stock options is subsequently reduced if the options are exercised and the amount recorded is then credited to share capital. Any values assigned to stock options that have expired are credited to contributed surplus. Income taxes The liability method of income tax allocation is used, based on differences between financial reporting and tax bases of assets and liabilities. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using the tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Future tax assets are recognized to the extent that they are considered more likely than not to be realized. F-11 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( Loss per common share Loss per share is calculated based on the weighted average number of common shares issued and outstanding during the year. The effect of potential issuances of shares under options and warrants would be anti-dilutive, and therefore basic and diluted losses per share are the same. Information regarding securities that could potentially dilute basic earnings per share in the future is presented in notes 11 and 12. 3 Comparative figures The company has restated certain comparative figures on the December 31, 2004 balance sheet including amounts relating to future income tax liabilities by increasing mineral property costs and future income tax liabilities by $7,357,000. This non-cash adjustment has no impact on shareholders’ equity, net loss, net cash flows or cash balances previously reported. All amounts included within these consolidated financial statements and accompanying notes have been adjusted to reflect this change. Stock-based compensation Effective January 1, 2004, the company adopted the Canadian Institute of Chartered Accountants (CICA) amendments to Section 3870, “Stock-Based Compensation and Other Stock-Based Payments”, which requires an expense to be recognized in the financial statements for all forms of employee stock-based compensation, including stock options, as well as for other stock-based payments made in exchange for goods and services. The adoption of the fair value method resulted in a cumulative increase of $4,504,000 to the opening deficit at January 1, 2004 and increases of $335,000 to share capital and $4,169,000 to value assigned to stock options, at January 1, 2004. Consolidation of variable interest entities The CICA has issued Accounting Guideline 15, “Consolidation of Variable Interest Entities”, which became effective for annual and interim periods beginning on or after November 1, 2004. This guideline addresses the application of consolidation principles to entities that are subject to control on a basis other than ownership of voting interests. The company adopted the guideline during the year ended December 31, 2005. The adoption of this guideline did not have any impact on the company’s consolidated financial statements. F-12 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( In October 2004, the company acquired the remaining 56.6% interest (for a 100% interest) in Sunshine Argentina Inc. (Sunshine). Consideration for this acquisition was the issuance of 2,663,000 common shares of the company, having a fair value of $49,798,000 ($18.70 per share). As Sunshine did not meet the definition of a business, the company has accounted for the acquisition as a purchase of net assets with the consideration issued assigned as follows: The future income tax liability arose as the purchase consideration exceeded the carrying value of the mining assets for tax purposes, resulting in a temporary difference between the accounting and tax value. The estimated future income tax liability associated with this temporary difference of $14,200,000 has been recognized as a future income tax liability and also applied to increase the carrying value of the mineral properties. 5 SILVER BULLION The company has lodged a US$1,679,000 bank letter of credit with the U.S. Department of the Interior, Bureau of Land Management relating to reclamation obligations on the Candelaria silver mine in Nevada (note 7(o)). Under the terms and conditions with its banker, the company has the right to lodge collateral in Canadian dollars, US dollars or silver bullion. The company has lodged silver bullion as collateral such that it has a coverage ratio value of 110% (US$1,847,000) of the letter of credit amount. Additional calls for collateral are to be made should the coverage ratio fall below 105%. As at December 31, 2005, 209,454 (2004 - 284,650) ounces of silver bullion were lodged as collateral (note 20(c)). Balance sheet presentation - December 31, 2005 Ounces Total cost $ Market value $ Unrealized gain $ Silver bullion 1,744,531 14,095 17,939 3,844 Restricted silver bullion 209,454 1,692 2,154 462 1,953,985 15,787 20,093 4,306 F-13 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( Balance sheet presentation - December 31, 2004 Ounces Total cost $ Market value $ Unrealized gain $ Silver bullion 1,669,335 13,487 13,693 206 Restricted silver bullion 284,650 2,300 2,335 35 1,953,985 15,787 16,028 241 6 MARKETABLE SECURITIES 2005 $ 2004 $ Marketable securities (i) 4,985 1,329 Special Warrants (ii) - 2,000 4,985 3,329 (i) At December 31, 2005, the company holds share or share purchase warrants in eight companies, with the most significant being Minco Silver Corporation ($3,200,000) and Esperanza Silver Corporation ($1,508,000). The quoted market value of marketable securities was $15,087,000 (2004 - $4,122,000) for an unrealized gain of $10,102,000 (2004 - $2,793,000). (ii) In October 2004, the company and Minco Mining & Metals Corporation (Minco) entered into a strategic alliance to jointly pursue silver opportunities in China. Minco has created a wholly-owned subsidiary, Minco Silver Corporation (Minco Silver), to acquire silver projects in China. Under the terms of the strategic alliance, the company initially acquired a 20% interest in the new venture by investing $2,000,000 in Minco Silver for the purchase of 4,000,000 Special Warrants at a price of $0.50 per Special Warrant. In May 2005, the company purchased an additional 960,000 Special Warrants at a price of $1.25 per Special Warrant, bringing the total investment to $3,200,000. In October 2005, Minco qualified the issuance of its common shares, with the company now owning 4,960,000 shares with some of the shares subject to an escrow agreement. In December 2005, 1,240,000 shares (25%) have been released from escrow with the balance to be released at 1,240,000 shares every six months. For purposes of arriving at the quoted market value, the quoted market price of Minco Silver shares at December 31, 2005 was applied to the company’s 4,960,000 share investment. The company will have preferential purchase rights to participate in future financings of Minco Silver in order to increase its interest to up to 30% in Minco Silver. As part of the strategic alliance, Minco Silver will be the exclusive entity for both Minco and the company to pursue silver projects in China. F-14 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( 7 MINERAL PROPERTY COSTS At December 31, mineral property costs are as follows: Acquisition costs $ Exploration costs $ Future tax effects $ Total 2005 $ Total 2004 $ Argentina Chubut - - - - 268 Diablillos 5,376 1,509 - 6,885 6,351 Manantial Espejo 4,305 13,838 2,812 20,955 16,944 Pirquitas 56,308 5,325 13,294 74,927 70,748 Other 57 123 - 180 51 Australia Bowdens 10,892 7,255 3,235 21,382 21,387 Other - 225 - 225 27 Canada Silvertip 1,818 248 - 2,066 2,022 Sulphurets 2,393 1,255 - 3,648 3,648 Sunrise Lake 1,234 46 - 1,280 1,268 Chile Cachinal 18 93 - 111 103 Challacollo 2,595 2,600 318 5,513 4,749 Juncal 16 50 - 66 49 La Flora 16 34 - 50 47 Mexico Pitarrilla 1,370 8,992 832 11,194 4,917 Valenciana 41 271 - 312 282 Ortega 58 66 - 124 77 San Agustin 54 631 - 685 613 San Marcial 1,250 745 50 2,045 1,973 Veta Colorada 237 347 - 584 - Other 200 308 - 508 223 Peru Berenguela 1,254 2,920 362 4,536 1,526 San Luis - 135 - 135 - United States Candelaria 2,981 2,686 139 5,806 5,431 Maverick Springs 637 1,522 30 2,189 1,989 Shafter 2,544 2,808 767 6,119 5,839 95,654 54,032 21,839 171,525 150,532 F-15 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) Acquisition and exploration costs incurred during the year are as 2005 $ 2004 $ 150,532 74,090 1,845 52,158 1,035 918 2,780 1,502 1,020 1,454 995 279 4,743 2,294 125 228 Field costs 2,903 588 Labour costs 2,229 609 20 72 635 500 1,292 1,195 323 240 1,138 447 19,238 10,326 Property costs associated with future income taxes 282 13,958 Mineral property costs written-off (372) - 171,525 150,532 a) Diablillos, Argentina The company owns a 100% interest in the mineral rights for the Diablillos silver-gold project located in the province of Salta in northwestern Argentina. F-16 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( b) Manantial Espejo, Argentina The company owns a 50% interest in the Manantial Espejo property located in Santa Cruz province in southern Argentina. The remaining 50% interest is owned by Pan American Silver Corp. (Pan American). Pan American is the operator and will continue as the operator during the feasibility and mine construction stages. Pan American will contribute the first US$3,000,000 towards mine construction once a production decision is made, after which any further expenditures will be shared equally. A third party has a right to receive payment of US$0.60 per tonne mined and processed with a maximum of one million tonnes and receive a 0.5% net smelter returns royalty from the property. The following represents the company’s 50% proportionate interest in the joint venture as of December 31, 2005, 2004 and 2003: 2005 2004 2003 $ $ $ Current assets 166 508 48 Mineral property costs 20,955 16,944 13,961 Mobile equipment, net of accumulated depreciation 1,336 - - Current liabilities 206 288 357 Asset retirement obligations 27 22 19 Future income tax liability 2,812 2,493 2,535 Net expenses for the year - - - Cash flows from operating activities (54) (356) 92 Cash flows from financing activities 4,763 3,551 736 Cash flows from investing activities (4,738) (3,037) (830) c) Pirquitas, Argentina The company owns a 100% interest in the surface and mineral rights for the Pirquitas silver property in the province of Jujuy in northern Argentina. F-17 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( d) Bowdens, The company owns a 100% interest in the Bowdens project in New South Wales, Australia. There is a commitment to pay the original vendor of the property AUS$1,500,000 on the commencement of production, and grant a 2% net smelter return royalty up to US$5,000,000 and 1% thereafter. These obligations are collateralized by certain properties in the Bowdens project. e) Silvertip, Canada The company owns a 100% interest in the Silvertip project located in northern British Columbia, Canada. There is a 5% net profits royalty on certain of the non-core claims on the property. f) Sulphurets, Canada The Sulphurets project comprises the Bruceside property in British Columbia, Canada owned 100% by the company. g) Sunrise Lake, Canada The company owns a 100% interest in the Sunrise Lake deposit in Canada’s Northwest Territories. The property is subject to a 5% net profits royalty interest. h) Challacollo, Chile The company owns 100% of the Challacollo silver project in northern Chile and is subject to (i) a 2% production royalty capped at US$850,000 and; (ii) a 2% production royalty increasing to 3% once the production royalty in (i) is fully paid. The 3% production royalty which can be acquired at any time for a total of US$1,500,000. i) Pitarrilla, Mexico The company owns a 100% interest in the Pitarrilla property located in the State of Durango, Mexico. The property is subject to a finder’s fee of the greater of (a) US$5,000 and (b) 2% of direct exploration, payable every six months. There is also a 0.25% net smelter returns royalty applicable to all gold and silver produced from the property. The maximum amount payable under the finder’s fee and net smelter royalty is US$500,000. j) San Agustin, Mexico The company owns a 100% interest in the San Agustin property in the State of Durango, Mexico. The property is subject to a finder’s fee of the greater of (a) US$5,000 and (b) 2% of direct exploration, payable every six months. There is also a 0.25% net smelter returns royalty applicable to all gold and silver produced from the property. The maximum amount payable under the finder’s fee and net smelter royalty is US$500,000. F-18 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( k) San Marcial, Mexico The company owns a 100% interest in the San Marcial silver property in Sinola State, Mexico. The property is subject to a US$100,000 payment upon commencement of commercial production and a 3% net smelter returns royalty, provided that each 1% of the royalty can be acquired for US$600,000. l) Veta Colorada, Mexico In November 2005, the company announced agreements to acquire a 100% interest in the Veta Colorada silver property located in the State of Chihuahua, Mexico. Under the agreements, the company will pay the vendors a total of US$3,500,000, subject to a due diligence review. To December 31, 2005, the company has incurred $584,000 of expenditures relating to this property, including US$170,000 in non-refundable payments to the vendors. The closing date for the transaction is expected to occur on or before March 31, 2006. Assuming a positive due diligence review, the company will pay the vendors US$3,330,000 on closing. m) Berenguela, Peru In March 2004, the company entered into option and funding agreements to purchase a 100% interest in the silver resources contained in the Berenguela project located in the Province of Lampa in southern Peru. Under the terms of the agreements, the company was to complete an exploration program having an in-ground expenditure of a minimum of US$500,000 and prepare a silver resource estimate. On exercise of the option, the company was to pay US$0.04 to US$0.06 per resource ounce in a blend of cash and shares, depending on silver prices. Subsequent to the end of the year, the company acquired a 100% interest in the Berenguela project (note 20(a)). As part of the acquisition, US$600,000 of the cash consideration was paid in 2005. n) San Luis, Peru In September 2005, the company entered into a joint venture agreement with Esperanza Silver Corporation (Esperanza) for the exploration of the San Luis property located in the Ancash Department, Peru. Under the terms of the agreement, the company currently holds a 50% interest in the property and has elected to increase its interest to 55% by funding the first US$500,000 in exploration expenditures. Once the company has met this funding of exploration expenditures, the company will incur with Esperanza the next US$1,500,000 of exploration expenditures in proportion to their respective interests. Once the expenditures have been made, the company may elect to increase its interest to 70% by paying all costs required to complete a feasibility study and the interest can be increased to 80% by paying all costs required to place the property into commercial production. o) Candelaria, U.S.A. The company owns a 100% interest in the Candelaria silver mine in Nevada and has lodged environmental bonding in the amount of US$1,679,000 (notes 5 and 9) relating to this property. F-19 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( p) Maverick Springs, U.S.A. In June 2003, the company signed an exploration and development agreement with Vista Gold Corp. (Vista) in which the company will have exposure to the silver resources hosted in the Maverick Springs gold-silver property in northern Nevada, U.S.A. Under the terms of the agreement, the company was to contribute to Vista US$1,200,000 over a period of four years commencing from October 7, 2002, towards exploration programs, land holding costs and option payments to earn its interest. The company and Vista would then enter into a joint venture agreement. At December 31, 2005, the company had met its expenditure commitment to Vista and vested its interest in the property. The company and Vista will now enter into a joint venture agreement governing their respective rights and obligations in respect of the property. Subsequent to October 7, 2006, Newmont Mining Corporation (Newmont) has a one time back-in right to acquire a 51% interest in the property on payment of 200% of exploration expenditures, incurred by Vista and the company, and all costs to complete a feasibility study in excess of US$2,000,000. In addition, net smelter returns royalties are payable on production from the property to Newmont and the underlying property owner. q) Shafter, U.S.A. The company owns a 100% interest in the Shafter Presidio silver mine (Shafter) located in Presidio County, Texas, U.S.A. All significant permits necessary to place the property in production are valid and subject to renewal over time. There is a 6.25% royalty payable on metal production from a narrow strip of land that contains a minor amount of the mineral resource. 8 PROPERTY, PLANT AND EQUIPMENT 2005 Cost $ Accumulated depreciation $ Net $ Office equipment 491 315 176 Mobile equipment (a) 1,547 84 1,463 Leasehold improvements 120 26 94 Land 304 - 304 2,462 425 2,037 F-20 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( 2004 Cost $ Accumulated depreciation $ Net $ Office equipment 410 258 152 Mobile equipment 142 43 99 Leasehold improvements 117 12 105 Land 303 - 303 972 313 659 (a) At December 31, 2005, $1,336,000 (2004 – $nil) of the cost of mobile equipment is held in a 50/50 joint venture. At December 31, 2005, $1,481,000 (2004 - $1,248,000) has been recorded by the company as a provision for future asset retirement obligation expenses for its various mineral properties, of which $722,000 (2004 - $560,000) is considered current. The company’s asset retirement obligations relate to legal obligations associated with site restoration and clean-up costs of its various mineral properties. The three properties that comprise the majority of the obligations are the Duthie, Silver Standard Mine and Silvertip properties, all located in British Columbia, Canada. A reconciliation of the provision for asset retirement obligations is as follows: 2005 $ 2004 $ Balance - Beginning of year 1,248 1,291 Liabilities settled during the year (241) (176) Accretion expense 74 108 Revisions in estimated cash flows 400 25 Balance - End of year 1,481 1,248 F-21 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( 2005 $ 2004 $ Balance sheet presentation Current portion 722 560 Long-term portion 759 688 1,481 1,248 The provision for asset retirement obligations is based on the following key assumptions: asset retirement obligation payments over the next five years are estimated as follows: 2006 - $722,000; 2007 - $399,000; 2008 - $35,000; 2009 - $44,000 and 2010 - $34,000. total undiscounted cash flows of $2,183,000 (2004 - $1,918,000). expected timing of payments in the years 2006 to 2016 (2004 - 2005 to 2015). a credit adjusted risk-free rate at which the estimated payments have been discounted at 10% (2004 - 10%). At December 31, 2005, the company has lodged $1,882,000 (2004 - $2,498,000) in security deposits with various government agencies in relation to its reclamation obligations. Of the amount lodged, $190,000 (2004 - $198,000) is in the form of cash deposits and $1,692,000 (2004 - $2,300,000) is in the form of a letter of credit collaterized by the lodging of silver bullion (note 5). F-22 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( 10 F-23 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( a) In January 2004, the company issued 2,955,000 units at $14.80 per unit for gross proceeds of $43,951,000, which were assigned to the components of the units: $37,132,000 to shares and $6,819,000 to warrants. Each unit consisted of one common share and one-half of one common share purchase warrant. Each whole warrant is exercisable, upon payment of $18.50, into one common share until January 15, 2006. The company issued an additional 31,250 units valued at $465,000, which were assigned $393,000 to shares and $72,000 to warrants, issued 26,000 warrants valued at $120,000, and paid $928,000 in cash as finder’s fees and other costs relating to this placement for total share issue costs of $1,513,000 (note (20(b)). 11 STOCK OPTIONS The company has a comprehensive stock option plan for its employees, directors, officers and self-employed consultants. The plan provides for the issuance of incentive options to acquire up to a total of 8% of the issued and outstanding common shares of the company. The exercise price of each option shall not be less than the closing market price of the company’s stock on the award date. The options can be granted for a maximum term of 5 years with vesting provisions determined by the company. Currently, the vesting periods range up to two years. The changes in stock options issued 2005 2004 2003 Number of shares Weighted average exercise price $ Number of shares Weighted average exercise price $ Number of shares Weighted average exercise price $ Options outstanding at January 1 1,889,969 10.26 1,845,669 7.37 1,565,441 4.60 Granted 982,500 16.52 570,000 15.36 816,600 10.46 Exercised (259,269) 6.21 (525,700) 5.64 (536,372) 3.99 Options outstanding at December 31 2,613,200 12.85 1,889,969 10.26 1,845,669 7.37 Options exercisable at December 31 1,881,950 11.68 1,628,719 9.49 1,784,419 7.30 As of December 31, F-24 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) During 2005, 95,000 stock options previously granted at exercise prices of $18.42 and $20.01 were re-priced at $14.47. A further 20,000 in stock options set to expire during the year were extended three years on the same terms as the original grant. The following table summarizes information about stock options outstanding and exercisable at December 31, During the year ended December 31, 2005, 982,500 (2004 - 570,000) options were granted to employees, directors and consultants at a weighted average strike price of $16.52 (2004 - $15.36) and these options had a fair value assigned of $5.91 (2004 - $7.36) per option based on the Black-Scholes option pricing model. The company amortizes the fair value of stock options on a straight-line basis over the respective vesting period of the stock options. The fair value of options that was charged to the statements of loss and deficit was $4,035,000 in the current year (2004 - $2,451,000; 2003 - $169,000) with an additional $159,000 (2004 - $67,000; 2003 - $18,000) value deferred as mineral property costs. Of the amount charged to the statements of loss and deficit in 2005, $567,000 (2004 - $668,000; 2003 - $169,000) was allocated to general and administration and $3,468,000 (2004 - $1,783,000; 2003 - $nil) was allocated to salaries and employee benefits. The fair value of stock options for all options issued, repriced or extended was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions: 2005 2004 2003 Expected dividend yield (%) Nil Nil Nil Average risk-free interest rate (%) 3.7 3.2 3.5 Expected life (years) 2.8 2.7 2.5 Expected volatility (%) 51 74 61 F-25 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the company’s stock options. 12 WARRANTS The changes in warrants outstanding are as follows: 2005 2004 2003 Number of shares Weighted average exercise price $ Number of shares Weighted average exercise price $ Number of shares Weighted average exercise price $ Warrants outstanding 1,519,125 18.50 2,779,520 4.99 5,559,109 4.56 Granted - - 1,519,125 18.50 - - Exercised (10,000) 18.50 (2,779,520) 4.99 (2,779,589) 3.99 Warrants outstanding 1,509,125 18.50 1,519,125 18.50 2,779,520 4.99 The At December 31, 2003, the company had received $455,000 on the exercise of 92,900 common share purchase warrants. The common shares were issued in early 2004. All warrants are exercisable on date of grant. a) During the year ended December 31, b) The company holds marketable securities in a number of companies that have F-26 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) 14 a) The income taxes shown on the consolidated statements of loss and deficit differ from the amounts obtained by applying statutory rates due to the following: 2005 2004 2003 Statutory tax rate 34.9% 35.6% 37.6% $ $ $ Loss for the year before taxes (5,870) (1,518) (3,938) Provision for income taxes based on statutory rates (2,047) (540) (1,480) Differences in foreign tax rates (104) (4) (8) Tax benefits not recognized 2,151 544 1,488 - - - b) Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the company’s future tax assets and liabilities as of December 31 are as follows: 2005 $ 2004 $ Long-term future tax assets Capital and non-capital loss carry-forwards 16,450 15,912 Property, plant and equipment and resource properties 20,210 18,684 Foreign resource pools 6,544 5,630 Share issuance costs 247 381 Total future tax assets 43,451 40,607 Long-term future tax liabilities Future income tax liability for resource properties (46,097) (42,331) Valuation allowance for future tax assets (i) (19,193) (19,833) Future income tax liability (21,839) (21,557) (i) Relates to future tax assets that are not more likely than not to be realized. F-27 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( At December 31, 2005 $ 2004 $ Argentina 9,200 6,200 Australia 8,200 8,500 Canada 8,900 15,200 Chile 126 57 Mexico 11,000 6,100 Peru 1,900 380 U.S.A. 8,700 8,000 The operating losses expire between 2006 to 2025, with the exception of those for Chile and Australia which are available indefinitely to reduce future taxable income. The company has capital losses in Canada of $6,050,000 (2004 - $6,050,000), which are available indefinitely, but can only be utilized against future taxable capital gains. 15 SUPPLEMENTARY CASH FLOW INFORMATION During the years ended December 31, 2005, 2004 and 2003, the company conducted non-cash financing and investing activities as set out below. Non-cash operating activities are not presented. 2005 $ 2004 $ 2003 $ Non-cash financing activities Shares issued for mineral properties 45 50,089 612 Shares issued in settlement of interest - - 75 Value assigned to options - - 169 Non-cash investing activities Amortization capitalized to mineral properties (39) (43) - Reclamation capitalized to mineral properties (33) (30) (97) Shares issued for mineral properties (45) (50,089) (612) Marketable securities received for mineral properties - 911 53 Marketable securities received for accounts receivable - - 50 Option value assigned to mineral properties (159) (67) (18) Future tax effects for mineral properties (282) (13,958) (1,251) Prior year prepaid deposit relating to fixed assets (289) - - No income taxes or interest was paid in 2005, 2004 or 2003. F-28 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( 16 SEGMENTED FINANCIAL INFORMATION The company has committed to payments under operating leases for the rental of its corporate head office $ 2006 572,000 2007 232,000 2008 59,000 b) Mineral property commitments are described in note F-29 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( 18 a) Fair value The estimated fair values of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate book values due to the short-term nature of these instruments. The fair value of marketable securities is disclosed in note 6 and the fair value of silver bullion is disclosed in note 5. b) Foreign exchange risk Foreign exchange risk arises from changes in foreign currency fluctuations. The company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency exchange rates. c) Credit risk Financial instruments that potentially subject the company to credit risk consist of cash and cash equivalents and accounts receivable. The company deposits cash and cash equivalents with high credit quality financial institutions. 19 MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) a) The company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada (Canadian GAAP), which differ in certain respects from those principles that the company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States i) Under Canadian GAAP, the costs of acquiring mineral properties and related exploration and development expenditures are F-30 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) ii) Under U.S. GAAP, securities that are available-for-sale are recorded at fair value and unrealized gains or losses are part of comprehensive income. Under Canadian GAAP, there is no iii) Under Canadian GAAP, before the introduction of Canadian Institute of Chartered Accountants (CICA) 1581, “Business Combinations”, the fair value of shares issued by an acquirer to effect a business combination was based on the quoted market price of shares at the date of acquisition. Under U.S. GAAP, the fair value of shares issued is based on the market price Canadian GAAP provides for investments in jointly controlled entities to be accounted for using proportionate consolidation. Under U.S. GAAP, investments in incorporated joint ventures are to be accounted for using the equity method. Under an accommodation of the United States Securities and Exchange Commission, the accounting for joint ventures need not be reconciled from Canadian to U.S. GAAP. The different accounting treatment affects only the display and classification of financial statement items and not net income or shareholders’ equity. The company’s interest in jointly controlled entities is reflected in the For U.S. GAAP purposes, the company accounted for employee stock-based compensation arrangements using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, since stock options are granted at exercise prices that are at or above the quoted market value of the company’s common shares at the date of grant, there is no compensation cost recognized by the company for options granted to employees. The company adopted the fair value based method of accounting for employee stock-based compensation under U.S. GAAP effective January 1, 2005 using the modified prospective transition method. Under this method, the company recognized employee stock-based compensation beginning January 1, 2005 as if the fair value method had been used to account for all employee awards granted, modified, or settled in fiscal years beginning after December 15, 1994. Results of prior years have not been restated. For Canadian GAAP purposes, the company adopted, as of January 1, 2004, the CICA’s amendments to Section 3870, “Stock-Based Compensation and other Stock-Based Payments”, which required the fair value method to be applied to employee stock-based compensation. F-31 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( b) Consolidated F-32 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( Consolidated summarized statements of loss: d) Consolidated summarized statements of F-33 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, ( e) Other disclosures The following additional information would be presented if these consolidated financial statements were presented in accordance with U.S. GAAP: (i) Accounts receivable 2005 $ 2004 $ Value added tax 786 254 Other receivables 452 408 1,238 662 (ii) Pro-forma stock-based compensation disclosures The company adopted the fair value method of valuing stock options granted to employees on January 1, 2005. Had the company recognized employee stock-based compensation expense under the fair value method based on the fair value of awards at the grant date consistent with the provisions of Statement of Financial Accounting Standards No. 123, the company’s loss and loss per share under U.S. GAAP would have been as follows: 2005 $ 2004 $ 2003 $ Loss in accordance with U.S. GAAP (26,581) (61,680) (14,099) Add: Employee stock-based compensation expense included in reported loss 3,838 - - Deduct: Employee stock-based compensation expense determined under the fair value method (3,838) (2,330) (2,767) Pro-forma loss under U.S. GAAP (26,581) (64,010) (16,866) Pro forma basic and diluted loss per share in accordance with U.S. GAAP (0.51) (1.32) (0.42) The fair value of each option granted to employees was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: F-34 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) 2005 2004 2003 Expected dividend yield (%) Nil Nil Nil Average risk-free interest rate (%) 3.8 3.2 3.5 Expected life (years) 2.9 2.7 2.7 Expected volatility (%) 50.4 74.0 61.4 The weighted average fair value of options granted to employees for the year ended December 31, 2005 was $5.89 (2004 - $7.41; 2003 - $3.97). (iii) Conditional asset retirement obligations Under U.S. GAAP, the company is to reasonably estimate the fair value of all asset retirement obligations. If a company cannot make a reasonable estimate of the fair value of an asset retirement obligation when it initially incurs the liability, it should disclose the fact and the related reason why it is unable to estimate the fair value. The company has obligations to reclaim the workings of the Silver Standard Mine in northern British Columbia. Our environmental consultants have studied the property and are preparing a conceptual reclamation plan with possible reclamation alternatives for the reclamation of the property. In 2006, our consultants are expected to finalize the conceptual reclamation plan, and we will then submit it to the appropriate government agencies for comment. On finalization of the conceptual reclamation plan, we believe we will have sufficient information available to estimate and record the fair value of the liability associated with the reclamation of the property. This estimate will be adjusted to reflect any changes to the reclamation plan resulting from the regulatory review. Until the conceptual reclamation plan is accepted by the regulatory agencies, monitoring is not required. In 2005, we spent $90,000 completing required reclamation work on the property, which involved the closure of mine workings. We have included $348,000 in our asset retirement obligation liabilities at December 31, 2005 for reclamation work we believe will be included in any reclamation alternative accepted by the regulatory agencies and which we expect to complete over the next two years on the property. (iv) Development stage enterprise The company meets the definition of a development stage enterprise under Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises. The following additional disclosures are required under U.S. GAAP: Consolidated summarized statements of loss and deficit and cash flows since October 1, 1993, the date the company made a strategic decision to concentrate on the acquisition and exploration of bulk silver mineral properties in North, Central and South America. F-35 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) Consolidated loss and deficit: Period from October 1, 1993 (inception) to December 31, 2005 $ Mineral property exploration and reclamation 175,391 General and administration, salaries, professional fees 24,481 Other income (12,343) Net loss for the period from October 1, 1993 to December 31, 2005, being the deficit accumulated during the development stage 187,529 Opening retained earnings, October 1, 1993 (976) Ending deficit, December 31, 2005 186,553 Consolidated cash flows: Period from October 1, 1993 (inception) to December 31, 2005 $ Operating activities (110,631) Investing activities (20,895) Financing activities 153,425 Increase in cash and cash and cash equivalents 21,899 Cash and cash equivalents – October 1, 1993 1,131 Cash and cash equivalents – December 31, 2005 23,030 F-36 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) (v) Additional shareholders’ equity disclosure required under FAS No. 7. F-37 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) F-38 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) f) Impact of recently issued accounting standards Effective January 1, 2006, under U.S. GAAP, the company will be required to adopt SFAS No. 123R, “Share-Based Payment”. SFAS 123R, which is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation”, is similar to the Canadian standard adopted in 2004 in that it eliminates the option to use the intrinsic value method for valuing stock-based compensation to employees, although it requires that forfeitures of unvested instruments such as stock options be estimated at the grant date to determine the total compensation to be recognized. Under Canadian GAAP, the company accounts for forfeitures only as they occur. F-39 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) The company expects to use the modified prospective method of adoption of SFAS 123R as permitted. This method would permit the company to calculate stock-based compensation similar to Canadian GAAP for options granted on or after January 1, 1995 without considering the effect of options granted prior to January 1, 1995. As a result, the adjustments to deficit, share capital and value assigned to options made under Canadian GAAP in 2004 would not be made under U.S. GAAP and the company is required to determine the effect on stock-based compensation of forfeitures associated with unvested options outstanding as of January 1, 2006. The company is still assessing the impact of this standard on its consolidated financial statements. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 153, “Exchanges of Non-Monetary Assets – an amendment of APB Opinion No. 29”. This statement amends APB 29, which is based on the principle that exchanges of non-monetary assets should be measured at the fair value of the assets exchanged with certain exceptions. SFAS 153 eliminates the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning on or after June 15, 2005. The company does not expect the adoption of this statement to have a material impact on the company’s consolidated financial statements. In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS 154 requires retrospective application of voluntary changes in accounting principles, unless it is impracticable. Under existing U.S. GAAP, a new principle is not applied to prior periods; rather, the cumulative effect of the change is recognized in earnings in the period of the change. SFAS 154 also carries forward without change the guidance from APB 20 for reporting the correction of an error in previously issued financial statements and the accounting for changes in estimates. This statement is effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The company does not expect the adoption of this statement to have a material impact on the company’s consolidated financial statements. 20 Subsequent Events (a) On January 16, 2006, the company reported the closing of a purchase agreement to acquire a 100% interest in the Berenguela project located in southern Peru. Originally, the company had an option to purchase only the silver resources contained in the project. Under the purchase agreement, the company acquired all of the shares of Sociedad Minera Berenguela S.A., a Peruvian company that holds the rights to the Berenguela project, in consideration for an aggregate payment of US$2,000,000 in cash and US$8,000,000 in common shares of the company, and the grant of a 2% net smelter returns royalty on copper capped at US$3,000,000. The common share consideration amounted to 530,504 shares of the company. F-40 Silver Standard Resources Inc. (an exploration stage company) Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (tabular amounts expressed in thousands of Canadian dollars unless otherwise stated) (b) As part of a January 2004 (c) In early 2006, the company lodged U.S. dollars as collateral for the bank letter of credit issued in connection with reclamation obligations on the Candelaria silver mine in Nevada. The silver bullion that was previously lodged as collateral has been released and is now free from any collaterization. (d) On March 22, 2006, the company announced the sale of its 50% interest in the Manantial Espejo property to its joint venture partner, Pan American, for 1.95 million common shares of Pan American, having a F-41 - END OF FINANCIAL STATEMENTS - SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. Silver Standard Resources Inc. Date: March 29, 2006 -112 - Exhibit 12.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert A. Quartermain, certify that: 1. I have reviewed this annual report on Form 20-F of Silver Standard Resources Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) [omitted pursuant to Transition Period provisions at Section III of Release 34-47986 of the Securities and (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [omitted pursuant to Transition Period provisions at Section III of Release 34-47986 of the Securities and Exchange Commission entitled "Management's Reports on Internal Control over (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: Exhibit 12.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ross A. Mitchell, certify that: 1. I have reviewed this annual report on Form 20-F of Silver Standard Resources Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) [omitted pursuant to Transition Period provisions at Section III of Release 34-47986 of the Securities and (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [omitted pursuant to Transition Period provisions at Section III of Release 34-47986 of the Securities and Exchange Commission entitled "Management's Reports on Internal Control over (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: Exhibit 13.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 20-F of Silver Standard Resources Inc. for the year ended December 31, 1. The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. Date: Exhibit 13.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 20-F of Silver Standard Resources Inc. for the year ended December 31, 1. The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. Date: Item 11 Quantitative and Qualitative Disclosures About Market RiskItem 12 Description of Securities Other than Equity Securities- 98 -Item 13 Defaults, Dividend Arrearages and DelinquenciesItem 14 Material Modifications to the Rights of Security Holders and Use of ProceedsItem 15 Controls and Procedures2003,2005, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be included in our periodic reports to the Securities and Exchange Commission is recorded, processed, summarized and reported in a timely manner.Item 16 [Reserved]A. Audit committee financial expert.We do notOur board of directors has determined that we have an audit committee financial expert. We are focused onexpert, John R. Brodie FCA. Mr. Brodie FCA is the exploration and acquisitionChair of silver properties and do not have any sales or revenue. As a result, our board of directors is comprised of individuals with extensive exploration and mining experience. We are considering the appointment of an individual to our board of directors and audit committee to assumeand independent as that term is defined in the rolelisting standards of audit committee financial expert.the Nasdaq National Market. For more information regarding Mr. Brodie’s experience, see Item 6.A – “Directors and Senior Management”.B. CodeTable of Ethics.ContentsTheOur Code of Business Conduct is available for viewing on our website at www.silver-standard.com.www.silverstandard.com. Principal Accountant Fees and Services.- 99 -Table
Principal Accountant Fees and Services ContentsPrincipal Accountant
Fees and ServicesFiscal year
ended December
31, 2003Fiscal year ended
December 31,
2002Audit Fees(1) $75,500 $42,900 Audit-Related Fees(2) -- $500 Tax Fees(3) $21,000 $11,806 All Other Fees -- -- Total $96,500 $55,206 (1)Includes audit, interim financial statements review andstatements; fees in connection with regulatory financial filingsConsultation concerning accounting and financial reporting standards(3)20032005 were pre-approved by our audit committee.D. Exemptions from the Listing Standards for Audit Committees.Table of ContentsE. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.Not applicable.PART IIIItem 17 Financial Statementsmeasurement differences between Canadian and US GAAP, as they affect us, are disclosed in note 1819 to the audited consolidated financial statements.- 100 -1718 are attached to this Annual Report, are individually listed under Item 19, and are found immediately following the text of this Annual Report. The audit report of PricewaterhouseCoopers LLP is included in this Annual Report immediately preceding the financial statements.Item 18 Financial StatementsNot applicable.Item 19 ExhibitsExhibit Number 1.1 1.2 12.1 12.2 13.1 13.2 14.1 Pincock, Allen & Holt, a division of Hart Crowser Inc.14.214.314.214.3 14.4 14.5 14.6 14.7- 101/102 -2003, 20022005, 2004 and 20012003March 12, 200418,19 and contain estimates based on management’s judgement.judgement and based on currently available information. Management maintains anis responsible for all information in the annual report. All financial and operating data in the annual report is consistent, where appropriate, with that contained in the consolidated financial statements.controlsaccounting control is maintained in order to provide reasonable assurance that assets are safeguarded and that transactions are authorized, assets safeguarded,properly recorded and proper records maintained.executed in accordance with management’s authorization. This system includes established policies and procedures, the selection and training of qualified personnel, and an organization for appropriate delegation of authority and segregation of responsibilities.United States,auditing standards of the Public Company Accounting Oversight Board (United States), and their report follows."“R.A. Quartermain"Quartermain”"Ross“R.A. Mitchell”Mitchell"R.A. QuartermainF-2Independent Auditors’ Report20032005 and 20022004 and the consolidated statements of loss and deficit and cash flows for the years ended December 31, 2003, 20022005, 2004 and 2001.2003. 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.United States.standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.20032005 and 20022004 and the results of its operations and its cash flows for the years ended December 31, 2003, 20022005, 2004 and 20012003 in accordance with Canadian generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a consistent basis."PricewaterhouseCoopers LLP"February2004which is as of March 22, 2006)20032005 and 2002____________________________________________________________________________________________________________2004dollars)dollars, except number of shares)2003
$2002
$ Assets Current assets Cash and cash equivalents (note 14(a)) 16,428 17,342 Marketable securities (notes 4 and 11(b)) 1,457 313 Accounts receivable (note 11(a)) 339 409 Prepaid expenses 234 200 18,458 18,264 Reclamation deposits (note 13) 153 70 Investments (note 4) -- 100 Mineral property costs (note 5) 66,491 56,230 Fixed assets (note 6) 111 84 85,213 74,748 Liabilities Current liabilities Accounts payable and accrued liabilities 725 817 Current portion of provision for reclamation (note 13) 248 142 Mineral property payable (note 5(k)) 526 772 Current portion of long-term debt (note 7) 66 103 1,565 1,834 Provision for reclamation (note 13) 1,043 701 Long-term debt (note 7) 75 249 2,683 2,784 Shareholders' Equity Capital stock (note 8) Authorized 100,000,000 common shares without par value Issued 42,604,832 common shares (2002 - 39,190,887) 113,537 99,510 Share subscriptions (note 10) 455 -- Value assigned to stock options(note 9) 170 148 Deficit (31,632) (27,694) 82,530 71,964 85,213 74,748 2005
$2004
$
(restated 3(a)) Assets Current assets Cash and cash equivalents 23,030 45,703 Silver bullion (note 5) 14,095 13,487 Marketable securities (note 6) 4,985 3,329 Accounts receivable, net of allowance for doubtful accounts $nil (2004 - $nil) 1,238 662 Prepaid expenses and deposits 496 587 43,844 63,768 Restricted silver bullion (note 5) 1,692 2,300 Reclamation deposits (note 9) 190 198 Mineral property costs (note 7) 171,525 150,532 Property, plant and equipment(note 8) 2,037 659 219,288 217,457 Liabilities and Shareholders' Equity Current liabilities Accounts payable 1,990 1,513 Accrued liabilities 788 113 Current portion of asset retirement obligations (note 9) 722 560 3,500 Asset retirement obligations (note 9) 759 688 Future income tax liability (note 14) 21,839 21,557 26,098 24,431 Shareholders' Equity Share capital (note 10) Common shares - unlimited shares authorized, no par value Issued and outstanding 51,849,241 common shares (2004 - 51,576,802) 219,971 217,502 Value assigned to stock options (notes 10 and 11) 9,778 6,167 Value assigned to warrants (notes 10 and 12) 6,965 7,011 Deficit (43,524) (37,654) 193,190 193,026 219,288 217,457 Commitments (note 17) Subsequent events (note 20) Subsequent event (note 19)Directors:Directors"Davis""Meyer"________________________________________________________Meyer, Director DirectorF-42003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003 2003
$ 2002
$ 2001
$ Exploration and mineral property costs Property examination and exploration 465 279 107 Mineral property costs written off (note 5) -- 53 1,744 Reclamation (note 13) 507 420 201 (972) (752) (2,052) Expenses Depreciation 30 24 25 General and administration 1,579 1,404 1,105 Professional fees 143 153 80 Salaries and employee benefits 654 434 307 Stock-based compensation (note 9) 169 132 -- (2,575) (2,147) (1,517) Other income (expenses) Investment income 379 305 176 (Loss) gain on sale of marketable securities and investment writedowns (101) 544 -- Fixed asset writedowns and loss on sale -- (19) -- Gain on sale of mineral property -- -- 1 Interest expense (note 3(a)) -- (92) -- Foreign exchange (loss) gain (669) (37) 15 (391) 701 192 Loss for the year (3,938) (2,198) (3,377) Deficit - Beginning of year (27,694) (25,496) (22,119) Deficit - End of year (31,632) (27,694) (25,496) Weighted average number of shares outstanding 40,409,854 35,739,100 26,375,200 Basic and diluted loss per common share (0.10) (0.06) (0.13) 2005
$ 2004
$ 2003
$ Exploration and mineral property costs Property examination and exploration 434 471 465 Mineral property costs written-off 372 - - Reclamation and accretion (note 9) 507 252 507 (1,313) (723) (972) Expenses Salaries and employee benefits 1,031 692 654 Salaries and employee benefits - stock-based compensation (note 11) 3,468 1,783 - Depreciation 74 57 30 Internal control over financial reporting 226 - - Professional fees 176 122 143 General and administration - other 2,172 2,202 1,579 General and administration - stock-based compensation (note 11) 567 668 169 (7,714) (5,524) (2,575) Other income (expenses) Investment income 879 1,151 379 Gain (loss) on sale of marketable securities and investment writedowns 2,274 2,525 (101) Gain on sale of mineral properties 20 931 - Foreign exchange (loss) gain (18) 171 (669) Other 2 (49) - 3,157 4,729 (391) Loss for the year (5,870) (1,518) (3,938) Deficit - Beginning of year (37,654) (31,632) (27,694) Adjustment for stock-based compensation (note 3) - (4,504) - Deficit - End of year, as restated (43,524) (37,654) (31,632) Weighted average number of shares outstanding 51,683,125 48,311,212 40,409,854 Basic and diluted loss per common share (0.11) (0.03) (0.10) F-52003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003 2003
$2002
$2001
$ Cash flows from operating activities Loss for the year (3,938) (2,198) (3,377) Items not affecting cash Depreciation 30 24 25 Mineral property costs written off -- 53 1,744 Interest expense -- 90 -- Fixed asset writedowns and loss on sale -- 19 -- Gain on sale of mineral property -- -- (1) Loss (gain) on sale of marketable securities and investment writedowns 101 (544) -- Valuation of options issued to non-employees 169 132 -- Donation made in shares -- 41 -- Provision for reclamation 370 98 -- Foreign exchange (gain) loss (4) 37 -- (3,272) (2,248) (1,609) Changes in non-cash working capital items Accounts receivable and prepaid expenses (14) (222) (137) Accounts payable and accrued liabilities (17) 220 100 (3,303) (2,250) (1,646) Cash flows from financing activities Shares issued for cash 13,229 26,725 11,174 Share subscriptions received 455 -- -- Share issue cash costs (54) (333) (26) Repayment of long-term debt (211) (152) (22) 13,419 26,240 11,126 Cash flows from investing activities Minority interest buy-out -- (2) -- Mineral property costs (9,833) (7,963) (4,591) Proceeds on sale of mineral property -- -- 1 Purchase of fixed assets (57) (38) (28) Proceeds on sale of fixed assets -- -- 49 On acquisition of joint venture -- 34 -- Acquisitions (note 3) -- (4,556) (2,625) Reclamation deposit (advance) recovery (83) 40 (18) Purchase of marketable securities (1,042) (527) -- Proceeds on sale of marketable securities -- 757 -- (11,015) (12,255) (7,212) Foreign exchange (loss) gain on foreign cash held (15) 30 -- (Decrease) increase in cash and cash equivalents (914) 11,765 2,268 Cash and cash equivalents - Beginning of year 17,342 5,577 3,309 Cash and cash equivalents - End of year 16,428 17,342 5,577 Supplementary cash flow information (note 14) 2005
$ 2004
$ 2003
$ Operating activities Loss for the year (5,870) (1,518) (3,938) Items not affecting cash Depreciation 74 57 30 Mineral property costs written-off 372 - - Gain on sale of mineral properties - (902) - Stock-based compensation 4,035 2,451 169 Asset retirement obligations 444 (316) 370 (Gain) loss on sale of marketable securities and investment writedowns (2,274) (2,525) 101 Foreign exchange gain (14) (7) (19) Changes in non-cash working capital items Accounts receivable (576) (303) 20 Prepaid expenses and deposits (198) (353) (34) Accounts payable 621 545 (233) Accrued liabilities 675 53 5 Current portion of asset retirement obligations (240) 312 - Cash used in operating activities (2,951) (2,506) (3,529) Financing activities Shares and warrants issued for cash 1,795 60,334 13,229 Share subscriptions received - - 455 Share issue cash costs - (928) (54) Cash generated by financing activities 1,795 59,406 13,630 Investing activities Mineral property costs (20,933) (12,796) (9,833) Purchase of property, plant and equipment (1,202) (710) (57) Purchase of silver bullion - (15,780) - Proceeds on sale of property, plant and equipment - 53 - Cash acquired on business combination (note 4) - 91 - Reclamation deposit advance - (47) (83) Purchase of marketable securities (2,459) (2,755) (1,042) Proceeds on sale of marketable securities 3,077 4,319 - Cash used in investing activities (21,517) (27,625) (11,015) (Decrease) increase in cash and cash equivalents (22,673) 29,275 (914) Cash and cash equivalents - Beginning of year 45,703 16,428 17,342 Cash and cash equivalents - End of year 23,030 45,703 16,428 Supplementary cash flow information (note 15) F-62003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)Nature of operationsNATURE OF OPERATIONSThe company is in the process of acquiring and exploring silver mineral properties. The company hopes to ultimately develop the properties to bring them to production, structure joint ventures with others, option or lease properties to third parties, or sell the properties outright. The company has not determined whether these properties contain ore reserves that are economically recoverable and is considered to be in the exploration stage.Management has estimated that the company will have adequate funds from existing working capital to meet its corporate administrative and property obligations for the coming year. The company will periodically need to obtain additional financing, and while the company has been successful in the past, there can be no assurance that it will be able to do so in the future.The recoverability of the amounts shown for mineral properties and related deferred costs is dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, the ability of the company to obtain necessary financing to complete the development, and upon future profitable production. The amounts shown as deferred expenditures and property acquisition costs represent net costs to date, less amounts amortized and/or written off, and do not necessarily represent present or future values.Although the company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the company’s title. Property title may be subject to unregistered prior agreements or transfers and may be affected by undetected defects.2Significant accounting policiesGenerally accepted accounting principlesThese consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). The significant measurement differences between those principles and those that would be applied under U.S.generally accepted accounting principles (U.S. GAAP), as they affect the company, are disclosed in note 18.F-72003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)Principles of consolidationThese consolidated financial statements include the accounts of the company and its subsidiaries, the principal ones being Newhawk Gold Mines Ltd. (Newhawk), Silver Standard (BVI) Inc., Candelaria Mining Company (Candelaria), Pacific Rim Mining Corporation Argentia S.A. (Pacific Rim Argentina) and Silver Assets, Inc. (Silver Assets). The company now consolidates its 100% interest in Sulphurets. Prior to the acquisition described in note 3(c), the company proportionately consolidated its 60% interest in the Sulphurets Joint Venture, which was reflected as the Sulphurets mineral property. The company proportionately consolidates its interest in Minera Triton Argentina S.A. (Minera Triton), which is reflected in the Manantial Espejo mineral property, and proportionately consolidates its 43.4% interest in Sunshine Argentina Inc. (Sunshine), which is reflected in the Pirquitas mineral property.Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those reported.Foreign currency translationThe company’s subsidiaries are integrated foreign operations and are translated into Canadian dollars using the temporal method. Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the period. Translation gains and losses are reflected in loss for the year.Cash and cash equivalentsCash and cash equivalents include cash on hand, balances held with banks and highly liquid deposits with an initial maturity of less than 90 days. Cash equivalents also include highly liquid short-term investments with an initial maturity of over 90 days that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value.Marketable securitiesMarketable securities, all of which are categorized as available for sale, are carried at the lower of original cost and quoted market value.InvestmentsInvestments are recorded at cost. If other than temporary impairment in value has occurred, they are written down to estimated market value.F-82003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)Mineral property costsThe company records its interests in mineral properties at cost. The costs of acquiring mineral properties and related exploration and development expenditures are deferred and would be amortized against future production following commencement of commercial production or are written off if the properties are sold, allowed to lapse or abandoned. General exploration, overhead and administration costs are expensed in the period incurred.Management of the company regularly reviews the net carrying value of each mineral property. Where information is available and conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated future prices, proven and probable reserves, and operating capital and reclamation costs on an undiscounted basis. Reductions in the carrying value of each property would be recorded to the extent the net book value of the investment exceeds the estimated future cash flows.Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses whether carrying value can be recovered.Management’s estimates of mineral prices, recoverable proven and probable reserves, and operating, capital and reclamation costs are subject to certain risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur in the near term that could adversely affect management’s estimate of the net cash flows to be generated from its properties. The company presently has no proven or probable reserves.Option payments received are treated as a reduction of the carrying value of the related mineral property and deferred costs until the payments are in excess of costs incurred, at which time they are then credited to income.Fixed assetsFixed assets are recorded at cost less accumulated depreciation. Depreciation is calculated using the declining balance method at rates ranging from 15% to 30% per annum.Provision for reclamationThe company estimates the fair value of site restoration and clean-up costs on acquisition of mineral properties and reflects this amount in the cost of the mineral property acquired.On January 1, 2003, the company adopted the new standard of accounting for asset retirement obligations which harmonizes with U.S. GAAP. The new standard requires the recognition of a liability for obligations associated with the retirement of fixed assets when the liability is incurred. A liability is recognized initially at fair value if a reasonable estimate of the fair value can be made and the resulting amount would be capitalized as part of the asset. The liability is accreted over time through periodic charges to earnings or mineral property costs. In subsequent periods, the company adjusts the carrying amounts of the asset and the liability for changes in estimates of the amount or timing of underlying future cash flows.F-92003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)It is reasonably possible that the company’s estimates of its ultimate reclamation and site restoration liability could change as a result of changes in regulations or cost estimates. The effect of changes in estimated costs is recognized on a prospective basis.Stock-based compensationThe company has a share option plan which is described in note 9. Stock-based compensation on options granted to non-employees is recorded as an expense at the earlier of the completion of performance or vesting of the options granted, based upon the estimated fair value on that date. The company does not record any compensation cost on the granting of stock options to employees and directors using the intrinsic value method as the exercise price is equal to or greater than the market price at the date of the grant. Consideration paid on exercise of the stock options is credited to capital stock. Additional disclosures for options granted to employees and directors, including disclosure of pro forma earnings and pro forma earnings per share as if the fair value based accounting method had been used to account for employee stock options, are presented in note 9.Income taxesIncome taxes are calculated using the liability method. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using tax rates anticipated to apply in the periods that the temporary differences are expected to reverse.Loss per common shareLoss per share is calculated based on the weighted average number of common shares issued and outstanding during the year. The effect of potential issuances of shares under options and warrants would be anti-dilutive, and therefore basic and diluted losses per share are the same. Information regarding securities that could potentially dilute basic earnings per share in the future is presented in notes 9 and 10.3Acquisitionsa)In June 2002, the company acquired a 43.4% interest in Sunshine Argentina, Inc. (Sunshine) which owns the surface and mineral rights for the Pirquitas silver project (note 5(c)). The company paid $4,556,000 (US$3,000,000) in cash and issued a US$1,340,000 convertible debenture for a total of $6,592,000. The company assigned the purchase price to acquisition costs relating to the Pirquitas property. By December 31, 2002, the debenture was fully converted by the issuance of 360,636 common shares with a value of $2,092,000. In July 2003, the Company issued 9,980 common shares with a value of $74,850 in full settlement of the interest due relating to the debenture (note 8).F-102003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)b)In November 2001, the company acquired 100% of Pacific Rim Argentina, a company incorporated in Argentina that owns the mineral rights for the Diablillos silver-gold project in Argentina (note 5(a)). The company has accounted for the acquisition as a purchase for total consideration of $5,429,649 (US$3,426,391).CHANGES IN ACCOUNTING POLICIESc)In August 2001, the company acquired a 20% direct interest in the Manantial Espejo property (note 5(b)) by issuing 400,000 common shares valued at $920,000. The value of the common shares issued was based on market price. The company then transferred half of this interest (representing 10% valued at $460,000) and cash of $125,000 to Black Hawk Mining Corporation (Black Hawk) in exchange for the remaining 40% interest in the Sulphurets property such that the company now owns 100% of Sulphurets.(a)d)In April 2001, the company exercised its option to acquire a 100% interest in the Candelaria property (note 5(j)). The acquisition closed on October 1, 2001 with the company making cash payments of $103,947 (US$65,834), issuing 600,000 common shares valued at $1,962,000, issuing 600,000 common share purchase warrants valued at $326,000 (note 10), issuing a $300,000 non-interest bearing promissory note (which was settled during 2002 by the issuance of 70,922 common shares) and the assumption of all liabilities relating to the property following completion of reclamation by Kinross. The cost of monitoring on completion of reclamation is estimated to be US$20,300 over a five-year period. The fair value of the consideration amounted to $2,691,947, which was allocated to mineral property costs. The value of the common shares issued was based on market price.(b)4Marketable securities and investments(c) 2003
$2002
$ Marketable securities 1,457 313 Investments -- 100 At December 31, 2003, the quoted market value of marketable securities was $9,730,000 (2002 - $1,358,000). During 2003, the $100,000 investment in the shares of Sandy K. Mines Ltd. was fully provided for.F-112003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)54Mineral property costsACQUISITIONS$ Cash and cash equivalents 91 Accounts receivable 25 Other current assets 2 Mineral properties 63,899 At December 31, mineral property costs are as follows:64,017 Current liabilities (19) Future income tax liability (14,200) Net assets acquired 49,798 2003 Acquisition
costs
$Exploration
costs
$
Total
$ Argentina Chubut 58 94 152 Diablillos 5,370 798 6,168 Manantial Espejo 4,090 7,336 11,426 Pirquitas 6,592 342 6,934 Australia Bowdens 10,892 6,079 16,971 Canada Silvertip 1,818 142 1,960 Sulphurets 2,393 1,255 3,648 Sunrise Lake 1,234 29 1,263 Chile Cachinal 17 78 95 Challacollo 2,271 1,996 4,267 Juncal 16 27 43 La Flora 15 31 46 Mexico La Pitarrilla 50 708 758 La Valenciana 16 252 268 Ortega 33 22 55 San Agustin 28 131 159 San Marcial 722 716 1,438 Other 19 20 39 United States Candelaria 2,981 1,883 4,864 Maverick Springs 553 844 1,397 Shafter 2,544 1,996 4,540 Balance - December 31, 2003 41,712 24,779 66,491 F-122003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated) 2002 Acquisition
costs
$Exploration
costs
$
Total
$ Argentina Diablillos 5,433 122 5,555 Manantial Espejo 4,090 6,519 10,609 Pirquitas 6,592 188 6,780 Australia Bowdens 10,714 4,725 15,439 Canada Silvertip 1,818 121 1,939 Sulphurets 2,393 1,255 3,648 Chile Cachinal 16 53 69 Challacollo 649 1,086 1,735 Juncal 16 20 36 Mexico La Pitarrilla 16 47 63 La Valenciana 12 58 70 Ortega 17 19 36 San Marcial 641 705 1,346 United States Candelaria 2,981 1,413 4,394 Maverick Springs 474 301 775 Shafter 2,391 1,345 3,736 Balance - December 31, 2002 38,253 17,977 56,230 F-132003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)followsfollows: 2003
$2002
$ Balance - Beginning of year 56,230 39,136 Acquisition costs for the year 3,458 11,880 Exploration costs Assaying 705 235 Camp costs 1,786 1,078 Consulting 144 147 Drafting/engineering 177 101 Drilling 1,824 1,805 Environmental 293 299 Field administration 227 274 Maps and prints 60 -- Property holding costs 205 281 Geology 899 659 Legal 151 280 Value added tax 332 108 Exploration costs for the year 6,803 5,267 Costs written off in the year -- (53) Balance - End of year 66,491 56,230 a)In November 2001, the company acquired from Pacific Rim Mining Corp. (Pacific Rim) a 100% interest in Pacific Rim Argentina, which owns the mineral rights for the Diablillos silver-gold project located in the province of Salta in northwestern Argentina.Under the terms of the agreement, the company was to pay the vendors a total of US$3,400,000 consisting of staged cash payments of US$1,500,000 (paid) by December 31, 2001 and staged payments of US$1,900,000 in cash or common shares. During 2002, the company settled all of these staged payments by the issuance of 525,995 common shares valued at $2,980,000.F-142003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)b)During 1998, the company entered into an agreement with Triton Mining Corporation (Triton), a wholly owned subsidiary of Black Hawk, to acquire a 50% interest in Minera Triton S.A. (Minera Triton), a wholly owned subsidiary of Triton, for a 40% interest in the Manantial Espejo project in Argentina. Triton, through Minera Triton, held an 80% interest and the balance was held by a subsidiary of Barrick Gold Corporation (Barrick).In August 2001, the company acquired the 20% direct interest in the Manantial Espejo property from Barrick by issuance of 400,000 common shares valued at $920,000 ($2.30 per share) with Barrick retaining a royalty (see below). In September 2001, the company transferred half of this 20% direct interest and $125,000 to Black Hawk in exchange for a 40% direct interest in the Sulphurets property in British Columbia (note 3(c)), such that Triton held a 90% interest in the Manantial Espejo property.In March 2002, the company acquired the entire interest in the Manantial Espejo property for consideration paid to Black Hawk as set out below. Concurrently, the company closed an agreement with Pan American Silver Corp. (Pan American) whereby Pan American acquired a 50% direct interest in the property. Pan American’s acquisition cost was US$708,750 cash and 231,511 Pan American common shares valued at US$1,250,000 which were paid to Black Hawk as full consideration for the sale of its interest. The company is the operator during the exploration phase and exploration costs were shared equally from January 1, 2002. Pan American will be the operator during the feasibility and mine construction stages and will contribute the first US$3,000,000 towards mine construction once a production decision is made, after which any further expenditures will be shared equally.In 2002, Pan American and the company acquired all of Barrick’s royalty interests and another 1.2% net smelter return royalty on the property. The company’s 50% share of these royalty purchases was US$400,000 (paid).c)Pirquitas, ArgentinaDuring the year ended December 31, 2002, the company acquired a 43.4% interest in Sunshine (note 3(a)), which owns 100% of the surface and mineral rights for the Pirquitas silver property in northern Argentina. The company is the operator of Sunshine and all permits necessary for mining are currently valid. Sunshine owns all the surface rights covering the mineralization and location for the mill and plant facilities and the property is unencumbered by any royalties other than those payable to the government.d)Bowdens, AustraliaThe company owns a 100% interest in the Bowdens project in New South Wales, Australia and has continuing annual expenditure requirements of approximately Australian (AUS) $85,500 to maintain its interest.F-152003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)The company has an agreement to acquire certain back-in rights held by Rio Tinto Exploration Pty Ltd., the original vendor, by issuing 160,000 common shares (issued), committing to pay AUS$1,500,000 on the commencement of production, and granting a royalty of a 2% net smelter return up to US$5,000,000 in royalties and 1% thereafter. The obligations of the company under the agreement are collateralized by certain properties in the project.Australiae)During the year ended December 31, 2002, the company acquired a 100% interest in the Silvertip project located in northern British Columbia, Canada. To acquire this project, the company made a cash payment of $1,200,000 and issued 100,000 common shares valued at $618,000. An additional $112,000 was accrued as a project cost representing the fair value of the reclamation obligations. In 2003, the company lodged a $79,000 reclamation deposit as security for its reclamation obligations (note 13).f)Sulphurets, CanadaThe Sulphurets project comprises the Bruceside property in British Columbia, Canada owned 100% by Newhawk, a subsidiary of the company. Prior to the acquisition in August 2001 (note 3(c)), the project was held as a 60% joint venture interest.g)In June 2003, the company acquired a 100% interest in the Sunrise Lake deposit in Canada’s Northwest Territories. To acquire this project, the company made a cash payment of US$488,000 and issued 83,004 common shares of the company valued at $576,000.h)Challacollo, ChileIn November 2001, the company entered into an option agreement to purchase the Challacollo silver project in northern Chile owned by Sociedad Contractual Minera Septentrion (Minera Septentrion). Under the terms of the agreement, the company made cash option payments of US$1,500,000 staged over two years. The company now owns 100% of the project, subject to a 4% net smelter returns royalty, declining to 3% following payment of US$850,000. The 3% net smelter returns royalty can be acquired at any time for a total of US$1.5 million.F-162003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)i)During the year ended December 31, 2002, the company entered into an option agreement whereby it could earn up to a 100% interest in an option on the 1,250 hectare San Marcial silver project in Sinaloa State, Mexico. The company exercised its option to acquire the 100% interest in the property by the payment of US$150,000 (paid) in cash and the issuance of 45,706 common shares of the company with a value of $314,000. Pursuant to a new agreement entered into between the underlying property vendor and the company, the company is to make US$75,000 in staged payments (paid) and pay US$387,500 by February 13, 2004. The company is also to incur exploration expenditures of at least US$225,000 on the property over a two-year period and this commitment has been met.j)In April 2001, the company exercised its option to acquire a 100% interest in the Candelaria silver mine in Nevada. The acquisition closed on October 1, 2001, with the company giving consideration with a face value of $2,691,947 (note 3(d)), which has been allocated to mineral property costs. In 2002, $89,000 was accrued as a project cost representing the fair value of the reclamation obligations. Under its agreement, upon completion of reclamation by Kinross, the company assumed all liabilities relating to the Candelaria property and has to provide substitute environmental bonds presently lodged by Kinross. The total cost of the monitoring of the property is estimated to be US$20,300 over a five-year period. The bonding amount required is US$1,679,435, but with the reclamation completed by Kinross to date, the size of the bonding requirements is expected to be reduced over time. The bonding date was extended to April 1, 2004 upon the payment of US$50,000 (paid) to Kinross. The company has pledged the property to Kinross as collateral pending arranging reclamation bonding.k)Maverick Springs, U.S.A.In June 2003, the company signed an exploration and development agreement with Vista Gold Corp. (Vista), in which the company will acquire all silver resources hosted in the Maverick Springs gold-silver property in northern Nevada. Under the terms of the agreement, the company paid Vista US$300,000 on closing and will contribute US$1,200,000 over a period of four years commencing from October 7, 2002, towards exploration programs, land holding costs and option payments. At December 31, 2003, the company had paid Vista US$242,358 toward exploration and accrued an additional US$407,135 ($526,000; 2002 — $772,000), leaving US$550,507 remaining to be spent on exploration under the agreement.F-172003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)l)The company owns a 100% interest in Rio Grande, which holds the Shafter Presidio Silver Mine (Shafter) located in Presidio County, Texas. Shafter consists of approximately 3,430 acres of land, of which Rio Grande owns or leases certain of the surface and/or mineral estate. In 2002, the company paid US$160,000 in cash and issued 53,000 common shares valued at $326,000 for mill assets to be eventually used at Shafter. During the year ended December 31, 2003, the mill was moved to the property and the company paid US$50,000 and issued 5,000 common shares valued at $36,000, for an additional land acquisition. All permits necessary to place the property in production are valid and subject to renewal over time.m)Bluey’s, AustraliaIn August 2001, the company entered into an agreement whereby it may earn a 51% joint venture interest in the Bluey’s silver property and the surrounding tenement in Australia’s Northern Territory by incurring exploration expenditures over time totalling AUS$750,000. During 2002, the company terminated its interest and wrote off deferred costs of $53,000.n)El Asiento, BoliviaIn 2001, the company wrote off its $1,744,000 investment in the El Asiento property and, in 2003, terminated its option on the property, returning the property back to the optionor.F-182003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)6Fixed assets 2003 Cost
$Accumulated
depreciation
$Net
$ Office equipment 339 230 109 Land 2 -- 2 341 230 111 2002 Cost
$Accumulated
depreciation
$Net
$ Office equipment 285 203 82 Land 2 -- 2 287 203 84 79Long-term debtASSET RETIREMENT OBLIGATIONS 2003
$2002
$ Amount payable to a former officer of Silver Assets in variable annual amounts over 20 years, discounted at 7.3%, final payment in 2015 61 103 Mortgage payable at 10%, due in monthly instalments of US$649, final payment due April 1, 2008 (i) 32 50 Amounts payable relating to land acquisitions, final US$37,500 payment due July 31, 2004. Interest at US$1,000 per month 48 199 141 352 Less: Current portion 66 103 75 249 (i) The mortgage is collateralized by certain propertiesDuring the year ended December 31, 2005, the company expensed $507,000 (2004 - $252,000; 2003 - $507,000) in on-going, non-legally required environmental and reclamation costs, accretion of asset retirement obligations and changes in the Shafter project (note 5(l)).provision for asset retirement obligations.F-192003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)8Capital stock Authorized 100,000,000 common shares without par value Issued Number
of sharesAmount
$ Balance - December 31, 2000 24,266,458 52,078 Issued during the year For cash Private placement (a) 1,914,000 4,495 Exercise of options (note 9) 1,941,225 3,976 Exercise of warrants (note 10) 1,733,000 2,703 Finders' fees on private placement (a) 59,270 139 For mineral properties (note 3(c) and (d)) 1,000,000 2,882 Share issue costs -- (165) Balance - December 31, 2001 30,913,953 66,108 Issued during the year For cash Private placement (b) 4,750,000 19,979 Exercise of options (note 9) 695,734 1,827 Exercise of warrants (note 10) 1,584,301 4,919 Finders' fees on private placement (b) 80,640 323 For mineral properties (note 5(e), (i) and (l)) 198,706 1,258 For conversion of convertible debenture (note 3(a)) 360,636 2,092 For mineral property payables (notes 3(d) and 5(a)) 596,917 3,280 Assigned value of exercised warrants and options -- 339 Other 10,000 41 Share issue costs (b) -- (656) Balance - December 31, 2002 39,190,887 99,510 Issued during the year For cash Exercise of options (note 9) 536,372 2,140 Exercise of warrants (note 10) 2,779,589 11,089 For mineral properties (note 5(g) and 5(l)) 88,004 612 In settlement of interest (note 3(a)) 9,980 75 Assigned value of exercised options -- 165 Share issue costs -- (54) Balance - December 31, 2003 42,604,832 113,537 F-202003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)a)During the year ended December 31, 2001, the company completed two private placements. In May 2001, the company issued 764,000 units at $1.97 per unit. Each unit consisted of one common share and one common share purchase warrant exercisable into a common share of the company at $2.32 per share until June 25, 2003. The company issued an additional 24,570 units as a finders’ fee on this placement. In October 2001, the company issued 1,150,000 units at $2.60 per unit. Each unit consisted of one common share and one common share purchase warrant exercisable into a common share of the company at $3.00 per share until October 29, 2003. The company issued an additional 34,700 units as a finders’ fee on this placement.SHARE CAPITAL Number of shares Amount
$ Authorized Unlimited common shares, no par value Issued Balance - December 31, 2002 39,190,887 99,510 Issued during the year For cash Exercise of options (note 11) 536,372 2,140 Exercise of warrants (note 12) 2,779,589 11,089 For mineral properties 88,004 612 In settlement of interest 9,980 75 Assigned value of exercised options - 165 Share issue costs - (54) Balance - December 31, 2003 42,604,832 113,537 Issued during the year For cash Private placement (a) 2,955,000 37,132 Exercise of options (note 11) 525,700 2,963 Exercise of warrants (note 12) 2,686,620 13,420 Finder's fees on private placement (a) 31,250 393 For mineral property 2,680,500 50,089 Assigned value of exercised options - 1,026 Share subscriptions (note 12) 92,900 455 Share issue costs (a) - (1,513) Balance - December 31, 2004 51,576,802 217,502 Issued during the year For cash Exercise of options (note 11) 259,269 1,610 Exercise of warrants (note 12) 10,000 185 For mineral property 3,170 45 Assigned value of exercised options - 583 Assigned value of exercised warrants - 46 Balance - December 31, 2005 51,849,241 219,971 b)During the year ended December 31, 2002, the company completed two private placements. In May 2002, the company issued 4,200,000 units at $4.00 or US$2.51 per unit for gross proceeds of $16,531,000. Each unit consisted of one common share and one common share purchase warrant exercisable into 4,200,000 common shares at $4.80 per share until May 10, 2004. The company issued an additional 80,640 units valued at $322,560 and paid $112,697 in cash as a finders’ fee on this placement. In December 2002, the company issued 550,000 units at US$4.05 per unit for gross proceeds of $3,448,500. Each unit consisted of one common share and 0.55 of one non-transferable common share purchase warrant such that 302,500 warrants were issued. Each whole warrant is exchangeable into one common share at US$5.05 until December 18, 2004. The company paid $146,500 in cash as a finders’ fee on this placement. Other costs associated with both private placements totalled $343,000.9Stock optionsThe company has a comprehensive share option plan for its employees, directors, officers and self-employed consultants. The plan provides for the issuance of incentive options to acquire up to a total of 8% of the issued and outstanding common shares of the company. The exercise price of each option shall not be less than the closing market price of the company’s stock on the award date. The options can be granted for a maximum term of 5 years with vesting provisions determined by the company.F-212003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)to officers, employees, directors and non-employees are as follows:2003 2002 2001 Number of
sharesWeighted
average
exercise
price
$Number of
sharesWeighted
average
exercise
price
$Number of
sharesWeighted
average
exercise
price
$ Options outstanding at January 1 1,565,441 4.60 1,392,775 2.58 2,257,500 2.06 Granted 816,600 10.46 868,400 6.26 1,135,000 2.70 Exercised (536,372) 3.99 (695,734) 2.63 (1,941,225) 2.05 Forfeited -- -- -- -- (58,500) 2.29 Options outstanding at December 31 1,845,669 7.37 1,565,441 4.60 1,392,775 2.58 Options exercisable at December 31 1,784,419 7.30 1,529,191 4.60 1,376,525 2.58 2003,2005, incentive stock options represent 4.3%5.0% (2004 - 3.7%) of issued and outstanding common capital.2003:2005:Exercise
price
$Options
outstandingOptions
exercisableExpiry date Weighed
average
remaining life
(years)Options
outstandingOptions
exercisableExpiry date Weighted
average
remaining
contractual life
(years) 2.09 10,000 June 5, 2005 1.4 10.35 60,000 40,000 September 3, 2005 1.7 1.90 20,019 December 28, 2005 2.0 20.50 10,000 March 12, 2006 0.2 2.50 64,000 August 16, 2006 2.6 47,000 August 16, 2006 0.6 3.01 338,550 November 6, 2006 2.8 28,400 November 6, 2006 0.8 4.25 238,900 231,400 January 1, 2007 3.0 116,700 January 1, 2007 1.0 8.00 393,400 380,900 August 2, 2007 3.6 305,400 August 2, 2007 1.6 9.10 441,600 437,850 January 31, 2008 4.1 333,200 January 31, 2008 2.1 10.35 9,200 1,700 September 3, 2008 4.7 26,500 September 3, 2008 2.7 12.85 270,000 260,000 December 22, 2008 5.0 222,500 December 22, 2008 3.0 14.47 50,000 September 16, 2009 3.7 14.47 45,000 October 4, 2009 3.8 14.47 446,000 206,000 December 31, 2009 4.0 14.00 75,000 37,500 May 12, 2010 4.4 16.73 907,500 453,750 December 20, 2010 5.0 12.85 2,613,200 1,881,950 3.5 1,845,669 1,784,419 3.6 F-222003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)The company granted 66,500 (2002 — 74,900) stock options to non-employees in 2003. The fair value of these options was $187,000 (2002 — $161,000), with the company expensing $169,000 (2002 — $132,000) of this assigned value and deferring $18,000 (2002 — $29,000) into mineral property costs. As permitted under Canadian GAAP, for income statement purposes, the company has elected not to follow the fair value-based method of accounting for share options granted to employees and directors. Accordingly, no compensation expense was recorded on the grant of share options to employees and directors as the exercise price is equal to or greater than the market price at the date of the grant. Had the company followed the fair value method of accounting, the company would have recorded a compensation expense of $2,840,000 (2002 — $1,664,000) in respect of the 720,600 (2002 — 793,500) shares it issued to its employees and directors. Pro forma earnings information determined under the fair value method of accounting for stock options is as follows: 2003
$2002
$ Loss for the year As reported 3,938 2,198 Compensation expense 2,840 1,664 Pro forma 6,778 3,862 Basic and diluted loss As reported 0.10 0.06 Pro forma 0.17 0.11 The fair value of stock options was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions: 2003 2002 Expected dividend yield (%) nil nil Average risk-free interest rate (%) 3.5 3.4 Expected life (years) 2.5 2.5 Expected volatility (%) 61 50 Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the company’s stock options.F-23Silver Standard Resources Inc.(an exploration stage company)Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001___________________________________________________________________________________________________________________________(all tabular amounts are expressed in thousands of Canadian dollars, unless otherwise stated)10WarrantsDuring the year ended December 31, 2001, the company issued 600,000 common share purchase warrants which were assigned a value of $326,000 (note 3(d)). During the year ended December 31, 2002, these warrants were exercised and the assigned value was credited to capital stock. At December 31, 2003, the company had received $455,000 on the exercise of 92,900 common share purchase warrants. The common shares were not issued until subsequent to year-end.2003 2002 2001 Number of
sharesWeighted
average
exercise
price
$Number of
sharesWeighted
average
exercise
price
$Number of
sharesWeighted
average
exercise
price
$ Warrants outstanding at January 1 5,559,109 4.56 2,560,270 2.87 1,720,000 1.50 Granted -- -- 4,583,140 5.00 2,573,270 2.91 Exercised (2,779,589) 3.99 (1,584,301) 3.10 (1,733,000) 1.56 Warrants outstanding at December 31 2,779,520 4.99 5,559,109 4.56 2,560,270 2.87
at January 1
at December 31following table summarizes information aboutexpiry date on the warrants outstanding at December 31, 2003:2005 was January 15, 2006 and the weighted average remaining life was 0.04 years (note 20(b)).Exercise
price
$Warrants
outstandingExpiry date Weighed
average
remaining life
(years) 4.80 2,477,020 May 10, 2004 0.4 US$5.05 302,500 December 18, 2004 1.0 2,779,520 0.5 1113Related party transactionsRELATED PARTY TRANSACTIONS2003,2005, the company recorded management fees and expense reimbursements of $112,600 (2002 — $176,900; 2001 — $312,900)$277,000 (2004 - $235,600; 2003 - $112,600) from companies related by common management.directors or officers. At December 31, 2003,2005, accounts receivable include $46,100 (2002 — $78,500; 2001 — $93,500)$77,000 (2004 - $71,600) from these related parties. Any amounts due from related parties are non-interest bearing and without specific terms of repayment. Any transactions for expense reimbursement with related parties are at normal business terms.F-24Silver Standard Resources Inc.(an exploration stage company)Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001___________________________________________________________________________________________________________________________(all tabular amounts are expressed in thousands of Canadian dollars, unless otherwise stated)a common directordirectors or officers, with the principal ones being Minco Silver Corporation and one company with two common directors.Esperanza Silver Corporation.c)During the year ended December 31, 2003, the company settled a receivable with the receipt of shares valued at $50,000 from a company related by common management. During the year ended December 31, 2002, the company settled mineral property payables of $3,026,000 with the issuance of 525,995 shares to a company with a director in common.INCOME TAXES12Income taxes 2003 2002 2001 Statutory tax rate 37.6% 39.6% 45% $ $ $ Loss for the year (3,938) (2,198) (3,377) Provision for income taxes based on statutory rates (1,480) (870) (1,520) Differences in foreign tax rates (8) 11 (1) Losses for which an income tax benefit has not been recognized and other 1,488 859 1,521 - - - 2003
$2002
$ Long-term future tax assets Capital and non-capital loss carry-forwards 7,527 7,329 Fixed assets and resource properties 6,524 5,497 Share issuance costs 183 362 Total future tax assets 14,234 13,188 Valuation allowance for future tax assets (14,234) (13,188) Net future tax assets -- -- F-252003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)c)As ofc) 2003, the company has approximately $13,979,000 inthe following operating losses, $6,041,000 in capital losses, and $9,994,000 in accumulated Canadian and foreign exploration and development expenditures available to reduce future taxable income. The potential benefit of these losses has not been reflected in these consolidated financial statements. The operating losses expire as follows:losses:$ 2004 323 2005 3,426 2006 2,427 2007 1,615 2008 1,702 2009 2,291 2010 2,195 13,979 Subject to certain restrictions, the company also has exploration and development expenditures available to reduce future taxable income in Australia, Argentina, Bolivia, Chile, Mexico, the United States and Peru. Future tax benefits that may arise as a result of these expenditures have not been recognized in these consolidated financial statements.13ReclamationDuring the year ended December 31, 2003, the company incurred $507,000 (2002 — $420,000; 2001 — $201,000) in on-going environmental and reclamation costs and changes in the provision for reclamation.At December 31, 2003, $1,291,000 (2002 — $843,000; 2001 — $503,000) has been recorded by the company as a provision for future reclamation expenses for its various properties, of which $248,000 is considered current.The company’s asset retirement obligations relate to site restoration and clean-up costs of its various mineral properties. The three properties that comprise the majority of the obligations are the Duthie, Silver Standard Mine and Silvertip properties, all located in British Columbia, Canada.On January 1, 2003, the company adopted the new standard of accounting for asset retirement obligations which harmonizes with U.S. GAAP. The new standard requires the recognition of a liability for obligations associated with the retirement of fixed assets when the liability is incurred. A liability is recognized initially at fair value if a reasonable estimate of the fair value can be made and the resulting amount would be capitalized as part of the asset. The liability is accreted over time through periodic charges to earnings or mineral property costs. In subsequent periods, the company adjusts the carrying amounts of the asset and the liability for changes in estimates of the amount or timing of underlying future cash flows.F-262003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)There has been no restatement of amounts reported in prior financial statements, as the impact of adoption was considered to be immaterial. The cumulative effect of the change up to January 1, 2003, which was recorded in 2003, was to increase mineral property cost by $17,000 and reclamation expense by $21,000. A reconciliationThe company has one operating segment, which is the exploration and development of mineral properties. Mineral property expenditures by property are detailed in note 7. Substantially all of the provisioncompany’s losses for reclamation isthe years ended December 31, 2005, 2004 and 2003 were incurred in Canada. Segment assets by geographic location are as follows:$ Balance - Beginning of year843 Liabilities settled during the year(99) Accretion expense55 Revisions in estimated cash flows492 Balance - End of year1,291 2005 Argentina
$Australia
$Canada
$Chile
$Mexico
$Peru
$United
States
$Total
$ Property, plant and equipment 1,336 1 587 - 113 - - 2,037 Mineral property costs 102,947 21,607 6,994 5,740 15,452 4,671 14,114 171,525 104,283 21,608 7,581 5,740 15,565 4,671 14,114 173,562 The provision for reclamation is based on the following key assumptions:2004 Argentina
$Australia
$Canada
$Chile
$Mexico
$Peru
$United
States
$Total
$ Property, plant and equipment - 1 559 - 99 - - 659 Mineral property costs 94,362 21,414 6,938 4,948 8,085 1,526 13,259 150,532 94,362 21,415 7,497 4,948 8,184 1,526 13,259 151,191 o17total undiscounted cash flows of $2,021,000othe expected timing of payment of the cash flows ranging in the years 2004 to 2014oa credit adjusted risk free rate at which the estimated cash flows have been discounted of 10%.At December 31, 2003, the company has lodged $153,000 (2002 — $70,000; 2001 — $110,000) in security deposits with various government agencies in relation to its reclamation obligations. An additional US$1,679,435 in security is required to be lodged by April 1, 2004 relating to the Candelaria property (note 5(j)).14Supplementary cash flow informationa)Cash and cash equivalents at December 31 comprised the following: 2003
$2002
$2001
$ Cash on hand and balances held with banks 1,337 1,138 1,764 Short-term deposits 15,091 12,053 3,813 Short-term investments -- 4,151 -- 16,428 17,342 5,577 F-27Silver Standard Resources Inc.(an exploration stage company)Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001___________________________________________________________________________________________________________________________(all tabular amounts are expressed in thousands of Canadian dollars, unless otherwise stated)b)During the years ended December 31, 2003, 2002, and 2001, the company conducted non-cash financing and investing activities as set out below. Non-cash operating activities are not presented.COMMITMENTS 2003
$2002
$2001
$ Non-cash financing activities Shares issued for mineral property payables -- 3,280 -- Shares issued for mineral properties 612 1,258 2,882 Shares issued for convertible debentures -- 2,092 -- Shares issued in settlement of interest 75 -- -- Shares issued for donations -- 41 -- Value assigned to options issued to non-employees 169 161 -- Mineral property payable -- -- 3,326 Warrants issued for mineral properties -- -- 326 Shares issued for finders' fees -- 323 139 Finders' fees satisfied by issue of shares -- (323) (139) 856 6,832 6,534 Non-cash investing activities Reclamation capitalized to mineral properties (97) (242) -- Shares issued for mineral properties (612) (1,258) (2,882) Value assigned to convertible debenture on acquisition -- (2,035) -- Payable for mineral property -- (772) (3,326) Warrants issued for mineral properties -- -- (326) Other mineral property costs -- (291) -- Marketable securities received for mineral properties 53 -- -- Marketable securities received for accounts receivable 50 -- -- Option value assigned to mineral property (18) (29) -- Foreign exchange component included in reclamation (19) -- -- (643) (4,627) (6,534) c)Interest paid in the year was $nil. (2002 — $2,000; 2001 — $nil).a)F-28Silver Standard Resources Inc.(an exploration stage company)Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001___________________________________________________________________________________________________________________________(all tabular amounts are expressed in thousands of Canadian dollars, unless otherwise stated)15Segmented financial informationThe company has one operating segment, which is the exploration and future development of mineral properties. Mineral property expenditures by property are detailed in note 5. Segment assets by geographic location are as follows:2003 Argentina
$Australia
$Canada
$Chile
$Mexico
$United
States
$Total
$ Fixed assets -- 1 110 -- -- -- 111 Mineral property costs 24,680 16,971 6,871 4,451 2,717 10,801 66,491 24,680 16,972 6,981 4,451 2,717 10,801 66,602 2002 Argentina
$Australia
$Canada
$Chile
$Mexico
$United
States
$Total
$ Fixed assets -- 1 83 -- -- -- 84 Mineral property costs 22,944 15,439 5,587 1,840 1,515 8,905 56,230 22,944 15,440 5,670 1,840 1,515 8,905 56,314 16Commitmentsa)space.space in Vancouver and for the rental of two pieces of underground equipment at the Pirquitas property in Argentina. The future minimum lease payments are $116,000 required in each of the next four years and $29,000 in year five.as follows:5.7.17Fair value of financial instrumentsThe estimated fair values of cash and cash equivalents, accounts receivable, reclamation deposits, and accounts payable and accrued liabilities approximate book values due to the short-term nature of these instruments. The company estimates the fair value of long-term debt to approximate carrying value. The fair value of marketable securities is disclosed in note 4.F-292003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)Material differences between Canadian and United States generally accepted accounting principles (GAAP)FINANCIAL INSTRUMENTS(U.S.and requirements promulgated by the Securities and Exchange Commission (collectively U.S. GAAP). The major measurement differences between Canadian and U.S. GAAP and their effect on the consolidated financial statements are summarized below:deferred (note 2).deferred. Under U.S. GAAP, development and exploration costs are those incurred prior to having prepared a final feasibility study establishing the presence of proven and probable reserves and are expensed as incurred. When proven and probable reserves are determined for a property and a final feasibility study prepared, then any subsequent exploration and development costs of the property would be capitalized. Once in production, any subsequent development costs would be treated as production costs charged to production. The company currently has no defined proven and probable reserves and no producing properties. The capitalized costs of such properties would then be measured periodically for recoverability of carrying values under Statement of Financial Accounting Standards (SFAS) No. 144. Based on this guidance, for USFor U.S. GAAP purposes, the company has written offwritten-off mineral exploration and acquisitiondevelopment costs in the year incurred, (note (f)).including amounts relating to future income tax liabilities that were capitalized under Canadian GAAP.adjustment made for unrealized gains. The $100,000 write-off of Other Assets relates to the write-off of the Sandy K. Mines Ltd. investment at the time of acquisition (note (f)).similar requirement.atsurrounding the date the business combination agreement is agreed to and announced.iv)Under Canadian GAAP, the company includes in cash equivalents, short-term investments with an initial maturity of over 90 days that are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value. For U.S. GAAP purposes, these investments would not be included in cash and cash equivalents. At December 31, 2003, short-term investments of $nil (2002 — $4,151,000) would be excluded from cash equivalents for U.S. GAAP.iv)F-30Silver Standard Resources Inc.(an exploration stage company)Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001___________________________________________________________________________________________________________________________(all tabular amounts are expressed in thousands of Canadian dollars, unless otherwise stated)v)PirquitasManantial Espejo and Manantial EspejoSan Luis mineral properties (note 5)7).b)Consolidated summarized balance sheetsv)2003 2002 CDN
GAAP
$Adjustments
$U.S.
GAAP
$CDN
GAAP
$Adjustments
$U.S.
GAAP
$
(Restated - f) Assets Current assets (ii) 18,458 8,271 26,729 18,264 1,045 19,309 Mineral property costs (i) and (iii) 66,491 (66,491) -- 56,230 (56,230) -- Other assets (ii) 264 -- 264 254 (100) 154 85,213 (58,220) 26,993 74,748 (55,285) 19,463 Liabilities Current liabilities 1,565 -- 1,565 1,834 -- 1,834 Other liabilities 1,118 -- 1,118 950 -- 950 2,683 -- 2,683 2,784 -- 2,784 Shareholders' Equity Capital stock (iii) 113,537 169 113,706 99,510 169 99,679 Share subscriptions 455 -- 455 -- -- -- Stock options 170 -- 170 148 -- 148 Other comprehensive loss/gain -- 8,271 8,271 -- 1,045 1,045 Deficit (i) (ii) and (iii) (31,632) (66,660) (98,292) (27,694) (56,499) (84,193) 82,530 (58,220) 24,310 71,964 (55,285) 16,679 85,213 (58,220) 26,993 74,748 (55,285) 19,463 F-312003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)c)statements of loss and deficitsummarized balance sheets: 2005 2004 Canadian
GAAP
$Adjustments U.S.
GAAP
$Canadian
GAAP
$Adjustments U.S.
GAAP
$ Assets Current assets (a)ii) 43,844 10,102 53,946 63,768 2,793 66,561 Mineral property costs (a)i) and (a)iii) 171,525 (171,525) - 150,532 (150,532) - Other assets 3,919 - 3,919 3,157 - 3,157 219,288 (161,423) 57,865 217,457 (147,739) 69,718 Liabilities Current liabilities 3,500 - 3,500 2,186 - 2,186 Other liabilities 22,598 (21,839) 759 22,245 (21,557) 688 26,098 (21,839) 4,259 24,431 (21,557) 2,874 Shareholders' Equity Share capital (a)iii) 219,971 (1,198) 218,773 217,502 (627) 216,875 Stock options (a)v) 9,778 (5,459) 4,319 6,167 (6,030) 137 Warrants 6,965 - 6,965 7,011 - 7,011 Accumulated other comprehensive income (a)ii) - 10,102 10,102 - 2,793 2,793 Deficit (a)i) and (a)iii) (43,524) (143,029) (186,553) (37,654) (122,318) (159,972) 193,190 (139,584) 53,606 193,026 (126,182) 66,844 219,288 (161,423) 57,865 217,457 (147,739) 69,718 2003
$2002
$
(Restated - f)2001
$
(Restated - f) Loss in accordance with Canadian GAAP 3,938 2,198 3,377 Mineral property costs for the year (i) 10,261 17,147 13,675 Mineral property costs written off during the year (i) -- (53) (1,744) Other (100) (10) 9 Loss in accordance with U.S. GAAP 14,099 19,282 15,317 Unrealized gain on available-for-sale securities (ii) (7,226) (1,045) -- Comprehensive loss 6,873 18,237 15,317 Basic and diluted loss per share 0.35 0.54 0.58 d)Consolidated statements of cash flows2003
$2002
$
(Restated - f)2001
$
(Restated - f) Cash flows from operating activities Per Canadian GAAP (3,095) (2,250) (1,646) Mineral property costs (i) (9,587) (7,963) (4,591) Per U.S. GAAP (12,682) (10,213) (6,237) Cash flows from investing activities Per Canadian GAAP (10,768) (12,255) (7,212) Mineral property costs (i) 9,587 7,963 4,591 Per U.S. GAAP (1,181) (4,292) (2,621) e)Impact of Recently Issued Accounting StandardsIn April 2003, FASB issued Statement No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149) which is primarily effective for contracts entered into or modified after June 30, 2003. The statement amends Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) for certain decisions made by the FASB as part of the Derivatives Implementation Group process and incorporates clarifications of the definition of a derivative. Adoption of SFAS No. 149 will not impact the company’s financial position and results of operations.F-322003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated)In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). This statement establishes standards for how an issuer should classify and measure certain financial instruments having characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain cases). Prior to the issuance of SFAS 150 many issuers classified such instruments as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have any impact on the company’s Consolidated Financial Statements because the company does not have any financial instruments with characteristics of both liabilities and equity.The Canadian Institute of Chartered Accountants (CICA) has issued amendments to Section 3870 — “Stock-based Compensation and Other Stock-based Payments”, which require an expense to be recognized in financial statements for all forms of employee stock-based compensation, including stock options. The company will be required to adopt the standard on January 1, 2004, which will result in compensation expense on stock options granted to directors and employees, previously only disclosed on a pro forma basis, to be charged to earnings.The CICA has issued Accounting Guideline 13 — “Hedging Relationships” which establishes certain conditions regarding when hedge accounting may be applied which is effective for the company’s fiscal year beginning January 1, 2004. The company does not expect the adoption of this guideline to have a material impact on the company’s financial position or results.The CICA has issued Accounting Guideline 15, “Consolidation of Variable Interest Entities,” which will be effective for annual and interim periods beginning on or after January 1, 2004. This Guideline addresses the application of consolidation principles to entities that are subject to control on a basis other than ownership of voting interests. The company does not expect the adoption of this Guideline to have a material impact on the company’s financial position or results of operations.f)Restatementc) 2005
$ 2004
$ 2003
$ Loss in accordance with Canadian GAAP (5,870) (1,518) (3,938) Mineral property costs for the year (a)i) (21,083) (62,484) (10,261) Mineral property costs written-off during the year (a)i) 372 - - Stock-based compensation (a)v) - 2,398 - Other - (76) 100 Loss in accordance with U.S. GAAP (26,581) (61,680) (14,099) Other comprehensive income (a(ii) Unrealized gain (loss) on available-for-sale securities (a)ii) 9,583 (2,955) 7,125 Reclassification adjustments for realized (gain) loss on available-for-sale securities (2,274) (2,525) 101 Total comprehensive loss in accordance with U.S. GAAP (19,272) (67,160) (6,873) Basic and diluted loss per share in accordance with U.S. GAAP (0.51) (1.28) (0.35) The company has restated the U.S. GAAP information to write off capitalized mineral property acquisition costs, the recoverywhich cannot be supported under SFAS 144 (a)(i), and the investment (a)(ii). The effect of the restatement was to increase the U.S. GAAP loss for the year ended December 31, 2002 from $8,759,000 to $19,282,000 (2001: from $5,526,000 to $15,317,000; and 2000: from $4,211,000 to $5,777,000) and to increase the U.S. GAAP loss per share for the year ended December 31, 2002 from $0.25 to $0.51 (2001: from $0.21 to $0.58; and 2000: from $0.19 to $0.26). The effect of the restatement was also to reduce the U.S. GAAP shareholders’ equity as at December 31, 2002 from $53,681,000 to $16,679,000 (2001: from $32,642,000 to $6,163,000).cash flows: 2005
$ 2004
$ 2003
$ Cash flows from operating activities Pursuant to Canadian GAAP (2,951) (2,506) (3,529) Mineral property costs (a)i) (20,933) (12,796) (9,833) Pursuant to U.S. GAAP (23,884) (15,302) (13,362) Cash flows from investing activities Pursuant to Canadian GAAP (21,517) (27,625) (11,015) Mineral property costs (a)i) 20,933 12,796 9,833 Pursuant to U.S. GAAP (584) (14,829) (1,182) 2003, 20022005, 2004 and 2001___________________________________________________________________________________________________________________________2003all tabular amounts are expressed in thousands of Canadian dollars unless otherwise stated) Common Shares
________________________________________ Issue Price
$Number of
shares
$Amount
$Values
asigned
to options
$Values
asigned
to warrants
$Comprehensive
income
(loss)
$Retained
earnings
(deficit)
$Total
shareholders'
equity
$ Balance - October 1, 1993 3,409,791 2,272 - - - 976 3,248 Issued for cash 0.75 2,810,000 2,108 - - - - 2,108 For mineral properties 0.72 25,000 18 - - - - 18 Assigned value to options issued - 312 - - - - 312 Gain (loss) for year - - - - 2,102 155 2,257 Balance - September 30, 1994 6,244,791 4,710 - - 2,102 1,131 7,943 Issued for cash - Private placement 1.01 2,570,000 2,590 - - - - 2,590 Non-cash - Mineral properties 4.13 15,000 62 - - - - 62 - Allotted shares issued 4.08 75,000 306 - - - - 306 - Assigned values to options issued - 18 - - - - 18 Gain (loss) for year - - - - (1,046) (2,459) (3,505) Balance - September 30, 1995 8,904,791 7,686 - - 1,056 (1,328) 7,414 Issued for cash - Private placement 4.27 2,550,000 10,890 - - - - 10,890 - Special warrants 4.00 2,000,000 8,000 - - - - 8,000 Non-cash - Mineral properties 5.21 85,000 443 - - - - 443 - Finder's fees - (554) - - - - (554) - Assigned values to options issued - 17 - - - - 17 Gain (loss) for year - - - - (58) (8,874) (8,932) Balance December 31, 1996 13,539,791 26,482 - - 998 (10,202) 17,278 Issued for cash - Private placement 5.00 680,000 3,400 - - - - 3,400 - Exercise of options 5.72 25,000 143 - - - - 143 - For special warrants 4.30 745,000 3,203 - - - - 3,203 Non-cash - Mineral properties 4.95 311,006 1,541 - - - - 1,541 - Finder's fees 5.00 20,000 100 - - - - 100 - Assigned values to options issued - 810 - - - - 810 - Share issue costs - (317) - - - - (317) Gain (loss) for year - - - - (537) (18,557) (19,094) Balance December 31, 1997 15,320,797 35,362 - - 461 (28,759) 7,064 Issued for cash - Exercise of options 5.70 10,000 57 - - - - 57 - For special warrants 5.50 630,000 3,465 - - - - 3,465 Non-cash - Mineral properties 3.84 85,000 326 - - - - 326 - Assigned values to options issued - 155 - - - - 155 - Share issue costs - (285) - - - - (285) Gain (loss) for year - - - - (454) (6,386) (6,840) Balance December 31, 1998 16,045,797 39,080 - - 7 (35,145) 3,942 Common Shares
________________________________________ Issue Price
$Number of
shares
$Amount
$Values
asigned
to options
$Values
asigned
to warrants
$Comprehensive
income
(loss)
$Retained
earnings
(deficit)
$Total
shareholders'
equity
$ - Exercise of options 1.75 100,700 176 - - - - 176 - Exercise of warrants 1.93 567,955 1,096 - - - - 1,096 Non-cash - Mineral properties 2.20 50,000 (1,033) - - - - (1,033) - On business combination 1.75 2,285,451 5,142 - - - - 5,142 - Share issue costs - (116) - - - - - (116) Gain (loss) for year - - - - 8 (8,672) (8,664) Balance - December 31, 1999 20,438,047 46,289 - - 15 (43,817) 2,487 Issued for cash - Private placement 1.50 1,633,334 2,450 - - - - 2,450 - Exercise of options 1.75 807,100 1,413 - - - - 1,413 - Exercise of warrants 1.60 1,273,859 2,038 - - - - 2,038 Non-cash - Mineral properties 2.22 27,500 61 - - - - 61 - Finder’s fees 1.50 86,666 130 - - - - 130 - Fractional shares repurchased (48) - - - - - - - Share issue costs - (134) - - - - (134) Gain (loss) for year - - - - (13) (5,777) (5,790) Balance - December 31, 2000 24,266,458 52,247 - - 2 (49,594) 2,655 Issued for cash - Private placement 2.35 1,914,000 4,495 - - - - 4,495 - Exercise of options 2.05 1,941,225 3,976 - - - - 3,976 - Exercise of warrants 1.56 1,733,000 2,703 - - - - 2,703 Non-cash - Mineral properties 2.88 1,000,000 2,882 - - - - 2,882 - Finder's fees 2.35 59,270 139 - - - - 139 - Assigned value to warrants issued - - - 326 - - 326 - Share issue costs - (165) - - - - (165) Gain (loss) for year - - - - - (15,317) (15,317) Balance - December 31, 2001 30,913,953 66,277 - 326 2 (64,911) 1,694 Issued for cash - Private placement 4.21 4,750,000 19,979 - - - - 19,979 - Exercise of options 2.63 695,734 1,827 - - - - 1,827 - Exercise of warrants 3.10 1,584,301 4,919 - - - - 4,919 Non-cash - Mineral properties 6.33 198,706 1,258 - - - - 1,258 - Finder’s fees 4.01 80,640 323 - - - - 323 - On conversion of conv. debenture 4.80 360,636 2,092 - - - - 2,092 - For mineral properties payable 5.49 596,917 3,280 - - - - 3,280 - Assigned values to options issued - - 161 - - - 161 - Assigned value of exercised options/warrants - 339 (13) (326) - - - - Donations 4.10 10,000 41 - - - - 41 - Share issue costs - (656) - - - - (656) Gain (loss) for year - - - - 1,045 (19,282) (18,237) Balance - December 31, 2002 39,190,887 99,679 148 - 1,047 (84,193) 16,681 Common Shares
________________________________________ Issue Price
$Number of
shares
$Amount
$Values
asigned
to options
$Values
asigned
to warrants
$Comprehensive
income
(loss)
$Retained
earnings
(deficit)
$Total
shareholders'
equity
$ Issued for cash - Exercise of options 3.99 536,372 2,140 - - - - 2,140 - Exercise of warrants 3.99 2,779,589 11,089 - - - - 11,089 - Subscriptions received on warrants - 455 - - - - 455 Non-cash - Mineral properties 6.95 88,004 612 - - - - 612 - On settlement of interest 7.52 9,980 75 - - - - 75 - Assigned values to options issued - - 187 - - - 187 - Assigned value of exercised options - 165 (165) - - - - - Share issue costs - (54) - - - - (54) Gain (loss) for year - - - - 7,226 (14,099) (6,873) Balance - December 31, 2003 42,604,832 114,161 170 - 8,273 (98,292) 24,312 Issued for cash - Private placement 12.57 2,955,000 37,132 - 6,819 - - 43,951 - Exercise of options 5.64 525,700 2,963 - - - - 2,963 - Exercise of warrants 5.00 2,686,620 13,420 - - - - 13,420 Non-cash - Mineral properties 18.71 2,680,500 50,165 - - - - 50,165 - Finder’s fees 12.58 31,250 393 - 192 - - 585 - Assigned values to options issued - - 53 - - - 53 - Assigned value of exercised options - 154 (86) - - - 68 - shares issued on warrant subscriptions 4.90 92,900 - - - - - - - Share issue costs - (1,513) - - - - (1,513) Gain (loss) for year - - - - - (61,680) (61,680) Adjustment for stock-based comp - - - - (5,480) (5,480) Balance - December 31, 2004 51,576,802 216,875 137 7,011 2,793 (159,972) 66,844 Issued for cash - Exercise of options 6.21 259,269 1,610 - - - - 1,610 - Exercise of warrants 18.50 10,000 185 - - - - 185 Non-cash - Mineral properties 14.20 3,170 45 - - - - 45 - Assigned values to options issued - - 4,194 - - - 4,194 - Assigned value of exercised options - 12 (12) - - - - - Assigned value of exercised warrants - 46 - (46) - - - Gain (loss) for year - - - - 7,309 (26,581) (19,272) Balance - December 31, 2005 51,849,241 218,773 4,319 6,965 10,102 (186,553) 53,606 19Subsequent eventIn midthe company closed a private placement of 2,955,000 unitsfinancing, 1,519,125 warrants were issued and 1,509,125 remained unexercised at a price of $14.80 per unit for gross proceeds of $43,734,000.December 31, 2005. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant iswas exercisable onupon payment of $18.50 into one common share until January 15, 2006. In January 2006, 1,386,625 warrants were exercised for cash proceeds of $25,653,000, resulting in 1,386,625 common shares of the company being issued. The remaining 122,500 warrants expired.periodvalue of two years. Finders’ feesUS$46.3 million as of 5% in units, 5% in both cash and warrants (each whole warrant entitlingMarch 21, 2006. Under the holder to acquire one common share for a period of two years at a price of $18.50) and 4.25% in cash are payable on various portionsterms of the placement.agreement, if Pan American sells all or a portion of the Manantial Espejo property at anytime over the next three years, Silver Standard will receive 50% of the sale proceeds, after deducting Pan American’s acquisition and other project costs. The agreement is subject to regulatory approval and is expected to close on April 10, 2006.F-34Silver Standard Resources Inc.__________________________________
(Company)
By: /s/ Robert A. Quartermain
Robert A. Quartermain, President & DirectorBy:/s/ Robert A. Quartermain________________________________Robert A. Quartermain, President & DirectorDate:May 20, 2004- 103 -15d-15(e))Exchange Commission entitled "Management's Reports on Internal Control over Financial Reporting and internal control over financial reporting (as definedCertification of Disclosure in Exchange Act Rules 13a-15(f) and 15d-15(f))Periodic Reports"] for the company and have:(a)(b)Designed such internal control(b)financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliabilityFinancial Reporting and Certification of financial reporting and the preparation of financial statements for external purposesDisclosure in accordance with generally accepted accounting principles;Exchange Act Periodic Reports"];(c)(d)(a)(b)May 20, 2004 March 29, 2006 /s/ Robert A. Quartermain
____________________________
Robert A. Quartermain
President- 104/105 -15d-15(e))Exchange Commission entitled "Management's Reports on Internal Control over Financial Reporting and internal control over financial reporting (as definedCertification of Disclosure in Exchange Act Rules 13a-15(f) and 15d-15(f))Periodic Reports"] for the company and have:(a)(b)Designed such internal control(b)financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliabilityFinancial Reporting and Certification of financial reporting and the preparation of financial statements for external purposesDisclosure in accordance with generally accepted accounting principles;Exchange Act Periodic Reports"];(c)(d)(a)(b)May 20, 2004 March 29, 2006 /s/ Ross A. Mitchell
____________________________
Ross A. Mitchell
Vice President, Finance- 106/107 -2003,2005, as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"“Annual Report”), I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:May 20, 2004March 29, 2006“/s/ Robert A. Quartermain”Quartermain
____________________________
Robert A. Quartermain
President- 108 -2003,2005, as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"“Annual Report”), I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:May 20, 2004March 29, 2006“/s/ Ross A. Mitchell”Mitchell
____________________________
Ross A. Mitchell
Vice President, Finance- 109 -