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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 20-F
(Mark One)
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR | |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2002 |
OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________ |
Commission file number: 0-26424 | |
SILVER STANDARD RESOURCES INC. | |
___________________________________________________________________________ (Exact name of Registrant as specified in its charter) | |
British Columbia, Canada | |
___________________________________________________________________________ (Jurisdiction of incorporation or organization) | |
Suite 1180 - 999 West Hastings Street, Vancouver, British Columbia, Canada V6C 2W2 | |
___________________________________________________________________________ (Address of principal executive offices) | |
Securities registered or to be registered pursuant to Section 12(b) of the Act. | |
Title of each class None____________________________________ ____________________________________ | Name of each exchange on which registered
____________________________________ |
Securities registered or to be registered pursuant to Section 12(g) of the Act. | |
Common Stock without par value | |
___________________________________________________________________________ (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. | |
39,190,887 | |
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 which financial statement item the registrant has elected to follow. | |
þ Item 17 Item 18 | |
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EXPLANATORY NOTE REGARDING AMENDED FORM 20-F
This amendment No. 1 to Form 20-F for the year ended December 31, 2002 has been filed to amend, among other things, the following disclosure in our annual report on Form 20-F for the fiscal year ended December 31, 2002, which was filed on May 23, 2003, pursuant to comments we received from the Staff of the U.S. Securities and Exchange Commission ("SEC"):
o | our disclosure under Item 3.A. Selected Financial Data to reflect the restatement of the US GAAP information, to write off capitalized mineral property acquisition costs, as set out in Note 19 of our audited consolidated financial statements and notes thereto for the fiscal years ended December 31, 2002, 2001 and 2000 together with the report of the auditors thereon contained in Item 17; |
o | our disclosure under Item 3.D. Risk Factors to simplify the description of the risks associated with the nature of our business operations; and |
o | our disclosure under Item 4, Information on the Company to conform to the SEC's requirements for disclosure in respect of mineral resource properties. |
This amendment no. 1 on Form 20-F does not reflect events occurring after the filing of the original Form 20-F and does not modify or update the disclosure therein in any way other than as required to reflect the amendments discussed above and certain other minor underlined amendments.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements concerningour operations and planned future acquisitions. 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 inits market.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 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, the failure to obtain adequate financing on a timely basis and other risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements as a result of the matters setout 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” and “the Company” refer to Silver Standard Resources Inc., a company incorporated under theCompany Act(British Columbia), and its subsidiaries.
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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 mineralizationthat delimits mineralization that has a reasonable prospect of economic extraction from mineralization that does not have a reasonable prospect of economic extraction.
dike —a tabular body of igneous rock that cuts across the structure of adjacent rocks or cuts massive rocks.
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.
fault — a fracture in a rock where there has been displacement of the two sides.
feasibility studymeans a detailed studyof 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.
igneous — means a rock formed by the cooling of molten silicate material.
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IndicatedMineral 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.
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.
InferredMineral 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.
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.
MeasuredMineral Resource — is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, 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.
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.
Mineral Resource — is a concentration or occurrence of natural, solid, inorganic or fossilized organic material 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.
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mineralization — usually implies minerals of value occurring in rocks.
net profits interest —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 of royalty provides 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.
oz/ton — ounces per ton.
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 include a financial analysis based on reasonable assumptions of technical, engineering, operating, and economic factors and evaluation of other relevant factors which are sufficient for a qualified 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.
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 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. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on August 20, 2000.
Proven Mineral Reserve — is the economically mineable part of a Measured 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 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.
reclamation bond –a financial instrument or cash usually required when mechanized work is contemplatedon a mineral claim. The bond may be used to reclaim any workings or put right any damage, ifthe reclamationof 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 — a fine-grained variety of mica occurring in small scales, especially in schists.
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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.
tailings — material rejected from a mill after recoverable valuable minerals have been extracted.
tailings pond — a pondin 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 Reportconforms to the standards of United States Securities & 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 withCanadian National Instrument 43-101 under the guidelines set out in the CIM Standards.
In this Annual Report references to “CanadianNational Instrument 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” 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, 2000 as may be amended from time to time by the CIM.
Cautionary Note to U.S. Investors concerning estimates of MeasuredMineral Resources and IndicatedMineral Resources. |
This Annual Report uses the terms “Measured Mineral Resource” and “IndicatedMineral 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 theMineralResources in these categories will ever be converted intoMineral Reserves. |
Cautionary Note to U.S. Investors concerning estimates of InferredMineral Resources. |
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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. “InferredMineral 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 InferredMineral 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 anInferredMineral Resource exists, or is economically or legally mineable. |
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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. Advisors
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 statementsincluded 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 Dec 31, 2002 | Year ended Dec 31, 2001 | Year ended Dec 31, 2000 | Year ended Dec 31, 1999 | Year ended Dec 31, 1998 | ||
---|---|---|---|---|---|---|
1. | Revenues | Nil | Nil | Nil | $Nil | $30 |
2. | Loss for period* | $2,198 | $3,377 | $1,705 | $1,264 | $11,722 |
3. | Loss per common share* | $0.06 | $0.13 | $0.08 | $0.07 | $0.74 |
4. | Total assets | $74,748 | $45,399 | $31,070 | $26,655 | $20,170 |
5. | Long term obligations and redeemable preferred stock** | $249 | $143 | $165 | Nil | Nil |
6. | Capital stock | $99,510 | $66,108 | $52,078 | $46,120 | $37,768 |
7. | Cash dividends per common share | Nil | Nil | Nil | Nil | Nil |
8. | Number of shares | $39,190,887 | $30,913,953 | $24,266,458 | $20,438,047 | $16,045,797 |
* Allof our operations are continuing.
** No preferred stock has been issued
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The selected financial data is presentedin Table 1 aboveand 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 and number of shares data)
Year ended Dec 31, 2002 restated | Year ended Dec 31, 2001 restated | Year ended Dec 31, 2000 restated | Year ended Dec 31, 1999 restated | Year ended Dec 31, 1998 restated | ||
---|---|---|---|---|---|---|
1. | Revenues | Nil | Nil | Nil | Nil | $30 |
2. | Loss for period* | $19,282 | $15,317 | $5,777 | $8,672 | $6,386 |
3 | Loss per common share* | $0.54 | $0.58 | $0.26 | $0.49 | $0.40 |
4 | Total assets | $19,463 | $6,163 | $3,765 | $3,434 | $3,206 |
5. | Long term obligations and redeemable preferred stock** | $249 | $143 | $165 | Nil | Nil |
6. | Capital stock | $99,827 | $66,603 | $52,247 | $46,289 | $39,080 |
7. | Cash dividends per common share | Nil | Nil | Nil | Nil | Nil |
8. | Number of shares | $39,190,887 | $30,913,953 | $24,266,458 | $20,438,047 | $16,045,797 |
* Allof our operations are continuing.
** No preferred stock has been issued
Reference should be made to note 19 to the consolidated financial statements for a description of material differences between Canadian and U.S. GAAP.
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U.S./Canadian Dollar Exchange Rates
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars (Cdn$). The Government of Canada permits a floating exchange rate to determine the value of the Canadian dollar against the U.S. dollar (US$).
Table No. 3 below sets out the rate of exchange for the Canadian dollar at December 31, 2002, December 31, 2001, December 31, 2000, December 31, 1999and December 31, 1998, 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 setout 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 | |
Fiscal Year Ended December 31, 2002 | 1.57 | 1.61 | 1.51 | 1.58 |
Fiscal Year Ended December 31, 2001 | 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 |
Fiscal Year Ended December 31, 1998 | 1.48 | 1.57 | 1.42 | 1.53 |
Table No. 4
U.S. Dollar/Canadian Dollar Exchange Rates for Previous Six Months
November | December | January | February | March | April | |
High | 1.59 | 1.58 | 1.57 | 1.53 | 1.49 | 1.48 |
Low | 1.55 | 1.55 | 1.52 | 1.49 | 1.47 | 1.43 |
On April 30, 2003, 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$1.00 equals Cdn$1.43.
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
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 whether 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, do not generate operating revenue, and must finance our exploration activity by other means. We do not know whether 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.
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:
o | market fluctuations for precious metals; |
o | the proximity and capacity of natural resource markets and processing equipment; and |
o | 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. If our exploration programs successfully locate an economic ore body, we will be subject to additional risks associated with mining:
o | We will require additional funds to place the ore body into commercial production. Substantial expenditures will be required to: |
o | establish ore reserves through drilling; | |
o | develop metallurgical processes to extract the metals from the ore; and | |
o | construct the mining and processing facilities at any site chosen for mining. |
We do not know whether additional financing will be available at all or on acceptable terms. If additional financing is not available, we may have to postpone the development of, or sell, the property. |
o | The majority of our property interests are not located in developed areas andas a result may not be served by appropriate: |
o | road access; |
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o | water and power supply; and | |
o | other support infrastructure. |
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. |
o | In making determinations about whether to proceed to the next stage of development, we must rely upon estimated calculations as to themineral 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. Any material changes inmineral 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. |
o | Mining operations often encounter unpredictable risks and hazards that add expense or cause delay. These include: |
o | unusual or unexpected geological formations; | |
o | power outages; | |
o | labour disruptions; | |
o | flooding, explosions, rockbursts, cave-ins, landslides, and; | |
o | inability to obtain suitable or adequate machinery, equipment or labour. |
o | We may become subject to liabilities in connection with: |
o | pollution; | |
o | cave-ins; or | |
o | hazards against which we cannot insure against or which may elect not to insure. |
The payment of these liabilities could require the use of financial resources that would otherwise be spent onmining operations. |
o | Mining operations and exploration activities are subject to national and local laws and regulations governing: |
o | prospecting, development, mining and production; | |
o | exports and taxes; | |
o | labour standards, occupational health and mine safety; | |
o | 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. |
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o | Our profitability and long-term viability will depend, in large part, on the market price of silver, gold, zinc and lead. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including: |
o | global or regional consumption patterns; | |
o | supply of, and demand for, silver, gold, zinc and lead; | |
o | speculative activities; | |
o | expectations for inflation; and | |
o | political and economic conditions. |
We cannot predict the effect of these factors on metals prices. |
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. A successful claim contesting our title to a property will cause us to lose our rights toexplore 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:
o | control dispersion of potentially deleterious effluents; and | |
o | 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 casein certain other countries, provinces and states. Our mineral exploration activities could be adversely affected by:
o | political instability and violence; | |
o | war and civil disturbance; | |
o | expropriation or nationalization; | |
o | changing fiscal regimes; | |
o | fluctuations in currency exchange rates; | |
o | high rates of inflation; | |
o | underdeveloped industrial and economic infrastructure; and | |
o | unenforceability of contractual rights; |
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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 accounts 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 ofexploration properties and the recruitment and retention of qualified personnel.
We compete with otherexploration 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. 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.
Someof 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), Western Silver Corporation (formerly Western Copper Holdings Ltd.), Vista Gold Corporation, Paso Rico Resources Ltd. and Reliant Ventures Ltd. These associations give rise to conflicts of interest from time to time.In particular, our directors who also serve as directors of other companies in the same industry may be presented with business opportunities which are made available to such competing companies and not to us.
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. 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 suchUnited States’ securities laws.
Item 4 Information on the Company
A. History and Development of the Company
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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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 January 2002, we acquired from Gold-Ore Resources Ltd. an option to acquire up to a 100% interest in Gold-Ore’s option to acquire the San Marcial property located in Sinaloa State, Mexico. See Item 4.B — “Business Overview”.
On February 4, 2002, the Nevada Secretary of State accepted a filing document that effectedour acquisition of the remaining 9.44% outstanding minority stockholdings in Rio Grande Mining Company, the holder of the Shafter Silver Project located in Texas. See Item 4.B — “Business Overview”.
In March 2002, we acquired all of Black Hawk’s interest in the Manantial Espejo Project and sold a 50% interest in the Manantial Espejo Project to Pan American Silver Corp. See Item 4.B — “Business Overview”.
In March 2002, we also acquired from Repadre Capital Corporation all of its interest in a net smelter returns royalty granted by Minera Triton Argentina S.A. in respect of production from the Manantial Espejo Project and subsequently agreed to sell 50% of such interest. See Item 4.B — “Business Overview”.
In June 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., the holder of the rights to the Pirquitas project located in Jujuy Province, Argentina. See Item 4.B — “Business Overview”.
In November 2002, we agreed to enter into an option agreement with Vista Gold Corporation (“Vista”), under which Vista will grant us an option to acquire all of the silver resources hosted in the Maverick Springs gold-silver prospect in northern Nevada. See Item 4.B — “Business Overview”.
In December 2002, we acquired from Imperial Metals Corporation a 100% interest in the Silvertip project located in northern British Columbia. 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, 2002, other than where a different date is specified.
B. Business Overview
All disclosure about our exploration properties in this Annual Report conforms to the standards of United States Securities & 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.
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We are engaged in the exploration of silver properties in Argentina, Australia, Canada, Chile, Mexico 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”.
We have four principal mineral property interests: (1) the Bowdens Silver Project in the Mudgee District of Australia, (2) a 50% interest in the Manantial Espejo Project in the Province of Santa Cruz, Argentina, (3) a 43.4% interest in the Pirquitas Project in the Province of Jujuy, Argentina and (4) the Shafter Silver Project in Texas, U.S.A.We also have five secondary properties: the Diablillos Project in Argentina, the Challacollo Silver Project in Chile,an option to acquire a 55% interest in the Maverick Springs Project in northern Nevada, U.S.A., the San Marcial Silver Project in Mexico and theSilvertip Property in northern British Columbia; and two long-term properties: the Candelaria Mine in west central Nevada, U.S.A. and the Sulphurets Project in British Columbia. We have several other property holdings in Mexico and Canada and a property holding in Bolivia which are not consideredprincipal, secondary or long-term properties.
Principal Properties
Bowdens Silver Project
We entered into an agreementon December 23, 1996with 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. Theacquisition of the shares of GSM Exploration was completed on August 22, 1997. At the time, the only asset ofGSM 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:
o | receive a payment of A$1,429,397 onGSM Exploration making a decision to mine in respect of the Bowdens Silver Project; |
o | reacquire up to a 51% interest in the Bowdens Silver Project in the event gold and silver resources are delineated on the Bowdens Silver Project in excess of A$800,000,000 or base metal resources are delineated on the Bowdens Silver Project in excess of A$3,000,000,000 within the six month period following the decision to mine; and |
o | reacquire a 100% interest in the Bowdens Silver Project at no cost in the eventGSM Exploration did not make a decision to mine in respect of the Bowdens Silver 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 toreacquire an interest in the Bowdens Silver Project in return for:
o | the issuance of 160,000of our common shares (which have since been issued); |
o | the payment of A$1,500,000 on the commencement of commercial production on the Bowdens Silver Project; and |
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o | the granting of a royalty of two percent of net smelter returns reducing to one percent 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 Silver Project:
o | 100% of the shares of GSM Exploration for a 100% interest in the Bowdens Silver Project; | |
o | subject to the rights of CRA Exploration to receive: |
o | payment of A$1,500,000 on the commencement of commercial production on the Bowdens Silver Project;and | |
o | a royalty of two percent of net smelter returns reducing to one percent of net smelter returns after the payment of US$5,000,000 in royalties. |
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 TritonMining. In order to exercise the option, wewere required to:
o | make staged cash option payments to TritonMining of US $1,536,500 (paid); and | |
o | 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 optionto acquire a 50% interest in Minera Triton:
o | 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. |
o | The remaining 20% of the shares of Altovalle were owned Barrick Exploraciones Argentinas S.A., a subsidiary of Barrick Gold Corporation, (“Barrick Gold”). |
Under the terms of theAltovalle shareholders’ agreement betweenMinera Triton and Barrick Gold, on completion of a feasibility study for the Manantial Espejo Project, BarrickGold was required to elect to either:
o | 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 |
o | 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. |
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:
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o | issuing to Barrick Gold 400,000 of our common shares valued at $920,000; |
o | 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; |
o | 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. |
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 fromTriton Mining an offer to sell to us all ofits 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 andentered into an agreement with Triton under which we agreed to purchase Triton Mining’s remaining interest in Altovalle and the Manantial Espejo Project for US $2,000,000,which at the time consisted of:
o | the ownership of a 10% interest in Altovalle for a 10% interest in the Manantial Espejo Project; and |
o | 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:
o | the ownership of a 50% interest in Minera Triton for a 40% interest in the Manantial Espejo Project; and |
o | 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 orcommon shares and the obligation tocontribute the first US $3,000,000towards mine construction once a production decisionis made for the Manantial Espejo Project. |
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On March 27, 2002, weconcurrently 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 theinterest 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 Americanfor the exploration and development of the Manantial Espejo Project. Under the terms of the joint venture agreement, wewill remain operator of the project until a decision is made to complete a feasibility study. Thereafter, Pan Americanwill 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 bythe two of us in proportion toour respective interests in the joint venture. |
On March 27, 2002, wealso acquired fromRepadre Capital all of Repadre Capital’s interest in the net smelter returns royalty granted to RepadreCapital 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. Wealso agreed to sell a 50% interest in the royaltywe acquired from Repadre Capital to Pan American for US $100,000. |
In November 2002, Pan American acquired from BarrickGold all ofBarrick 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. |
With the completion of the above described transactions, we currently have the following interest in the Manantial Espejo Project: |
o | the ownership of a 50% interest in Minera Triton for a 40% interest in the Manantial Espejo Project; and | |
o | the ownership of a 10% interest in Altovalle for a 10% interest in the Manantial Espejo Project; | |
o | subject to Barrick Gold’s right to: |
o | receive a payment of 60 cents (U.S.) per metric ton of ore mined from the Manantial Espejo Project and fed to process with a maximum of 1 million tons; and |
o | receive a 0.5% net smelter returns royalty derived from the production of minerals from the Manantial Espejo Project. |
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:
o | the payment at closing of US $3,000,000 in cash; and |
o | 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. |
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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. andThe Liverpool Limited Partnership. We are the operator of the PirquitasProject.
We currently own 434 of the shares of Sunshine Argentina, Inc. for a 43.4% interest in the Pirquitas Project.
Shafter Silver Project
On September 19, 2000we 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 effectedour acquisition of the remaining 9.44% outstanding minority stockholdings in Rio Grande. The cost of acquiring the minority stockholdingwas US$55,053and is to be paid out over time as shares are surrendered.
Prior to our acquisition Silver Assets, Inc. and Rio Grande, Rio Grande purchased all the “major” outstanding royalties on metal production from the Shafter Silver Project. Royalties remain payable on two portions of the land that make up the project: one is payable in respect of a narrow strip of land leased from the state that contains only a minor amount of Mineral Resource and the other royalty is payable on the Chavez-Miller portion of the property, covering an area of approximately 137.4 hectares, of 6.5% which is being reduced to 2%. When Rio Grande purchased the Shafter property, a 6.25 percent net smelter return royalty was payable to Cyprus Amax out of future mining revenues. Rio Grande purchased this royalty from Cyprus Amax for $50,000 cash and a $475,000 note. The note was reassigned to Silver Assets, Inc. (now our wholly-owned subsidiary) in exchange for Rio Grande stock and has now been paid out.
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 royalties.
Secondary Properties
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 property located in Salta Province, Argentina through the acquisition of all of the shares oftwo 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 $3,400,000 in staged payments of:
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o | US $1,000,000payable in cash on closing; | |
o | US $500,000 payablein cash on December 31, 2001; | |
o | US $500,000 payable in cash or our shares, at our election,on or before June 30, 2002; | |
o | US $500,000 payablein cash or our shares, at our election, on or before December 31, 2002; | |
o | US $500,000 payable in cash or our shares, at our election, on or before June 30,2003; and | |
o | US $400,000 payablein cash or our shares, at our election, on or before December 31, 2003. |
On December 14, 2001, we completed the acquisition of the Diablillos property and made the US $1,000,000 cash payment due on closing. On December 31, 2001, we paid the US $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 sharesin 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.
Challacollo Silver Project
Under the terms of anoption 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 thefollowing cash option payments totaling US $1,500,000 over two years:
o | US $20,000 due on signingthe 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. |
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:
o | we have an option to acquire a 100% interest in the Challacollo Silver Project: |
o | subject to: |
o | making all remaining option payments described above; |
o | a 2% production royalty capped at US $850,000; and |
o | 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. |
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Maverick Springs Project
On November 7, 2002, we entered into a letter agreement with Vista Gold Corporation (“Vista”) and Vista Nevada Corp. (“VNC”), a wholly-owned subsidiary of Vista, pursuant to which we agreed to enter into an option agreement to acquirea 55% interest in the Maverick Springs Project located in northern Nevada, representing all of the silver resourceshosted in the project, subject to underlying agreements and royalties described below. This option agreement is exercisable on:
o | payment of US $300,000 on execution of the option agreement; and |
o | incurring US $1,200,000 over four years to fund required exploration expenditures, land payments and option payments. |
Under an option agreement dated October 7, 2002 among Newmont Mining Corporationand Newmont Capital Limited (together, “Newmont”), Vista and VNC,Newmont granted Vista and VNCan 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:
o | payment of US $15,000 on October 1, 2002(paid); |
o | payment of US $50,000 on October 1, 2003; and |
o | payment of US $100,000 on each October 1st thereafter; and |
o | 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, and |
o | a net smelter returns royalty of 2.9% for all metals other than gold and silver; and |
o | completion of a minimum of 6,400 feet of exploration drilling in each of the first three years of the agreement. |
In orderfor Vista and VNC to exercise their optionfrom Newmont, they are required to:
o | pay Newmont US $250,000 in cash (paid); |
o | reimburse Newmont for 2003 federal maintenance fees of US $37,300 (paid); |
o | issueto 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); |
o | issue to Newmont, on the first anniversary of the 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); and |
o | grant to Newmont a 1½% net smelter returns royalty on production from the Maverick Springs Property. |
In addition, following the fourth anniversary of the agreement, Newmont may, on payment of 200% of expenditures, acquire a 51% interest in the Maverick Springs Project with expenditures by Vista, following the backin by Newmont, capped at US $2,000,000 until completion of a feasibility study for the project.
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We currentlyhave the following interest in the Maverick Springs Project:
o | we have an option to acquire up to a 55% interest in the Maverick Springs Project: | |
o | subject to: |
o | entering into a formal option agreement with Vista and VNC; | |
o | making all option payments and work commitments under the formal option agreement with Vista and VNC described above; | |
o | making, together with Vista and VNC, all payments and expenditures under Newmont's lease with the property vendor described above; |
o | making, together with Vista and VNC, all remaining option payments under Vista's and VNC's option agreement with Newmont described above.; and | |
o | Newmont’s right to acquire a 51% interest in the 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 property located in Sinaloa State, Mexico. Under the terms of the option:
o | we may earn a 50% interest by: |
o | making cash payments totaling US $29,000 by February 4, 2002; and |
o | incurring exploration expenditures of at least US $175,000 by April 30, 2002. |
o | We may then earn up to a 100% interest in Gold Ore’s option by, at our election, either: |
o | issuing to Gold Ore 200,000 of our common shares with a value of at least US $350,000; or |
o | 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:
o | 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 |
o | 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’s option and earn a 100% interest in the San Marcial property pursuant to the underlying option agreement, we will be required to:
o | make cash payments to the property vendor totaling US$462,500: |
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o | US $25,000 by August 4, 2002; | |
o | US $25,000 by February 4, 2003; | |
o | US $25,000 by August 4, 2003; and | |
o | US $387,500 by February 4, 2004; |
o | incur US $400,000 in further exploration expenditures on the property by February 4, 2004 (US $200,000 of which must be incurred by February 4, 2003); |
o | pay US $100,000 on commencement of commercial production to International American Resources Inc.; |
o | pay a 3% net smelter returns royalty to the property vendor, provided that each 1% of the royalty can be acquired for US $600,000. |
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:
o | paying to Gold-Ore US $150,000 in cash; |
o | issuing to Gold-Ore 45,706 common shares in our capital; and |
o | 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. |
At the date of this Annual Report, we have the following interest in the San Marcial Project:
o | an option to acquire up to a 100% interest in the San Marcial Project: |
o | subject to: |
o | making all remaining option payments and work commitments under our agreement with the property vendor described above; |
o | paying US $100,000 on commencement of commercial production to International American Resources Inc.; and |
o | paying a 3% net smelter returns royalty to the property vendor, provided that each 1% of the royalty can be acquired for US $600,000. |
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 SilvertipProperty located in northern British Columbia. Under the agreement:
o | we paid Imperial $1,200,000 in cash; | |
o | issued to Imperial 100,000 of our common shares; and | |
o | assumed the remaining reclamation obligations associated with the property. |
Certain of the non-core claims comprised in the property are subject to a 5% net profits interestroyalty.
We currently own the following interest in the Silvertip Property:
o | we own a 100% interest in the Silvertip Property; | |
o | subject to a 5% net profits interest royalty on certain of the non-core claims comprised in the property. |
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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:
o | make staged cash payments to Kinross totalling $300,000 over a period of 12 months; | |
o | 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 | |
o | 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:
o | Kinross may elect to require us to purchase the processing facility located on the mine site for $300,000; and |
o | 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:
o | payment to Kinross Gold of US $65,834; |
o | 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; |
o | 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); |
o | 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; |
o | the assumption of all liabilities associated with the Candelaria mine. |
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Under the purchase agreement, Kinross Gold has 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. Reclamation bonding for the property is currently US $1,679,435. We have pledged the shares of Kinross Candelaria Mining Company to Kinross Gold, Inc. as collateral pending our arrangement of reclamation bonding.
Under the terms of the purchase agreement, Kinross Gold is responsible for completing the reclamation of the mine, 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. To date, 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 Gold completed re-contouring and re-seeding of the leach ponds in the first quarter of 2002. Kinross Gold is continuing reclamation work that is expected to be completed shortly. Following completion of the reclamation of the mine by Kinross Gold, we will be 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; 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. In addition, on reclamation of the mine, we must monitor the mine at a total estimated cost of US $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.
At the date of this Annual Report, we have the following interest in the Candelaria mine:
o | We own all of the shares of Kinross Candelaria Mining Company (now known as Candelaria Mining Company), which owns a 100% interest in the Candelaria mine. |
o | We have pledged all of the shares of Kinross Candelaria Mining Company to Kinross Gold pending our arrangement of reclamation bonding. If we do not arrange reclamation bonding by April 1, 2004, we will forfeit the shares of Kinross Candelaria Mining Company (and our interest in the Candelaria mine) to Kinross Gold. |
Sulphurets Project (Newhawk Arrangement)
On September 30, 1999 pursuant to a plan of arrangement (the “Newhawk Arrangement”), holders of common shares of NewhawkGold 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 located in northwest British Columbia. The Sulphurets Project consists of a 60% interest in the Bruceside Property.
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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.
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 in consideration of a cash payment of 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. for a 100% interest in the Sulphurets Project.
Other Properties
Bluey’s Silver Prospect
On August 7, 2001, we acquired an option from Imperial Granite and Minerals Pty Ltd. to earn a 51% joint venture interest in the Bluey’s Silver Prospect and the surrounding tenement, located in the Northern Territory, Australia, by repaying staking and tenement costs (to a maximum of A$10,000) and incurring exploration expenditures over time totaling A$750,000. We may increase our interest to 100% on completion of a bankable feasibility study with the vendor retaining a 4% net smelter returns royalty or a 10% net profits interest.
In 2002, based on the results of a drill program, we abandoned the Bluey’s Silver Prospect.
El Asiento Project
No work was completed on the project in 2001. For disclosure as to this project, please see our Annual Report on Form 20-F for the fiscal year ending December 31, 2000 filed with the U.S. Securities and Exchange Commission.
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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. 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, British Columbia adopted legislationwhich 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 2000, 2001 and 2002, we carried out reclamation work of $240,000, $177,000 and $155,000, respectively. Reclamation work will continue in 2003 at an estimated cost of $265,000. Remaining reclamation obligationsinlcude 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 $250,000, which amount has been included in our provision for reclamation, plus $16,000 per year for ongoing monitoring.
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 studying the property to determine whether reclamation is required for the tailings 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, untilthat time monitoring is not required. The only remedial work required on the propertyat this time is the closure of mine workings at an estimated cost of $250,000, which amount has been included in our provision for reclamation.
Others
We have several other property holdings in Mexico, Canada and the United States and a property holding in Bolivia which are not considered ourprincipal, secondary 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 ten material subsidiaries. The following table sets out the name, jurisdiction of incorporationand incorporation date, date of our acquisition and our interest in each of our material subsidiaries:
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Name of Subsidiary | Jurisdiction of Incorporation and Incorporation Date | Date Acquired | Silver Standard Interest |
Silver Standard (BVI) Inc. | British Virgin Islands; November 21, 1996 | November 21, 1996 | 100% |
Silver Standard Australia Pty Limited | Australia; June 26, 1987 | August 22, 1997 | 100% |
Minera Triton Argentina S.A | Argentina;January 21, 1997 | March 27, 2002 | 50% |
Silver Assets, Inc. | California, USA; June 18, 1932 | September 22, 2002 | 100% |
Candelaria Mining Company | Delaware, USA; January 31, 1964 | October 1, 2001 | 100% |
Pacific Rim Mining Corporation Argentina S.A | Argentina; October 1, 1993 | December 14, 2001 | 100% |
Newhawk Gold Mines Ltd. | British Columbia, Canada; January 20, 1948 | September 30, 1999 | 100% |
Silver Standard U.S. Inc. | Nevada, USA; March 11, 1994 | March 11, 1994 | 100% |
Silver Standard Mexico S.A | Mexico; January 18, 1995 | January 18, 1995 | 99.9% |
Minera Silver Standard Chile S.A | Chile; November 10, 1994 | November 10, 1994 | 99.9% |
D. Property, Plant and Equipment
Principal Properties
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. Seethe 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
TheBowdens 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 tenementscovering the mineralization of the Bowdens property were granted toCRA 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 (a rotary percussion drill in which the drilling mud and cuttings return to the surface through the drill pipe) totalling 3,438 meters and five diamond drill core holes (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) 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. |
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 | We commenced an in-fill drill program in order to better define silver resources on the property for completion of the feasibility study on the Bowdens Silver Project. |
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To December 31, 2002, a total of 301 holes totalling 31,498.8 metres have been completed on the Bowdens Project since 1989. The number of holes drilled in a deposit and the distance between holes are important factors in determining the grade and continuity of a deposit. The greater the number of drill holes and closer the spacing between holes, the greater the knowledge of the deposit.
Regional Geologyand Mineralization
The Bowdens Project is located within a shallowdepression that formed during the Late Silurian to Middle Devonianages. Other rocks exposed in the area include Devonianage marine sediments, Middle Carboniferousage granite intrusives and the Permianage Rylstone volcanics.
Outcropping along the eastern margin of thedepression are volcanic rocks. Mineralization at Bowdens is hosted by therocks 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 thevolcanics 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 inan area of mineralization. Vein widths range from 5.0 centimeters up to 1.5 meters and consist offine 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.
We completed an updated block model of the resources for the Bowdens Silver Project in October 2001, which included the results of the 30 reverse circulation and two diamond drill holes totalling 4,319 metres completed in 2000 and 2001. The block model is based on a cut-off of 40 grams of silver-equivalent per tonne and was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards. Pincock, Allen & Holt (“PAH”), a division of Hart Crowser Inc., reviewed and confirmed our classification of Measured, Indicated and Inferred Mineral Resources for the Bowdens Silver Project, in reports dated April 27, 2001 and October 9, 2001.
Cautionary Note to U.S. Investors concerning estimates of Measured and IndicatedMineral Resources. |
Table 5 below uses the terms “Measured Mineral Resource” and “IndicatedMineral Resource.” We advise U.S. investors that while such terms are recognized andrequired 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 deposits in these categories will ever be converted into reserves. |
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Table 5
Silver Standard Resources Inc.
Bowdens Property
Silver StandardMeasured and Indicated Mineral Resource Estimate with PAH Review
(40 g/tSilver-Equivalent Cutoff Grade - capped)
Classification | Tonnes | Silver Grade (g/t) | Lead (%) | Zinc (%) |
Measured & Indicated | 36,100,000 | 51.83 | 0.24 | 0.32 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources. |
Table 6 below uses the terms “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 6
Silver Standard Resources Inc.
Bowdens Property
Silver Standard Inferred Mineral Resource Estimate with PAH Review
(40 g/t Silver-Equivalent Cutoff Grade - capped)
Classification | Tonnes | Silver Grade (g/t) | Lead (%) | Zinc (%) |
Inferred | 22,900,000 | 42.53 | 0.20 | 0.30 |
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.
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.
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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.
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Land Tenure
The Manantial Espejo property consists of19 mineral concessions covering a total of 23,614.73 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 outon the property in the 1970s by the Argentine government.The following is a chronological description of mineral exploration on the Manantial Espejo property:
1991-1995 | St. Joe MineralsCorp., Lac Minerals Ltd. and Barrick Gold Corporation collectively completed mapping, trenching, sampling, 38 reverse circulation holes totalling 3,256 meters, 215 wagon drill holes (short, small diameter, percussiondrill holes) totalling 3,282 meters, and 45diamond drill holes totalling 6,000 meters. Eleven trenches were completed on the Maria Vein,the main area of mineralization, including twolarge 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. |
1998-2002 | In April 1998, Triton exercised its option and acquired its 80 percent ownership in the property and in November 1998 we acquired an option to acquire an interest in Minera Triton (see Item 4.B – “Business Overview”). Since acquiring our option, we have completed 220 drill holes totalling 18,838 meters and a regional reconnaissance of the property. The drill programs included in-fill drilling as well as drill testing of new targets. We also completed an intensive study of the geology and structure, which resulted in a reinterpretation of the mineralization on the property and the prioritizing of additional drill targets. |
To December 31, 2002, a total of 407 drill holes totalling 44,542.10 meters have been completed on the Manantial Espejo Project since 1991, excluding the wagon drill holes completed by St. Joe Minerals Corp.
Geology and Mineralization
The structural setting of the known mineralization is related to the continental extension and volcanism that occurred during the mid-late Jurassicage. 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.
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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 ofup 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 veinquartz breccia that often crosscuts the earlier vein and carries fragments of it. Sulphide content is low and is primarily 3-5 percentpyrite. 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 thevein is similar to the Maria Vein.
The Concepcion Vein is a single quartz vein mineralized over adistance of 300- meters. Mineralization is open at depth and at both ends.The host rocks, mineralogy and alteration are similar tothe 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 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.
Cautionary Note to U.S. Investors concerning estimates of Measured and IndicatedMineral Resources. |
Table 7 below uses the terms “Measured Mineral Resource” and “IndicatedMineral Resource.” We advise U.S. investors that while such terms are recognized andrequired 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 deposits in these categories will ever be converted into reserves. |
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Table 7
Silver Standard Resources Inc.
Manantial Espejo Property
Measured 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 |
Cautionary Note to U.S. Investors concerning estimates of InferredMineral Resources. |
Table 8 below uses the terms “InferredMineral Resources.” We advise U.S. investors that while such term is recognized andrequired under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “InferredMineral 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 anInferred Mineral Resourceexists, or is economically or legally mineable. |
Table 8
Silver Standard Resources Inc.
Manantial Espejo Property
Inferred 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) |
Inferred | 1,594,000 | 258.5 | 3.65 |
PirquitasProject
Location, Access and Infrastructure
Our 43.4% 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 4,400meters above mean sea level.There are no nearby power lines or telecommunication lines. See the following Pirquitas Project, Location Map.
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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 rightscovering 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.
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 | Tin placer deposits were first discovered in the area in 1932.Dredging of the tin placers commenced in 1933. |
1935-1990 | The source of the tin placers was discovered in 1935 and mining of the tin and silver lodes startedin 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 systems. |
1995-2002 | Sunshine Argentina acquired the Pirquitas property in a bankruptcy auction in November 1995. Sunshine’s exploration program included survey control, geophysical surveys, geological mapping, sampling, and drilling. All accessible underground workings were sampledand mapped. Sunshine Argentina also conducted extensivediamond and reverse circulation drilling from the surface and core drilling from underground. |
Geologyand 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, androck types.
The Sub-Andean Range is approximately 110kilometers wide, with elevations ranging from 300 to 2,500meters. 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 130kilometers wide, with elevations ranging from 1,300 to 6,200meters. 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 240kilometers wide, with elevations ranging from 3,900 to 6,700meters. 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.
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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 istenuous; 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.
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.
Cautionary Note to U.S. Investors concerning estimates of Measured and IndicatedMineral Resources. |
Table 9 below uses the terms “Measured Mineral Resource” and “IndicatedMineral Resource.” We advise U.S. investors that while such terms are recognized andrequired 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 deposits in these categories will ever be converted into reserves. |
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Table 9
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 (g/t) | Tin Grade (%) | Zinc Grade (%) |
Measured & Indicated | 33,765,000 | 139 | 0.15 | 0.56 |
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 Measured and Indicated.
Cautionary Note to U.S. Investors concerning estimates of Measured and IndicatedMineralResources. |
Table 10below uses the terms “Measured Mineral Resource” and “IndicatedMineral Resource.” We advise U.S. investors that while such terms are recognized andrequiredunder 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 deposits in these categories will ever be converted into reserves. |
Table 10
Silver Standard Resources Inc.
Pirquitas Project
Measured and Indicated Mineral Resource Estimate - Jig Tails
Classification | Tonnes | Silver Grade (g/t) | Tin Grade (%) | Zinc Grade (%) |
Measured & Indicated | 593,000 | 234 | 0.37 | 0.127 |
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' north and longitude 104°20’ west. The town of Shafter, at the eastern border of the district, is 44 miles south of Marfa, and 21 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 control, 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. This lease option includes the right to purchase significant portions of the tract.
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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 — 1934 when the price of silver dropped. The mine was closed in August 1942 by the War Act. From 1883 to 1942, total recorded production from the property was 2.306 million tons of ore containing 35.153 million ounces of silver at an average grade of 15.24 ounces silver per ton. |
1950's | After World War II, the district was quiet until Phelps Dodge commenced evaluation of the Red Hills intrusive 5 miles west of Presidio 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 silver district. Through a systematic surface-drilling program, Gold Fields identified the eastern extension of the Presidio deposit extending more than 5,000 feet from the lowest development work in the Presidio mine. This extension to the east, northeast from the old Presidio Mine, is now known as the Shafter deposit. Gold Fields abandoned the project after the silver price decline in the early 1980‘s. |
2000-2002 | Since our acquisition of the project, we have focused our efforts on completing the permitting to place the Shafter Silver Project in production. |
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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. 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.
The mineral deposits in the Shafter Mining District 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 District 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 Deposit 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 deposit is an eastward extension of the previously mined Presidio 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 developed a three-dimensional computerized model of the Shafter silver deposit 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 tonne 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 and Indicated Mineral Resources. |
Table 11 below uses the terms “Measured Mineral Resource” and “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 them.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. |
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Table 11
Silver Standard Resources Inc.
Shafter Silver Project
Measured and Indicated Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
Classification | Tonnes | Silver Grade (oz/ton) |
Measured & Indicated | 2,085,000 | 10.06 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources. |
Table 12 below uses the terms “Inferred Mineral Resources.”We advise U.S. investors that while such term is recognized andrequired under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “InferredMineral 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 InferredMineral Resource exists, or is economically or legally mineable. |
Table 12 Silver Standard Resources Inc.
Shafter Silver Project
Inferred Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
Classification | Tonnes | Silver Grade (oz/ton) |
Inferred | 1,572,000 | 12.83 |
Secondary Properties
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.
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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.
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.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources. |
Table 13 below uses the terms “InferredMineral Resources.” We advise U.S. investors that while such term is recognized andrequired under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “InferredMineral 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 13
Silver Standard Resources Inc.
Diablillos Property
Inferred 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.
Challacollo Project
The Challacollo project 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 in northern Chile and covers an area of approximately 14.5 square mile (37.5 square kilometres).
The Challacollo deposit 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, 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.
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.
San Marcial Silver Project
The San Marcial silver project is located in Sinaloa State, Mexico 56 miles (90 kilometres) due east of Mazatlan in west central Mexico and is comprised of two claims covering an area of 4.8 square mile (1,250 hectare). In order to maintain our rights to these concessions we are required to make “canon” payments to the Mexican government. In March of 2002, we completed an eight hole, 1,204 meter drill program to test the area of known mineralization on the San Marcial vein.
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.
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Silvertip Property
The Silvertip Property is located in northern British Columbia approximately 85 km (50 miles) south of Watson Lake, Yukon Territory. We have not carried out any work on the Silvertip Property since our acquisition of the property. See the following Silvertip Property Location Map.
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, prepared the following resource estimate for the property in accordance with NI 43-101.
Cautionary Note to U.S. Investors concerning estimates of Measured and Indicated Mineral Resources |
Table14 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. |
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Table14
Silver Standard Resources Inc.
Silvertip Project
Indicated Mineral Resource Estimate
(0 g/t Ag Cutoff Grade)
Classification | Tonnes Million | Silver Grade (g/t) | Lead (%) | Zinc (%) | Gold Grade (g/t) |
Indicated | 1.12 | 378 | 7.7 | 9.5 | 0.85 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources. |
Table 15 below uses the terms “InferredMineral Resources.” We advise U.S. investors that while such term is recognized andrequired under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “InferredMineral 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 15
Silver Standard Resources Inc.
Silvertip Project
Inferred Mineral Resource Estimate
(0 g/t Ag Cutoff Grade)
Classification | Tonnes Million | Silver Grade (g/t) | Lead (%) | Zinc (%) | Gold Grade (g/t) |
Indicated | 1.45 | 284 | 5.4 | 8.3 | 0.46 |
Long-Term Properties
Candelaria Mine
Location, Access and Infrastructure
The Candelaria mine is located in the Candelaria Hills in west central Nevada approximately 55 miles south of Hawthorne, Nevadaand 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 Mine Location Map.
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History
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 present 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 Kinross GoldCorporation, (“Kinross”) purchased the property 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.
Geology
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
Reclamation of the site 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. 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 Mine is without known Mineral Reserves and any activity carried out on
the property is exploratory in nature.
Sulphurets Project
TheSulphurets 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 theSulphurets 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 claimscovering 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 property has been intermittently explored for precious and base metals for more than 100 years.
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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.
We have not carried out any exploration work on the property sincewe 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
Until March2003, we leased, along with Repadre Capital Corporation (now known as IAMGold Corporation) (“Repadre”), 3969 square feet of office space in Vancouver, British Columbia at 1180 – 999 West Hastings Street, Vancouver, British Columbia under the terms of a lease which expired March 31, 2003. Our share of the rent for the office space was $6,194 per month. Following March2003, we assumed responsibility for the lease of the entire office space and entered into a further lease for the premises expiring March 31, 2008 with monthly rent of $9,700. The property is used as our head office.
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 ofGolden Knight, Repadre continued to pay for Golden Knight’s share of the leased premises until March2003 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
Management’s discussion and analysis is presented in relation toour financial statements, which statements are prepared in accordance with Canadian GAAP. Reference should be made to note 19 to our financial statements for a discussion of material differences from the amount presented to U.S. GAAP.
Year ended December 31, 2002 compared to year ended December 31, 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.
Exploration and mineral property costs: | 2002 | 2001 | 2000 |
Property examination and exploration | $ 279,000 | $ 107,000 | $ 174,000 |
Mineral property costs written off | 53,000 | 1,744,000 | 68,000 |
Reclamation | 420,000 | 201,000 | 329,000 |
$ 752,000 | $ 2,052,000 | $ 571,000 |
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 acquisitions costs are deferred as mineral property costs. In 2002, the Bluey’s property in Australia was abandoned and the company wrote-off its $53,000 investment. In 2001, the company wrote-off $1,744,000 relating to its remaining investment in the El Asiento property in Bolivia. We wrote off the Bluey’sy and El Asiento properties as the results of exploration activities on the properties did not justify the carried costs of the properties. We wrote off the Bluey’sy and El Asiento properties as the results of exploration activities on the properties did not justify the carried costs of the properties.
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 and 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: | 2002 | 2001 | 2000 |
Depreciation | $ 24,000 | $ 25,000 | $ 23,000 |
General and administration | 1,404,000 | 1,105,000 | 992,000 |
Professional fees | 153,000 | 80,000 | 86,000 |
Salaries and employee benefits | 434,000 | 307,000 | 317,000 |
Stock-based compensation | 132,000 | -- | -- |
$2,147,000 | $1,517,000 | $1,418,000 |
Expenses were $2,147,000 during 2002 compared to $1,517,000 in 2001, 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 $1,150,000 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 are expected to continue 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. We expensed $132,000 of this assigned value and deferred $29,000 into mineral property costs. As permitted under the standard, we have 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.
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Other income (expenses): | 2002 | 2001 | 2000 |
Investment income | $ 305,000 | $176,000 | $ 204,000 |
Gain on sale of marketable securities and investment write-downs | 544,000 | -- | (3,000) |
Fixed asset write-downs and gain (loss) on sale | (19,000) | -- | 18,000 |
Gain on sale of mineral property | -- | 1,000 | 94,000 |
Interest expense | (92,000) | -- | -- |
Foreign exchange gain (loss) | (37,000) | 15,000 | (29,000) |
$ 701,000 | $192,000 | $ 284,000 |
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. We do not expect any interest expense in 2003.
Year ended December 31, 2001 compared to year ended December 31, 2000.
For the year ended December 31, 2001, we incurred a loss of $3,377,000 or $0.13 per share, compared to a loss of $1,705,000 or $0.08 per share in 2000. The larger loss in 2001 relates to mineral property costs written off.
Expensed exploration and mineral property costs including reclamation were $2,052,000 for the year compared to $571,000 in 2000. Property examination and exploration expenditures were $107,000 during 2001, down from $174,000 in 2000, reflecting a greater emphasis on acquisitions. In 2001, the El Asiento mineral property was written off ($1,744,000). In 2000, the Nickel Mountain property was written off ($68,000). We wrote off the El Asiento and Nickel Mountain properties as the results of exploration activities on the properties did not justify the carried costs of the properties.
Reclamation costs expensed in 2001 were $201,000 compared to $329,000 in 2000. The company continued its reclamation activities on the Duthie property in British Columbia with the reduction in expenditures in 2001 due to less work completed because of poor weather.
At December 31, 2001, we had accrued $503,000 relating to our various reclamation obligations. Of this amount, $250,000 related to the Duthie property and $250,000 related to the Silver Standard Mine property in British Columbia and $3,000 related to the Diablillos property in Argentina.The Duthie property and Silver Standard Mine property accruals were charged to earnings in 1995 and 1996. The Diablillos property accrual was established in conjunction with its acquisition in 2001. The accruals cover monitoring costs.
Expenses were $1,517,000 during 2001 compared to $1,418,000 in 2000. The increase during 2001 related to general and administrative costs which were $1,105,000 or $113,000 over the comparable period in 2000. Costs associated with the annual and quarterly reports were $38,000 greater than the previous year due to higher annual report production and mailing costs resulting from a larger shareholder base. Attributable investor relation salaries were $66,000 higher than the previous period due to the end of cost sharing with a related company and greater investor relations activity.
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Other income totalled $192,000 in 2001 compared to $284,000 in 2000. Lower cash balances available for investment and lower interest rates were the contributing factors for the $28,000 reduction in investment income in 2001 compared to 2000. Also in 2000, a $94,000 gain was recorded on the sale of mineral properties resulting from the business combination with Newhawk Gold Mines Ltd.
B. Liquidity and Capital Resources
Cash From Operations
Cash flow from operations was a usage of $2,250,000 in 2002, compared to usages of $1,646,000 in 2001 and $1,996,000 in 2000. The increase in the usage of cash in 2002 related primarily to higher general and administrative costs, professional fees, salaries and employee benefits, exploration and reclamation.
Investing Activities
Total funds invested in mineral property costs including acquisitions over the last three years are detailed below:
2002 | 2001 | 2000 | |
Manantial Espejo | $ 1,588,000 | $2,312,000 | $1,652,000 |
Shafter | 841,000 | 804,000 | 1,291,000 |
Candelaria | 419,000 | 654,000 | 379,000 |
Bowdens | 751,000 | 670,000 | 325,000 |
Challacollo | 1,560,000 | -- | -- |
San Marcial | 1,032,000 | -- | -- |
Silvertip | 1,209,000 | -- | -- |
Diablillos | 87,000 | 2,404,000 | -- |
Pirquitas | 4,745,000 | -- | -- |
Other | 287,000 | 372,000 | -- |
$12,519,000 | $7,216,000 | $3,647,000 |
Marketable Securities
Other investing activities in 2002 included the purchase of $527,000 in marketable securities of Vista Gold Corp and Cardero Resource Corp. There were no similar purchases in 2001 or 2000.
We sold certain of our marketable securities in 2002 to realize proceeds of $757,000 with a gain on the sale of $544,000. There were no similar sales in 2001 or 2000.
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Financing Activities
During 2002, we raised a total of $26,725,000 from the issuance of new equity compared to $11,174,000 in 2001 and $5,901,000 in 2000. Costs associated with these equity placements were $333,000 (1.3%) in 2002, $26,000 (0.2%) in 2001 and $4,000 (0.1%) in 2000. The components of the amounts raised are:
2002 | 2001 | 2000 | |
Private placements | $19,979,000 | $ 4,495,000 | $2,450,000 |
Exercise of stock options | 1,827,000 | 3,976,000 | 1,413,000 |
Exercise of warrants | 4,919,000 | 2,703,000 | 2,038,000 |
$26,725,000 | $11,174,000 | $5,901,000 |
In 2002, we made payments of $152,000 for repayment of long-term debt assumed on acquisitions of Minera Triton in 2002 and Silver Assets in 2000. Repayments in 2001 and 2000 were $22,000 and $3,000 respectively.
2002 Private Placements
In May 2002, we completed a private placement of 4,200,000 units at a price of $4.00 per unit for gross proceeds of $16,800,000. Each unit consists of one of our common shares and one common share purchase warrant, with each common share purchase warrant exercisable for a period of two years at a price of $4.80 per share. A further 80,640 units were issued in payment of a finder’s fee in respect of a portion of the private placement. Robert A. Quartermain, President and one of our directors, subscribed for 50,000 units. Kenneth McNaughton, our Vice President, Exploration, subscribed for 35,000 units. Ross Mitchell, our Vice President, Finance, subscribed for 20,000 units, Linda Sue, our Corporate Secretary, subscribed for 6,500 units and William Meyer, one of our directors, subscribed for 15,000 units. 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, and, subject to certain exceptions, may not be offered or sold within the United States.
In December 2002, we completed a private placement of 550,000 units at a price of US $4.05 per unit for gross proceeds of US $2,227,500. Each unit consists of one common share and one common share purchase warrant, with each common share purchase warrant exercisable for a period of two years at a price of US $5.05 per share. 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 U.S. Securities Exchange Act of 1933, as amended and, subject to certain exceptions, may not be offered or sold within the United States.
Cash Resources and Liquidity
At December 31, 2002, we had $17,342,000 in cash, cash equivalents and short-term investments resulting in working capital of $16,430,000. This working capital compares to $5,520,000 at the beginning of 2002 and $3,145,000 at the beginning of 2001. We have no debt with banks other than a small $50,000 mortgage relating to a property in Texas.
The major cash commitments and obligations in 2003 are property option and expenditure commitments of approximately $7,400,000, corporate and administration of $1,700,000 and reclamation of $140,000. Of the property option and expenditure commitments, $700,000 relates to the Manantial Espejo property and $1,700,000 in option payments relating to the Challacollo property. The remaining $5,000,000 amount relates to elective expenditures on our various properties.
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We have sufficient funds to be able to meet all of our obligations and planned expenditures through fiscal 2004 and into 2005 without consideration of the $28.4 million in-the-money stock options and warrants outstanding.
Acquisitions and Disposals
See Item 4.A – “General Background”.
Risks and Uncertainties
As a mineral exploration company, we are exposed to a number of risks and uncertainties. See Item 3.D.-"Risk Factors".
Impact of Inflation
Currently, inflation in Canada is similar to that in the U.S. Inflation is not expected to have a material impact onus beyond the impact on all businesses generally, such as higher cost of materials, services and salaries.
C. Research and Development, Patents and Licenses, etc.
We are a mineral exploration company with no producing properties, the information required by this item is inapplicable.
D. Trend Information
We are a mineral exploration company with no producing properties, the information required by this item is inapplicable.
Item 6 Directors, Senior Management and Employees
A. Directors and Senior Management
The following table lists as of April 30, 2003 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.
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Table No.16
Our Directors and Senior Management
Name | Position withSilver Standard | Date of First Appointment | Age |
R.E. Gordon Davis (1) (2) (3) | Director | February 1996 | 64 |
David L. Johnston (2) | Director | May 2000 | 63 |
William Meyer (1) (2) (3) | Director | March 1993 | 65 |
Robert A. Quartermain (1) (2) | President and director | January 1985 | 48 |
Catherine McLeod-Seltzer (2)(3) | Director | January 1, 2002 | 43 |
Linda J. Sue | Corporate Secretary | November 1985 | 48 |
Ross A. Mitchell | Vice President, Finance | January 1996 | 55 |
Kenneth C. McNaughton | Vice President, Exploration | July 1991 | 44 |
Joseph J. Ovsenek | Senior Vice President | February 1, 2003 | 44 |
(1) Member of the Audit Committee (we expect to appoint an additional member to the Audit Committee shortly)
(2) Resident of Canada
(3) Member of the Compensation Committee
Resumes
Our Board of Directors and Senior Management
The following is a brief description of the principal business activities ofour directors and senior management:
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 approximately 95% of his time toour 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. Quartermainin this capacity since January 1985and have entered into an employment agreement with him. See “Executive Compensation – Employment Agreements
Mr. Quartermain graduated in 1977 from University of New Brunswick with a B.Sc. in geology, and from Queen’s University in 1981 with a M.Sc. in mineral exploration. 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 presidentof the Company in 1985. Mr. Quartermain serves as a director and officer of Radiant and as a director of Canplats, IAMGold Corporation (formerly Repadre Capital Corporation), Western Silver Corporation (formerly Western Copper Holdings Ltd.), Vista Gold Corporation, Paso Rico Resources Ltd. and Reliant Ventures Ltd.
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R.E. Gordon Davis
Mr. Davis graduated with a Bachelor of Applied Science Degree in Geological Engineering in 1962. 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 the President and a director 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 professional engineer with a lengthy career in senior management at 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.
William Meyer
Mr. Meyer was formerly vice president, exploration for Teck Corporation and president of Teck Exploration Ltd. He graduated from the University of British Columbia with a B.Sc. in geology 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, GGL Diamond Corporation, Cantech Ventures Inc., Transamerica Resources Corporation and Lysander Minerals Corp.
Catherine McLeod-Seltzer
Ms. McLeod-Seltzer has been President and director of Pacific Rim Mining Corp. a Toronto Stock Exchange listed mining company, since 1997. She is also President and a director of Stornoway Ventures Ltd. and a director of Corriente Resources Inc., Madison Enterprises Inc., Bear Creek Mining Corporation and Miramar Mining Corp. Ms. McLeod-Seltzer graduated from Trinity Western University in 1984 with a B.A. in Business Administration.
Linda J. Sue
Ms. Sue 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% of his time to our business, with the remainder of his time split between Canplats and Radiant. Prior to his appointment in 1996, Mr. Mitchell was employed by Westmin Resources andits 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 B. Comm. 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. McNaughton
Mr. McNaughton devotes approximately 75% of his time to our business, with the remainder of his time allocated to Canplats. Mr. McNaughtonis a professional engineer and earned a B.A.Sc. and M.A.Sc. in geological engineering in 1981 and 1983, respectively, from the University of Windsor. Before joiningSilver 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 100% of his time to our business. Mr. Ovsenek has served in this capacity since February 2003. Mr. Ovsenekis a professional engineer and 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. Prior to joining us, he was a partner with the law firm of Bragagnolo & Ovsenek, Solicitors.
There are no family relationships among the members of our board of directors or the members of our senior management.
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 hisor her services as a director, including committee participation and/or special assignments.
Compensation of Named Executive Officer
We currently have one named executive officer, Robert Quartermain (the “Named Executive Officer”). The following table setsout the compensation awarded, paid to or earned by our Named Executive Officer during the fiscal year ended December 31, 2002:
Table No.17
Summary 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 Payouts | All Other Compen- sation (3) |
---|---|---|---|---|---|---|---|---|
R.A. Quartermain | 2002 | $136,259 | $50,000 | 0 | 470,000 | 0 | 0 | $9,563 |
President | 2001 | $123,153 | 0 | 0 | 411,200 | 0 | 0 | $8,715 |
2000 | $82,742 | 0 | 0 | 666,000 | 0 | 0 | $57,073 | |
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(1) | Fiscal years ended December 31, 2002, December 31, 2001 and December 31, 2000. |
(2) | During 2002, 2001 and 2000, a portion of Mr. Quartermain's salary has been allocated to two related companies. |
(3) | Represents life and medical insurance payments made, contributions made to our Group RRSP plan and financial planning services. In 2000, other compensation also included reimbursement by us to Teck Corporation for contributions made by Teck Corporation to its Senior Salaried Employees Pension Plan, of which Robert A. Quartermain was a participant. The Teck plan provided defined retirement benefits generally equal to 2% times the number of years of service times the average of the highest sixty consecutive months of earnings. In May, 2000, Mr. Quartermain was terminated from the Teck plan. Our pension top-up allocation for the plan was $52,370 and this amount was paid to Teck Corporation in 2000. Mr. Quartermain joined our Group RRSP plan in 2000. Under this plan, Mr. Quartermain contributes 6% of his monthly earnings and we contribute 6%. We contributed a total of $6,775 and $6,600 in 2002 and 2001, respectively. |
Table No.18
Options(1) Granted for the Fiscal Year Ended December 31, 2002
Securities Under Options Granted (#) | % of Total Options Granted to Employees in Financial Year | Exercise ($/Security) | Market Value of Securities Underlying Options on day of Grant ($/Security) | Expiration Date | |
R.A. Quartermain . | 88,800 | 20.9% | $4.25 | $4.25 | Jan. 1, 2007 |
80,000 | 18.9% | $8.00 | $8.00 | Aug. 2, 2007 |
(1) Each option is exercisable into one common share in the capital stock of the Company.
Aggregated Option Exercises in Last Financial Year and
Financial Year-End Option Values
The following table setsout details of all exercises of stock options during the year ended December 31, 2002 by the Named Executive Officer and the financial year-end value of unexercised options on an aggregated basis:
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Table No.19
Option Exercises / Year-End Option Values
Name | Securities Acquired on Exercise (#)(1) | Aggregate Value Realized ($)(2) | Unexercised Options at Financial Year-End (#) Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Financial Year-End ($)(3) Exercisable/ Unexercisable |
---|---|---|---|---|
Robert A. Quartermain | 110,000 | $242,900 | 470,000 exercisable | $2,101,438 |
0 unexercisable | $0 | |||
(1) | Number of our common shares acquired on the exercise of stock options. |
(2) | Calculated using the closing prices for a board lot of our common shares on the TSX Venture Exchange on day prior to day of exercise. |
(3) | Value using the closing price of our common shares on the TSX Venture Exchange on December 31, 2002 of $8.44 per share, less the exercise price per share. |
Compensation to Directors and Executive Officers
Total compensation for all directors and senior officers during the year ended December 31, 2002 totalled $404,300.
Executive Benefits
We have not instituted any pension plans or retirement benefit plans, other than a group RRSP, and none are proposed at this time. Other than as disclosedin this Annual Report, we have not paid any additional compensation to our directors and senior officers for the fiscal year ended December 31, 2002.
Employment Agreements
We engaged Robert A. Quartermain to act as our chief executive officerunder an agreement dated July 1, 2000. The agreement provides for Mr. Quartermain to receive a base salary of $10,000 per month for a period of two and one-half years 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 $250,000. Effective June 1, 2002, we increased Mr. Quartermain’s base salary to $12,500 per month.
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Options to Purchase Securities from Company or Subsidiaries
Options Outstanding
Stock Options 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”). At our annual general meeting held on May 14, 2003, our shareholders approved the adoption of a stock option plan that reserves for issuance up to a maximum of 8% (including existing stock options) of our issued and outstanding shares on the exercise of incentive stock options. We did not have formal stock option plan before such date.
Under our stock option plan, (a) stock options in favor of any one individual may not exceed 5% of the issued and outstanding shares of common stock, (b) no stock option is transferable by the optionee other than by will or the laws of descent and distribution, (c) a stock option is exercisable during the lifetime of the optionee only by such optionee, (d) 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) the minimum exercise price for a stock option is the last closing price of our common shares on the TSX Venture Exchange immediately preceding the granting of the option.
The number of stock options and the number of common shares subject to such stock options granted to executive officers as a group and to directors who are not executive officers as a group are setout below as of December 31, 2002. The exercise price of the stock options is stated in Canadian dollars.
Table No.20
Outstanding Stock Options
Number of Options Outstanding | Exercise Price | Expiry Date | |
Executive Officers | 115,000 | $2.50 | August 16, 2006 |
186,200 | $3.01 | November 6, 2006 | |
88,800 | $4.25 | January 1, 2007 | |
80,000 | $8.00 | August 2, 2007 | |
Directors who are not Executive Officers | 42,500 | $2.50 | August 16, 2006 |
37,600 | $3.01 | November 6, 2006 | |
76,600 | $4.25 | January 1, 2007 | |
120,000 | $8.00 | August 2, 2007 | |
Employees and Consultants | 10,000 | $2.50 | October 7, 2004 |
15,000 | $2.10 | April 17, 2005 | |
10,000 | $2.09 | June 5, 2005 | |
44,841 | $1.90 | December 29, 2005 | |
163,500 | $2.50 | August 16, 2006 | |
140,000 | $3.01 | November 6, 2006 | |
151,000 | $4.25 | January 1, 2007 | |
243,400 | $8.00 | August 2, 2007 | |
40,000 | $6.23 | October 31, 2007 | |
Total: | 1,565,441 | ||
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In addition, as at December 31, 2002, 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.21
Outstanding Share Purchase Warrants
Amount | Exercise Price | Expiry Date | |
362,000 | $2.32 | June 25, 2003 | |
747,360 | $3.00 | October 29, 2003 | |
4,147,249 | $4.80 | May 10, 2004 | |
302,500 | US $5.05 | December 18, 2004 | |
Total: | 5,559,109 | ||
C. Board Practices
Our directors are elected annually and hold office until the next annual general meeting of ourshareholders 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 May 14, 2003.
Our Board of Directors has two committees: the Audit Committee and the Compensation Committee. The members of the Audit Committee and Compensation 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 R.E. Gordon Davis, William Meyer and Robert Quartermain, has the responsibility of reviewing with our Auditor all financial statements to be submitted to an annual general meeting of our shareholders, prior to their consideration by the Board of Directors. Followingits review, the Audit Committee must submit a report on the financial statements to the Board of Directors.
The Compensation Committee, comprised of R.E. Gordon Davis, William Meyer and Catherine McLeod-Seltzer, 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.
Currently,we do not have service contracts withany of our directors orthose 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”).
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D. Employees
We had nine full and three part-time employees as at December 31, 2002, including the members of senior management, three of whom, one full time and two part time,were involved in shareholder and investor communications, three of whomwere responsible for project exploration, three of whomcarried outour management and executive functions and three of whom, two full time and one part time, provided administrative support. We had 12 (nine full and three part-time) and 13 (nine full time and four part time) employees, including the members of senior management, as at December 31, 2001 and December 31, 2000, respectively.
E. Share Ownership
The following table setsout, as of March 31, 2003 the number of our common shares beneficially owned by the Named Executive Officer,whom, to our knowledge, possesses sole voting and investment power with respect to the shares shown.
Table No.22
Named Executive Officer Share Ownership
Name of Beneficial | Title of Class | Number of Securities of Class | Percent of Class |
Robert A. Quartermain | common | 866,000* | 2.2% |
*includes options and warrants exercisable within 60 days.
As at April 4, 2003, our directors and officers held, as a group, directly or indirectly, an aggregate of 306,500 common shares, 126,500 share purchase warrants exercisable at a price of $4.80 per share until May 10, 2004 and 6,000 share purchase warrants exercisable at a price of $2.32 per share until June 25, 2003.
The number of stock options and the number of common shares subject to such stock options granted to the Named Executive Officer are setout below as of March 31, 2003. The exercise price of the stock options is stated in Canadian dollars.
Table No.23
Named Executive Officer Stock Options
Name | Number of Options Outstanding | Exercise Price | Expiry Date |
Robert A. Quartermain | 100,000 | $2.50 | August 16, 2006 |
186,200 | $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 |
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.
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Prior to mid-2000, Teck Corporation was a major shareholder. During the past three years, Teck Corporation has reduced its shareholdings from 2,275,721 on April 30, 2000 to nil on April 30, 2003.
To the best of our knowledge, 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 the common stock.
On December 31, 2002, the shareholders’ list for our common stock showed 3,024 registered shareholders and 39,190,887 shares outstanding. 965 of these registered shareholders were U.S. residents, owning 16,195,513 shares representing 41.32% of our issued and outstanding shares.
B. Related Party Transactions
Since January 1, 2002, 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.
On March 27, 2002, we 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 $200,000. Robert Quartermain, President and a director, is also a director of Repadre Capital. The acquisition price for the royalty interest was approved by Pan American, which is at arm’s length to Silver Standard and Repadre Capital (see Item 4.B – “Business Overview”).
In addition, Robert A. Quartermain, our President and one of our directors, William Meyer, one of our directors, Kenneth McNaughton, our Vice President, Exploration, Ross Mitchell, our Vice President, Finance and Linda Sue, our Corporate Secretary, participated in a private placement of our units in May 2002 (see Item 5.B – “Liquidity and Capital Resources”).
C. Interests of Experts and Counsel
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this sub-item.
Item 8 Financial Information
A. Consolidated Statements and Other Financial Information
Our financial statements are stated in Canadian dollars (Cdn$) and are prepared in Canadian Generally Accepted Accounting Principles (“GAAP”), which differ in certain respects from those principles that we would have followed had our 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 19 to the financial statements.
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Exhibited hereto are audited consolidated financial statements prepared by our management, audited by an independent auditor and accompanied by an audit report:
(a) | Auditor's Report, dated February 21, 2003. |
(b) | Consolidated Balance Sheets as at December 31, 2002 and December 31, 2001 (in Canadian Dollars). |
(c) | Consolidated Statements of Loss and Deficit for the years ended December 31, 2002, December 31, 2001 and December 31, 2000 (in Canadian Dollars). |
(d) | Consolidated Statements of Cash Flows for the years ended December 31, 2002, December 31, 2001 and December 31, 2000 (in Canadian Dollars). |
(e) | Notes to Consolidated Financial Statements for the years ended December 31, 2002, December 31, 2001 and December 31, 2000 (in Canadian Dollars). |
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, 2002, other than the following:
(a) | To April 30, 2003 we have received $1,093,000 due to the issuance of 296,938 common shares relating to the exercising of stock options and warrants. |
Item 9 The Offer and Listing
A. Offer and Listing Details
Our common stock is listed on the TSX Venture Exchange (the “TSX”) (formerly known as the Canadian Venture Exchange Inc., the successor exchange resulting from the merger of the Vancouver Stock Exchange and Alberta Stock Exchange effective November 29, 1999) in Toronto, Ontario, Canada, having the trading symbol“SSO” and CUSIP #82823L-10-6 and is quoted on Nasdaq SmallCap Market with the symbol“SSRI”. Our common stock commenced trading on the Vancouver Stock Exchange in 1947 and was first quoted on Nasdaq SmallCap Market on August 1, 1996.
The following tables setout the reported high and low prices for (a) the five most recent fiscal years; (b) each quarterly period for the past two fiscal years and for the first quarter of 2003; and (c) each month for the past six months.
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Table No.24
High and Low Price for the Five Most Recent FiscalYears
on the TSX (Cdn$‘s)
Fiscal Year Ended | High | Low |
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 |
December 31, 1998 | $8.00 | $1.01 |
Table No.25
High and Low Price for the Five Most Recent Fiscal Years
on the Nasdaq SmallCap Market (US$‘s)
Fiscal Year Ended | High | Low |
December 31, 2002 | $7.80 | $2.16 |
December 31, 2001 | $2.75 | $1.28 |
December 31, 2000 | $2.00 | $1.09 |
December 31, 1999 | $2.06 | $0.78 |
December 31, 1998 | $5.56 | $0.63 |
Table No.26
High and Low Prices for each Quarterly Period for the Past Two Fiscal Years
and for the First Quarter of 2003 on the TSX (Cdn$‘s)
Period Ended | High | Low |
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 |
December 31, 2001 | $4.30 | $2.80 |
September 30, 2001 | $3.55 | $2.20 |
June 30, 2001 | $3.15 | $2.01 |
March 31, 2001 | $2.90 | $1.87 |
Table No.27
High and Low Prices for each Quarterly Period for the Past Two Fiscal Years
and for the First Quarter of 2003 on the Nasdaq SmallCap Market (US$‘s)
Period Ended | High | Low |
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 |
December 31, 2001 | $2.75 | $1.77 |
September 30, 2001 | $2.29 | $1.47 |
June 30, 2001 | $2.32 | $1.38 |
March 31, 2001 | $1.93 | $1.28 |
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Table No.28
High and Low Prices for each Month for the Past Six Months on the TSX (Cdn$‘s)
Month Ended | High | Low |
April 30, 2003 | $7.35 | $5.35 |
March 31, 2003 | $9.45 | $7.30 |
February 28, 2003 | $9.89 | $7.70 |
January 31, 2003 | $8.56 | $5.85 |
December 31, 2002 | $7.00 | $5.96 |
November 30, 2002 | $6.55 | $5.17 |
Table No.29
High and Low Prices for each Month for the Past Six Months
on the Nasdaq SmallCap Market (US$‘s)
Month Ended | High | Low |
April 30, 2003 | $4.95 | $3.55 |
March 31, 2003 | $6.25 | $4.90 |
February 28, 2003 | $6.39 | $5.00 |
January 31, 2003 | $5.51 | $3.67 |
December 31, 2002 | $4.51 | $3.72 |
November 30, 2002 | $4.15 | $3.22 |
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.
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C. Markets
Seethe first paragraph of this Item 9.
D. 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.
E. 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.
Item 10 Additional Information
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
Incorporation
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 Directors
The powers and functions ofthe directors are setout in our Articles which were adopted and filedJuly 12, 1979. 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. |
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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.
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% of our issued shares attending and voting at a meeting of our shareholders.
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 Limitations
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 jurisdictionof British Columbia than the U.S. where U.S. securities law prescribes a 5% threshold for ownership disclosure.
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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. | Notice of exercise of option dated March 30, 2001 delivered by Silver Standard to Kinross exercising the option to acquire the Candelaria Mine on amended terms. See Item 4.B – “Business Overview” under the heading “Candelaria Mine” for a description of the notice of exercise of option. |
2. | Purchase agreement dated April 30, 2001 between Barrick Exploraciones Argentinas S.A., a subsidiary of Barrick Gold Corporation, and Silver Standard. See Item 4.B – “Business Overview” under the heading “Manantial Espejo Project” for a description of the purchase agreement. |
3. | Letter agreement dated May 4, 2001 between Black Hawk Mining Inc. and Silver Standard. See Item 4.B – “Business Overview” under the headings “Manantial Espejo Project” and “Newhawk Arrangement” for a description of the purchase agreement. |
4. | Option agreement dated August 7, 2001 between Imperial Granite and Minerals Pty Ltd. and Silver Standard. See Item 4.B – “Business Overview” under the heading “Bluey’s Silver Prospect” for a description of the option agreement. |
5. | Purchase agreement dated August 31, 2001 between Black Hawk Mining Inc. and Silver Standard. See Item 4.B – “Business Overview” under the headings “Manantial Espejo Project” and “Newhawk Arrangement” for a description of the purchase agreement. |
6. | Finder’s fee agreement dated May 9, 2001 between Silver Standard and Global in respect of the private placement of 351,000 units of Silver Standard. Under the finder’s fee agreement,Silver Standard issued 24,570 units to Global in consideration of services provided in respect of such private placement.See Item 5.B – “Liquidity and Capital Resources” under the heading “2001 Private Placements”. |
7. | Purchase agreement dated October 1, 2001 between Kinross Gold U.S.A., Inc and Silver Standard. See Item 4.B – “Business Overview” under the heading “Candelaria Mine” for a description of the purchase agreement. |
8. | Option agreement dated November 16, 2001 between Sociedad Contractual Minera Septentrion and Silver Standard. See Item 4.B – “Business Overview” under the heading “Challacollo Project” for a description of the option agreement. |
9. | Option agreement dated November 22, 2001 between Sean Morriss and Silver Standard. See Item 4.B – “Business Overview” under the heading “Newhawk Gold Mines Ltd.” for a description of the option agreement. |
10. | Finder’s fee agreement dated October 15, 2001 between Silver Standard and Global in respect of the private placement of 578,350 units of Silver Standard. Under the finder’s fee agreement,Silver Standard issued 34,700 units to Global in consideration of services provided in respect of such private placement.See Item 5.B – “Liquidity and Capital Resources” under the heading “2001 Private Placements”. |
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11. | Purchase agreement dated November 1, 2001 among Pacific Rim Mining Corp., Pac Rim Cayman, Pac Rim Caribe III, Silver Standard (BVI) Inc. and Silver Standard. See Item 4.B – “Business Overview” under the heading “Diablillos Property” for a description of the purchase agreement. |
12. | Option agreement dated January 23, 2002 between Gold-Ore Resources Ltd. and Silver Standard. See Item 4.B – “Business Overview” under the heading “San Marcial Silver Project” for a description of the option agreement. |
13. | Purchase agreement dated March 27, 2002 betweenTriton MiningCorporation and Silver Standard. See Item 4.B under the heading “Manantial Espejo Project” for a description of the purchase agreement. |
14. | Sale agreement dated March 27, 2002 between Pan American Silver Corp. and Silver Standard. See Item 4.B – “Business Overview” under the heading “Manantial Espejo Project” for a description of the purchase agreement. |
15. | Joint venture agreement dated March 27, 2002 between Pan American Silver Corp. and Silver Standard. See Item 4.B – “Business Overview” under the heading “Manantial Espejo Project” for a description of the joint venture agreement. |
16. | Royalty purchase agreement dated March 27, 2002 between Repadre Capital Corporation and Silver Standard. See Item 4.B – “Business Overview” under the heading “Manantial Espejo Project” for a description of the purchase agreement. |
17. | Finder’s fee agreement dated May 1, 2002 between Silver Standard and Global in respect of the private placement of 1,152,000 units of Silver Standard. Under the finder’s fee agreement,Silver Standard issued 80,640 units to Global in consideration of services provided in respect of such private placement. Item 5.B – “Liquidity and Capital Resources” under the heading“Events in 2002 — Private Placement”. |
18. | Purchase agreement dated June 21, 2002 among Stonehill Institutional Partners, L.P., Stonehill Offshore Partners Limited, Stonehill Capital Management, LLC and Silver Standard. See Item 4.B under the heading “Pirquitas Project” for a description of the purchase agreement. |
19. | Letter agreement dated November 7, 2002 among Vista Gold Corporation, Vista Nevada Corp. and Silver Standard. See Item 4.B under the heading “Maverick Springs Project” for a description of the letter agreement. |
20. | Royalty purchase agreement dated December 2, 2002 between Pan American Silver Corporation and Silver Standard. See Item 4.B – “Business Overview” under the heading “Manantial Espejo Project” for a description of the purchase agreement. |
21. | Purchase agreement dated November 27, 2002 among Imperial Metals Corporation, Silvertip Mining Corporation and Silver Standard. See Item 4.B under the heading “SilvertipProperty” for a description of the purchase agreement. |
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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, 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.
Investments requiring notification and review are all direct acquisitions of Canadian businesses with assets of C$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 or with assets of between C$5,000,000 and C$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.
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 inour shares by or from a WTO investor will be reviewable only if it is an investment to acquire control ofSilver 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 2000 WTO Review Threshold is C$192,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control ofSilver 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. Ifour 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.
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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 controlsSilver Standard, is reviewable if the value ofour assets is then C$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 controlsSilver Standard, and the value ofour 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 ofSilver 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 (in 2000) for a WTO investor or a threshold of C$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 ofour 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.
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’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.
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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.
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 Revenue Canada, 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.
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 percent 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 percent if the shareholder is also a corporation that beneficially owns at least 10 percent of the voting stock of the payor corporation.
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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.
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.
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 percent 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:
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(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 States Federal Income Tax Consequences
The following is a general discussion of certain possible United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of common shares of the Company. 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).
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.The Company recommends holders 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 organized in or under the laws of the United States or of any political subdivision thereof, (iii) an estate whose income is taxable 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.
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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.
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, provided the required information is furnished to 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.
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Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option 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 orits 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.
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, there can be no assurance that the Company will not be considered a foreign personal holding company for the current or any future taxable year.
Foreign Investment Company
If 50% or more of the combined voting power or total value of the Company’s outstanding shares is held, directly or indirectly, by citizens or residents of the United 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 Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Company may be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares 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 that the Company will not be considered a foreign investment company for the current or any future taxable year.
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Passive Foreign Investment Company
Certain United States income tax legislation contains rules governing “passive foreign investment companies” (“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 States and, for any taxable year, either (i) 75% or more ofits gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, 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), ofits assets that produce or are held for the production of “passive income” is 50% or more. If a foreign corporation owns, directly or indirectly, at least 25% 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”). 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.
A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal income taxation under one 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 applied 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) and a U.S. Holder owns, actually 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).
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 his 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’s taxable year in which (or with which) the Company’s taxable year ends, regardless of whether such amounts are actually distributed.
The 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 Company (or deemed to be realized on the pledge of his shares) as capital gain; (ii) treat his 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 his 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.
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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’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 must 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’s pro rata share of the Company’s post-1986 earnings and profits as of the qualification date. The qualification date is the first day of the Company’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’s holding period for the common shares of the Company 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. 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’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.
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 orits direct and indirect interest in the shares 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.
If a U.S. Holder does not make a timely QEF election during a year in which it holds (or is deemed to have held) the common shares in question 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 reasons of a pledge) of his common shares in the Company and (ii) certain “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, the U.S. Holder’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 Company and all excess distributions on his common shares in the Company over the entire holding period for the common shares. 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.
If the Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds common shares of the Company, then the Company will continue to be treated as a PFIC with respect to such common shares in the Company, 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 Non-Electing U.S. Holders) as if such common shares in the Company had been sold on the last day of the last taxable year for which it was a PFIC.
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Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold, 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”). 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 the mark-to-market election is made by a Non-Electing U.S. Holder after the beginning of the holding period for the PFIC 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. A U.S. Holder who makes the mark-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 Company as of the close of such tax year over such U.S. Holder’s adjusted basis in such common shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’s adjusted tax basis in the common shares over the fair market value of such shares 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 Company 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 shares that were allowed as deductions for prior tax years. A U.S. Holder’s adjusted tax basis in the common shares of the Company 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 the taxable year in which the election is made and to each subsequent taxable year, unless the common shares of the Company cease to be marketable, as specifically defined, or the IRS consents to revocation of the election. Because the IRS has not established procedures for making a mark-to-market election, U.S. Holders should consult their tax advisor regarding the manner of making such an election.
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 Company in the hands of the transferee and the basis of any property received in the exchange for those common shares 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 are 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 Company 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.
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Controlled Foreign Corporation
If more than 50% of the total combined voting power of all classes of shares entitled to vote or the total value of the shares of the Company is owned, actually or constructively, by citizens or residents of the United 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)), each of which own, actually or constructively, 10% or more of the total combined voting power of all classes of shares entitled 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 which is the inclusion of certain 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 of common shares 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 treated as ordinary income to the extent of earnings and profits of the Company attributable to the shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States Shareholders of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of 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 respect to a PFIC. Because 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.
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.
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.
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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
(a) | Evaluation of disclosure controls and procedures. |
Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 20-F for the year ended December 31, 2002, our principal executive officer and principal financial officer have concluded that the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. |
(b) | Changes in internal controls. |
There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Item 16 [Reserved]
PART III
Item 17 Financial Statements
Our financial statements are stated in Canadian Dollars (Cdn$) and are prepared in Canadian GAAP, which differs in certain respects from those principles that we would have followed had our 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 19 to the financial statements.
The financial statements and notes thereto as required under Item 17 are attachedto 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 includedin this Annual Report immediately preceding the financial statements.
Item 18 Financial Statements
Not applicable.
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Item 19 Exhibits
All Financial Statements and Exhibits referred to in this Item 19 are incorporated by reference into this Annual Report.
Exhibit Number | Description |
1.1 | 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. |
12.1 | Certification of President As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
12.2 | |
13.1 | |
13.2 | |
14.1 | Consent of Pincock, Allen & Holt, a division of Hart Crowser Inc. incorporated by reference from Exhibit 23.3 to our Registration Statement under the Securities Act of 1933 on Amendment No.5 to Form F-3, Registration No. 333-102757 filed onApril 21, 2004 |
14.2 | Consent of Mine Development Associates incorporated by reference from Exhibit 23.4 to our Registration Statement under the Securities Act of 1933 on Amendment No.5 to Form F-3, Registration No. 333-102757 filed onApril 21, 2004 |
14.3 | Consent of PricewaterhouseCoopers LLP incorporated by reference from Exhibit 23.1 to our Registration Statement under the Securities Act of 1933 on Amendment No.5 to Form F-3, Registration No. 333-102757 filed onApril 21, 2004 |
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A. Financial Statements
Silver Standard Resources Inc.
Consolidated Financial Statements
(An Exploration Stage Company)
December 31, 2002, 2001 and 2000
(expressed in thousands of Canadian dollars)
F-1
September 24, 2003
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 19, and contain estimates based on management’s judgement. Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets safeguarded, and proper records maintained.
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 United States, and their report follows.
"Robert A. Quartermain" | "Ross A. Mitchell" |
Robert A. Quartermain President | Ross A. Mitchell Vice President, Finance |
F-2
Independent Auditors’ Report
To the Shareholders of
Silver Standard Resources Inc.
We have audited the consolidated balance sheets of Silver Standard Resources Inc. as at December 31, 2002 and 2001 and the consolidated statements of loss and deficit and cash flows for the years ended December 31, 2002, 2001 and 2000. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Canada and the 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.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2002 and 2001 and the results of its operations and its cash flows for the years ended December 31, 2002, 2001 and 2000 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”
Chartered Accountants
Vancouver, B.C., Canada
February 21, 2003(except as to note 19 which is as of September 24, 2003)
F-3
Comments by the Auditors for US Readers
Accounting principles generally accepted in Canada vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended December 31, 2002 and the determination of consolidated shareholders' equity at December 31, 2002 and 2001 to the extent summarized in Note 19 as restated to the consolidated financial statements.
"PricewaterhouseCoopers LLP"
Chartered Accountants
Vancouver, B.C., Canada
September 24, 2003
F-3a
Silver Standard Resources Inc.
(An Exploration Stage Company)
Consolidated Balance Sheets
As at December 31, 2002 and 2001
(expressed in thousands of Canadian dollars)
2002 $ | 2001 $ | |
---|---|---|
Assets | ||
Current assets | ||
Cash and cash equivalents (note 15) | 17,342 | 5,577 |
Marketable securities (notes 4 and 12(b)) | 313 | -- |
Accounts receivable (note 12 (a)) | 409 | 209 |
Prepaid expenses | 200 | 178 |
18,264 | 5,964 | |
Reclamation deposits(note 14) | 70 | 110 |
Investments(note 4) | 100 | 100 |
Mineral property costs(note 5) | 56,230 | 39,136 |
Fixed assets(note 6) | 84 | 89 |
74,748 | 45,399 | |
Liabilities | ||
Current liabilities | ||
Accounts payable and accrued liabilities | 817 | 422 |
Current portion for reclamation (note 14) | 142 | -- |
Property acquisition payable (note 5(j)) | 772 | -- |
Current portion of long-term debt (note 7) | 103 | 22 |
1,834 | 444 | |
Provision for reclamation(note 14) | 701 | 503 |
Long-term debt(note 7) | 249 | 143 |
Mineral property payable(note 8) | -- | 3,326 |
Minority interest(note 5(k)) | -- | 45 |
2,784 | 4,461 | |
Shareholders' Equity | ||
Capital stock(note 9) | ||
Authorized | ||
100,000,000 common shares without par value | ||
Issued | ||
39,190,887 common shares (2001 - 30,913,953) | 99,510 | 66,108 |
Value assigned to stock options and warrants(notes 10 and 11) | 148 | 326 |
Deficit | (27,694) | (25,496) |
71,964 | 40,938 | |
74,748 | 45,399 | |
Nature of operations(note 1)
Approved by the Board of Directors
"R.E. Gordon Davis" Director "William Meyer" Director
The accompanying notes are an integral part of the consolidated financial statements.
F-4
Silver Standard Resources Inc.
(An Exploration Stage Company)
Consolidated Statements of Loss and Deficit
For the years ended December 31, 2002, 2001 and 2000
(expressed in thousands of Canadian dollars, except number of shares and per share amounts)
2002 $ | 2001 $ | 2000 $ | |
---|---|---|---|
Exploration and mineral property costs | |||
Property examination and exploration | 279 | 107 | 174 |
Mineral property costs written off (note 5) | 53 | 1,744 | 68 |
Reclamation (note 14) | 420 | 201 | 329 |
(752) | (2,052) | (571) | |
Expenses | |||
Depreciation | 24 | 25 | 23 |
General and administration | 1,404 | 1,105 | 992 |
Professional fees | 153 | 80 | 86 |
Salaries and employee benefits | 434 | 307 | 317 |
Stock-based compensation (note 10) | 132 | -- | -- |
(2,147) | (1,517) | (1,418) | |
Other income (expenses) | |||
Investment income | 305 | 176 | 204 |
Gain on sale of marketable securities and investment writedowns | 544 | -- | (3) |
Fixed asset writedowns and gain (loss) on sale | (19) | -- | 18 |
Gain on sale of mineral property | -- | 1 | 94 |
Interest expense (note 3(a)) | (92) | -- | -- |
Foreign exchange (loss) gain | (37) | 15 | (29) |
701 | 192 | 284 | |
Loss for the year | (2,198) | (3,377) | (1,705) |
Deficit - Beginning of year | (25,496) | (22,119) | (20,414) |
Deficit - End of year | (27,694) | (25,496) | (22,119) |
Weighted average number of shares outstanding | 35,739,100 | 26,375,200 | 22,217,800 |
Basic and diluted loss per common share | (0.06) | (0.13) | (0.08) |
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 Cash Flows
For the years ended December 31, 2002, 2001 and 2000
(expressed in thousands of Canadian dollars)
2002 $ | 2001 $ | 2000 $ | |
---|---|---|---|
Cash flows from operating activities | |||
Loss for the year | (2,198) | (3,377) | (1,705) |
Items not affecting cash | |||
Depreciation | 24 | 25 | 23 |
Mineral property costs written off | 53 | 1744 | 68 |
Interest expense | 90 | -- | -- |
Fixed asset write-downs and loss (gain) on sale | 19 | -- | (18) |
Gain on sale of mineral property | -- | (1) | (94) |
Gain on sale of marketable securities and investment | |||
write-downs | (544) | -- | 3 |
Valuation of options issued to non-employees | 132 | -- | -- |
Donation made in shares | 41 | -- | -- |
Provision for reclamation | 98 | -- | -- |
Foreign exchange loss | 37 | -- | -- |
(2,248) | (1,609) | (1,723) | |
Changes in non-cash working capital items | |||
Accounts receivable and prepaid expenses | (222) | (137) | (6) |
Accounts payable and accrued liabilities | 220 | 100 | (267) |
(2,250) | (1,646) | (1,996) | |
Cash flows from financing activities | |||
Shares issued for cash | 26,725 | 11,174 | 5,901 |
Share issue cash costs | (333) | (26) | (4) |
Repayment of long-term debt | (152) | (22) | (3) |
26,240 | 11,126 | 5,894 | |
Cash flows from investing activities | |||
Minority interest buy-out | (2) | -- | -- |
Mineral property costs | (7,963) | (4,591) | (2,623) |
Proceeds on sale of mineral property | -- | 1 | 94 |
Purchase of fixed assets | (38) | (28) | -- |
Proceeds on sale of fixed assets | -- | 49 | 20 |
On acquisition of joint venture | 34 | -- | -- |
Acquisitions (note 3) | (4,556) | (2,625) | (1,024) |
Reclamation deposit recovery (advance) | 40 | (18) | 19 |
Purchase of investments | (527) | -- | -- |
Proceeds on sale of investments | 757 | -- | -- |
(12,255) | (7,212) | (3,514) | |
Foreign exchange gain on foreign cash held | 30 | -- | -- |
Increase in cash and cash equivalents | 11,765 | 2,268 | 384 |
Cash and cash equivalents - Beginning of year | 5,577 | 3,309 | 2,925 |
Cash and cash equivalents - End of year | 17,342 | 5,577 | 3,309 |
Supplementary cash flow information(note 15)
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Silver Standard Resources Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(all tabular amounts are expressed in thousands of Canadian dollars, unless otherwise stated)
1 | Nature of operations |
The 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. If the company is to advance or develop its mineral properties further, it will be necessary 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. |
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 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 19. |
Principles of consolidation
These 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 Argentina, 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 now proportionately consolidates its interest in Minera Triton Argentina S.A. (Minera Triton) which is reflected in the Manantial Espejo mineral property. The company proportionately consolidates its 43.4% interest in Sunshine Argentina, Inc. which is reflected in the Pirquitas mineral property. |
F-7
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 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 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 loss for the year. |
Cash and cash equivalents
Cash 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 which are subject to an insignificant risk of changes in value. |
Marketable securities
Marketable securities, all of which are categorized as available for sale, are carried at the lower of cost and quoted market value. |
Investments
Investments are recorded at cost. If other than temporary impairment in value has occurred, they are written down to estimated market 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 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 they are 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. |
F-8
Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if 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 flow to be generated from its properties. The company presently has no proven and 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 assets
Fixed 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 reclamation
The 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 an ongoing basis, site restoration and cleanup costs for exploration projects are estimated and charged to operations when reasonably determinable. Upon commencement of production, estimated future costs for reclamation and closure of producing properties will be provided for over the life of the orebody on a unit-of-production basis. |
Stock-based compensation
Effective January 1, 2002, the company adopted the new accounting standard for stock-based compensation. The new standard covers the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services provided by employees and non-employees. The standard sets out a fair value-based method of accounting that is required for certain, but not all, stock-based transactions. The fair value method must be applied to all stock-based payments to non-employees. However, the new standard permits the company to continue its existing policy that no compensation cost is recorded on the granting of stock options to employees and directors 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. The standard also requires additional disclosures for options granted to employees and directors, including disclosure 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 (note 10). |
F-9
Income taxes
Income 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 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. |
3 | Acquisitions |
a) | 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. |
The convertible debenture matures on June 26, 2003 with interest to be paid in cash on maturity at 10%. The debenture was convertible at the election of the vendor into common shares of the company at a price of $5.80 per share. By December 31, 2002, the debenture was fully converted by the issuance of 360,636 common shares with a value of $2,092,000. Interest of $90,000 (US$56,900) was accrued at December 31, 2002 and is to be paid on or before June 26, 2003. |
b) | In April 2001, the company exercised its option to acquire a 100% interest in the Candelaria property (note5(i)). 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 11), issuing a $300,000 non-interest bearing promissory note (note 8) 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 non-interest bearing promissory note can be paid in cash or shares at the company's election based on the 20-day weighted average share price. The fair value of the consideration amounted to $2,691,947, which has been allocated to mineral property costs. The value for the common shares issued was based on market price. |
F-10
c) | 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 for 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 Inc. (Black Hawk) in exchange for a 40% direct interest in the Sulphurets property. The company accounted for the acquisition of the remaining interest in the Sulphurets Joint Venture as a purchase with total consideration of $528,000. The purchase price was assigned as follows: |
2001 $ | |
---|---|
Net assets acquired | |
Cash | 8 |
Accounts receivable | 13 |
Reclamation deposits | 8 |
Mineral property costs (note 5(f) | 499 |
528 | |
Consideration | |
Cash | 125 |
Mineral property (10% Manantial Espejo) | 460 |
Less: Reversal of accounts payable | (57) |
528 | |
d) | In November 2001, the company acquired 100% of Pacific Rim Argentina, a company incorporated in Argentina which 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). The purchase price was assigned as follows: |
2001 $ | |
---|---|
Net assets acquired | |
Mineral property costs (note 5(a)) | 5,433 |
Provision for reclamation | (3) |
5,430 | |
Consideration | |
Cash | 2,404 |
Long-term mineral property payable | 3,026 |
5,430 | |
F-11
4 | Marketable securities and investments |
2002 $ | 2001 $ | ||
---|---|---|---|
Marketable securities | |||
Cardero Resources Corp. | 250 | -- | |
Vista Gold Corp. (note 12(b)) | 63 | -- | |
313 | -- | ||
Investments | |||
Sandy K. Mines Ltd. | 100 | 100 | |
During 2002, the company converted its convertible debenture in Sandy K. Mines Ltd. into 500,000 common shares of Sandy K. Mines Ltd. and the mortgage it held on the property was discharged. Sandy K. Mines Ltd. is a private company. |
At December 31, 2002, marketable securities carried at a cost of $313,000 (2001 — $nil) had a quoted market value of $1,358,000 (2001 — $nil). |
F-12
5 | Mineral property costs |
At December 31, mineral property costs are as follows:
2002 | ||||
---|---|---|---|---|
Acquisition costs $ | Exploration costs $ | Total $ | ||
Argentina | ||||
Diablillos | 5,433 | 122 | 5,555 | |
Manantial | 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 Pitarrillia | 16 | 47 | 63 | |
La Valenciana | 12 | 58 | 70 | |
Otega | 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-13
2001 | ||||
---|---|---|---|---|
Acquisition costs $ | Exploration costs $ | Total $ | ||
Argentina | ||||
Diablillos | 5,433 | 33 | 5,466 | |
Manantial | 3,143 | 5,590 | 8,733 | |
Australia | ||||
Bluey's | 7 | 35 | 42 | |
Bowdens | 10,714 | 3,945 | 14,659 | |
Canada | ||||
Sulphurets | 2,393 | 1,256 | 3,649 | |
Chile | ||||
Challacollo | 31 | 145 | 176 | |
United States | ||||
Candelaria | 2,981 | 904 | 3,885 | |
Shafter | 1,677 | 849 | 2,526 | |
Balance - December 31, 2001 | 26,379 | 12,757 | 39,136 | |
Acquisition and exploration costs incurred during the year are as follows
Year ended December 31, | ||
---|---|---|
2002 $ | 2001 $ | |
Balance - Beginning of year | 39,136 | 27,205 |
Acquisitions costs for the year | 11,880 | 9,791 |
Assaying | 235 | 116 |
Camp costs | 1,078 | 948 |
Consulting | 147 | 272 |
Drafting/engineering | 101 | 141 |
Drilling | 1,805 | 634 |
Environmental | 299 | 136 |
Field administration | 274 | 332 |
Property holding costs | 281 | 294 |
Geology | 659 | 636 |
Legal | 280 | 80 |
Value added tax | 108 | 295 |
Exploration costs for the year | 5,267 | 3,884 |
Costs written off in the year | (53) | (1,744) |
Balance - End of year | 56,230 | 39,136 |
F-14
a) | Diablillos, Argentina |
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 north-western 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 shares (note 8) based on a 20-day weighted average share price. |
b) | Manantial Espejo, Argentina |
During 1998, the company entered into an agreement with Triton Mining Corporation (Triton), a wholly owned subsidiary of Black Hawk, to acquire a 40% interest in the Manantial Espejo project in Argentina. 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). Barrick retained a royalty of US$5.00 per ounce of gold and US$0.06 per ounce of silver which would commence with commercial production. 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 property. |
In March 2002, the company acquired Black Hawk’s entire interest in the Manantial Espejo property. 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 acquisitions was US$400,000 (paid). |
c) | Pirquitas, Argentina |
During 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. Sunshine owns all the surface rights covering the mineralization and mill and plant facilities and the property is unencumbered by any royalties other than those payable to the government. |
F-15
d) | Bowdens, Australia |
The 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. |
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 Bowdens project. |
e) | Silvertip, Canada |
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. Subsequent to year-end, the company lodged a $79,000 reclamation deposit as security for its reclamation obligations (note 14). |
f) | Sulphurets, Canada |
The Sulphurets project comprises the Bruceside property in British Columbia, Canada now 100% held by Newhawk, a subsidiary of the company. Prior to the acquisition in August 2001 (note 3(c)), the project was held as a joint venture with Black Hawk. In November 2001, the company entered into an option agreement to sell its investment in the Sulphurets project including its interest in Newhawk, the Snowfields claim and one other non-core project, Blue Ice, for $3,800,000. The optionee did not exercise the option and the agreement terminated in 2002. |
g) | Challacollo, Chile |
In 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 will make cash option payments of US$1,500,000 staged over two years. The staged payments, which include a 5% vendor finder’s fee, are US$20,000 paid on signing; US$130,000 by March 1, 2002 (paid); US$250,000 by August 1, 2002 (paid); US$500,000 by March 1, 2003 and US$600,000 by August 1, 2003. The property is subject to an existing 2% production royalty up to a maximum of US$850,000 as well as a 2% production royalty to Minera Septentrion increasing to 3% once the former royalty has been fully paid. The latter royalty can be purchased for US$1,500,000 at any time. |
F-16
h) | San Marcial, Mexico |
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 45,706 common shares (issued) of the company with a fair value of $314,000. Pursuant to a new agreement entered into between the underlying property vendor and the company, the company is to make payments to the vendor of US$25,000 by August 13, 2002 (paid), US$25,000 by February 13, 2003 (paid), US$25,000 by August 13, 2003 and 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. US$75,000 of this commitment is to be spent by August 13, 2003 and a further $150,000 by August 13, 2004. |
i) | Candelaria, U.S.A. |
During the year ended December 31, 2000, the company extended the option period to purchase a 100% interest in the Candelaria silver mine in Nevada from Kinross Gold Corporation (Kinross), to March 31, 2001 to facilitate transfer of permits and reclamation bonds from Kinross to the company and to receive regulatory approvals. Under the terms of the extension agreements, the company issued 27,500 common shares, paid $50,000 and commenced paying holding costs associated with the property. |
In April 2001, the company exercised its option to acquire a 100% interest in the Candelaria property. The acquisition closed on October 1, 2001, with the company giving consideration with a face value of $2,691,947 (note 3(b)), which has been allocated to mineral property costs. In 2002, $89,000 was accrued as a project cost representing the fair value of reclamation obligations. Under the terms of the agreement, Kinross is responsible for completing reclamation of the property that was completed in 2002 and, upon completion of reclamation, the company assumed all liabilities relating to the Candelaria property. The total cost of the monitoring of the property is estimated to be US$20,300 over a five-year period. In addition, under its agreement, the company has until April 1, 2003 to provide substitute environmental bonds presently lodged by Kinross. 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 agreement further states the bonding date can be extended to April 1, 2004 upon the payment of US$50,000 to Kinross. The company has pledged the property to Kinross as collateral pending the company arranging reclamation bonding. |
j) | Maverick Springs, U.S.A. |
In November 2002, the company entered into a letter agreement for an option/joint venture 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 letter agreement, the company will pay Vista US$300,000 on closing of a formal agreement and contribute US$1,200,000 over a period of four years toward exploration programs, land holding costs and option payments. At December 31, 2002, the company accrued $772,000 (the US$300,000 obligation and US$188,891 for 2002 exploration and land holdings costs) based on the letter agreement. These funds will be paid on signing of a formal agreement. |
F-17
k) | Shafter, U.S.A. |
During the year ended December 31, 2000, the company acquired a 90.56% 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 February 2002, the Nevada Secretary of State accepted a filing document that effected the acquisition by the company of the remaining 9.44% outstanding minority stockholdings in Rio Grande. The cost of acquiring the minority stockholding was recorded at US$55,053 and will be paid out over time as shares are surrendered. |
In 2002, the company paid US$160,000 in cash and issued 53,000 common shares valued at $326,000 for assets to be eventually used at Shafter. |
The Shafter properties are subject to certain rental and royalty agreements with a previous owner and other current property lessors covering substantially all the acreage contained within the project. In the event mineral production were to commence in the future, these agreements would become effective. |
l) | Bluey’s, Australia |
In 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. There was no time period to expend the Aus $750,000. During 2002, the company terminated its interest and wrote off deferred costs of $53,000. |
m) | El Asiento, Bolivia |
During the year ended 2001, the company wrote off its remaining $1,744,000 investment in the property. |
6 | Fixed assets |
2002 | |||
---|---|---|---|
Cost $ | Accumulated depreciation $ | Net $ | |
Office equipment | 285 | 203 | 82 |
Mining equipment | 45 | 45 | - |
Land | 2 | - | 2 |
332 | 248 | 84 | |
F-18
2001 | |||
---|---|---|---|
Cost $ | Accumulated depreciation $ | Net $ | |
Office equipment | 335 | 253 | 82 |
Mining equipment | 45 | 40 | 5 |
Land | 2 | -- | 2 |
382 | 293 | 89 | |
7 | Long-term debt |
2002 $ | 2001 $ | |
---|---|---|
Amount payable to a former officer of Silver Assets in variable annual | ||
amounts over 20 years, discounted at 7.3%, final payment in 2015 | 103 | 114 |
Mortgage payable at 10%, due in monthly instalments of US$649, | ||
final payment due April 1, 2008 (i) | 50 | 51 |
Amounts payable relating to land acquisitions, due US$50,000 July 1, | ||
2003; US$37,500 January 1, 2004 and; US$37,500 | ||
July 31, 2004. Interest at US$1,000 per month | 199 | - |
352 | 165 | |
Less: Current portion | 103 | 22 |
249 | 143 | |
(i)The mortgage is collateralized by certain properties in the Shafter project (note 5(k)).
F-19
8 | Mineral property payable |
2002 $ | 2001 $ | |
---|---|---|
Amount payable in cash or shares regarding the acquisition of the | ||
Diablillos property (note 5(a)), non-interest bearing | ||
Due in 2002 - US$1,000,000 (i) | - | 1,593 |
Due in 2003 - US$900,000 (i) | - | 1,433 |
Total (note 3(d)) | - | 3,026 |
Amount payable in cash or shares regarding the acquisition of the | ||
Candelaria property, non-interest bearing, final payment due April 1, | ||
2002 (note 3(b)) and (ii) | - | 300 |
- | 3,326 | |
(i) | During 2002, the company issued 525,995 common shares valued at $2,980,000 to settle these obligations (note 12(c)). A $46,000 foreign exchange gain was recorded on the settlement. |
(ii) | This obligation was settled during 2002 by the issuance of 70,922 common shares valued at $300,000. |
F-20
9 | Capital stock |
Authorized | |
100,000,000 common shares without par value |
Number of shares | Amount $ | |
---|---|---|
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 10) | 1,941,225 | 3,976 |
Exercise of warrants (note 11) | 1,733,000 | 2,703 |
Finders' fees on private placement (a) | 59,270 | 139 |
For mineral properties (notes 3(b) and 3(c)) | 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 10) | 695,734 | 1,827 |
Exercise of warrants (note 11) | 1,584,301 | 4,919 |
Finders' fees on private placement (b) | 80,640 | 323 |
For mineral properties (note 5(e), (h) and (k)) | 198,706 | 1,258 |
For conversion of convertible debenture (note 3(a)) | 360,636 | 2,092 |
For mineral property payables (note 8) | 596,917 | 3,280 |
Exercised warrants and options assigned values | -- | 339 |
Other | 10,000 | 41 |
Share issue costs (b) | -- | (656) |
Balance - December 31, 2002 | 39,190,887 | 99,510 |
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. |
F-21
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 $7.82 (US$5.05) until December 18, 2004. The company paid $146,500 in cash as a finder’s fee on this placement. Other costs associated with both private placements totalled $343,000. |
10 | Stock options |
The company does not have an established share purchase option plan. However, from time to time, the Board of Directors may grant options to directors, officers, employees or consultants subject to approval by the regulatory authorities. The maximum term is usually five years, with the vesting period determined at the discretion of the Board of Directors. The exercise price on an option is based upon the last closing price of the company’s common shares, listed on the TSX Venture Exchange, immediately preceding the grant. |
The change in stock options issued to officers, employees, directors and non-employees are as follows: |
2002 | 2001 | 2000 | |||||
---|---|---|---|---|---|---|---|
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 | 1,392,775 | 2.58 | 2,257,500 | 2.06 | 1,024,600 | 1.91 | |
Granted | 868,400 | 6.26 | 1,135,000 | 2.70 | 2,073,000 | 2.01 | |
Exercised | (695,734) | 2.63 | (1,941,225) | 2.05 | (807,100) | 1.75 | |
Forfeited | - | - | (58,500) | 2.29 | (33,000) | 2.09 | |
Options | |||||||
outstanding at | |||||||
December 31 | 1,565,441 | 4.60 | 1,392,775 | 2.58 | 2,257,500 | 2.06 | |
Options | |||||||
exercisable at | |||||||
December 31 | 1,529,191 | 4.60 | 1,376,525 | 2.58 | 1,528,800 | 2.01 | |
F-22
The following table summarizes information about stock options outstanding and exercisable at December 31, 2002:
Exercise price $ | Options outstanding | Options exercisable | Expiry date | Weighed average remaining life (years) | ||
---|---|---|---|---|---|---|
2.50 | 10,000 | 10,000 | October 7, 2004 | 1.8 | ||
2.10 | 15,000 | 15,000 | April 17, 2005 | 2.3 | ||
2.09 | 10,000 | 10,000 | June 5, 2005 | 2.4 | ||
1.90 | 44,841 | 44,841 | December 28, 2005 | 3.0 | ||
2.50 | 321,000 | 308,500 | August 16, 2006 | 3.6 | ||
3.01 | 364,800 | 361,050 | November 6, 2006 | 3.8 | ||
4.25 | 316,400 | 308,900 | January 1, 2007 | 4.0 | ||
8.00 | 443,400 | 430,900 | August 2, 2007 | 4.6 | ||
6.23 | 40,000 | 40,000 | October 31, 2007 | 4.8 | ||
1,565,441 | 1,529,191 | 4.0 | ||||
Effective January 1, 2002, the company adopted the new accounting standard for stock-based compensation. The company granted 74,900 stock options to non-employees in 2002. The fair value of these options was $161,000 with the company expensing $132,000 of this assigned value and deferring $29,000 into mineral property costs. As permitted under the standard, 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 $1,664,000 in 2002 in respect of the 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 are as follows: |
2002 $ | ||
---|---|---|
Loss for the year | ||
As reported | 2,198 | |
Compensation expenses | 1,664 | |
Pro forma | 3,862 | |
Basic and diluted loss | ||
As reported | 0.06 | |
Pro forma | 0.11 |
F-23
The fair value of stock options was estimated at the grant date based on the Black-Scholes option-pricing model, using the following assumptions: |
Expected dividend yield | nil |
Average risk-free interest rate | 3.4% |
Expected life | 2.5 years |
Expected volatility | 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. |
11 | Warrants |
During the year ended December 31, 2001, in connection with the acquisition of the Candelaria property described in note 3(b), the company issued 600,000 common share purchase warrants which were assigned a value of $326,000. During the year ended December 31, 2002, these warrants were exercised and the assigned value was credited to capital stock. |
The changes in warrants outstanding are as follows: |
2002 | 2001 | 2000 | |||||
---|---|---|---|---|---|---|---|
Number of shares | Weighted average exercise price $ | Number of shares | Weighted average exercise price $ | Number of shares | Weighted average exercise price $ | ||
Warrants outstanding at January 1 | 2,560,270 | 2.87 | 1,720,000 | 1.50 | 1,330,144 | 1.74 | |
Granted | 4,583,140 | 5.00 | 2,573,270 | 2.91 | 1,720,000 | 1.50 | |
Exercised | (1,584,301) | 3.10 | (1,733,000) | 1.56 | (1,273,859) | 1.60 | |
Expired | -- | -- | -- | -- | (56,285) | 4.88 | |
Warrants outstanding at December 31 | 5,559,109 | 4.56 | 2,560,270 | 2.87 | 1,720,000 | 1.50 | |
F-24
The following table summarizes information about warrants outstanding at December 31, 2002:
Exercise price $ | Warrants outstanding | Expiry date | Weighed average remaining life (years) | ||
---|---|---|---|---|---|
2.32 | 362,000 | June 25, 2003 | 0.5 | ||
3.00 | 747,360 | October 29, 2003 | 0.8 | ||
4.80 | 4,147,249 | May 10, 2004 | 1.4 | ||
7.82 | (US$5.05) | 302,500 | December 18, 2004 | 2.0 | |
5,559,109 | 1.3 | ||||
12 | Related party transactions |
a) | During the year ended December 31, 2002, the company recorded management fees and expense reimbursements of $176,900 (2001 — $312,900; 2000 — $344,800) from companies related by common management. At December 31, 2002, accounts receivable include $78,500 (2001 — $93,500) from these related parties. |
b) | The company holds marketable securities in Vista, which has a common director with the company. |
c) | 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. |
13 | Income taxes |
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: |
2002 | 2001 | 2000 | |
---|---|---|---|
Statutory tax rate | 39.6% | 45% | 45% |
$ | $ | $ | |
Loss for the year | (2,198) | (3,377) | (1,705) |
Provision for income taxes based on | |||
statutory rates | (870) | (1,520) | (767) |
Differences in foreign tax rates | 11 | (1) | 21 |
Losses for which an income tax benefit | |||
has not been recognized and other | 859 | 1,521 | 746 |
-- | -- | -- | |
F-25
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 as of December 31, are as follows: |
2002 $ | 2001 $ | |
---|---|---|
Long-term future tax assets | ||
Caoital and non-capital loss carry-forwards | 7,329 | 9,503 |
Fixed assets and resource properties | 5,497 | 5,649 |
Share issuance costs | 362 | 141 |
Total future tax assets | 13,188 | 15,293 |
Valuation allowance for future tax assets | (13,188) | (15,293) |
Net future tax assets | -- | -- |
c) | As of December 31, 2002, the company has approximately $13,563,000 in operating losses, $6,041,000 in capital losses, and $18,672,000 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: |
$ | |
---|---|
2003 | 516 |
2004 | 323 |
2005 | 3,426 |
2006 | 2,427 |
2007 | 1,615 |
2008 | 1,702 |
2009 | 2,447 |
12,456 | |
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. |
14 | Reclamation |
During the year ended December 31, 2002, the company incurred $420,000 (2001 — $201,000; 2000 — $329,000) in on-going environmental and reclamation costs and changes in the provision for reclamation. |
At December 31, 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 $142,000 is considered current. |
F-26
At December 31, 2002, the company has lodged $70,000 (2001 — $110,000) in security deposits with various government agencies in relation to its reclamation obligations. Subsequent to year-end, a further $79,000 security deposit was lodged relating to the Silvertip property. |
15 | Supplementary cash flow information |
a) Cash, cash equivalents and short-term investments at December 31 comprised the following:
2002 $ | 2001 $ | 2000 $ | |
Cash on hand and balances held with banks | 1,138 | 1,764 | 610 |
Short-term deposits | 12,053 | 3,813 | 2,699 |
Short-term investments | 4,151 | -- | -- |
17,342 | 5,577 | 3,309 | |
b) | During the years ended December 31, 2002, 2001, and 2000, the company conducted non-cash financing and investing activities as set out below. Non-cash operating activities are not presented. |
2002 $ | 2001 $ | 2000 $ | |
---|---|---|---|
Non-cash financing activities | |||
Shares issued for mineral property payables | 3,280 | -- | -- |
Shares issued for mineral properties | 1,258 | 2,882 | 61 |
Shares issued for convertible debentures | 2,092 | -- | -- |
Shares issued for donations | 41 | -- | -- |
Value assigned to options issued to non-employees | 161 | -- | -- |
Mineral property payable | -- | 3,326 | -- |
Warrants issued for mineral properties | -- | 326 | -- |
Shares issued for finders' fees | 323 | 139 | 130 |
Finders' fees satisfied by issue of shares | (323) | (139) | (130) |
6,832 | 6,534 | 61 | |
Non-cash investing activities | |||
Reclamation capitalized to mineral properties | (242) | -- | -- |
Shares issued for mineral properties | (1,258) | (2,882) | (61) |
Value assigned to convertible debenture on acquisition | (2,035) | -- | -- |
Payable for mineral property | (772) | (3,326) | -- |
Warrants issued for mineral properties | -- | (326) | -- |
Value assigned to options issued to non-employees | (29) | -- | -- |
Other mineral property costs | (291) | -- | -- |
(4,627) | (6,534) | (61) | |
F-27
c) Interest paid in the year was $2,000 (2001 — nil; 2000 — nil).
16 | Segmented financial information |
The 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: |
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 | |
2001 | |||||||
---|---|---|---|---|---|---|---|
Argentina $ | Australia $ | Canada $ | Chile $ | Mexico $ | United States $ | Total $ | |
Fixed assets | 6 | 1 | 82 | -- | -- | -- | 89 |
Mineral property costs | 14,199 | 14,701 | 3,649 | 176 | -- | 6,411 | 39,136 |
14,205 | 14,702 | 3,731 | 176 | -- | 6,411 | 39,225 | |
17 | Commitments |
a) | The company has committed to payments under operating leases for the rental of office space. The future minimum lease payments are $114,000 required in each of the next five years. |
b) | Mineral property commitments are described in note 5. |
18 | Fair value of financial instruments |
The 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-28
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 (U.S. GAAP). The major measurement differences between Canadian and U.S. GAAP and their effect on the consolidated financial statements are summarized below: |
i) | Under Canadian GAAP the costs of acquiring mineral properties and related explorationand development expenditures aredeferred (note 2). Under U.S. GAAP 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 subsequent exploration and development costs of the property would be capitalized. The capitalized costs of such properties would then be measured periodically, for recoverability of carrying values under Statement of Financial Accounting Standard (SFAS) No. 144.Based on this guidance, for US GAAP purposes, the company has written off mineral exploration and acquisition costs in the year incurred. (note 19(f)). |
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 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 19(f)). |
iii) | Under Canadian GAAP, before the introduction of 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 at 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, which are subject to an insignificant risk of changes in value. For U.S. GAAP purposes, these investments would not be included in cash and cash equivalents. At December 31, 2002, short-term investments of $4,151,000 (2001 - $nil) would be excluded from cash equivalents for U.S. GAAP. |
v) | 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 Pirquitas and Manantial Espejo mineral properties (note 5). |
F-29
b) Consolidated summarized balance sheets
2002 | 2001 | |||||
---|---|---|---|---|---|---|
(Restated - (f) | (Restated - (f) | |||||
CDN GAAP $ | Adjustments $ | U.S. GAAP $ | CDN GAAP $ | Adjustments $ | U.S. GAAP $ | |
Assets | ||||||
Current assets(ii) | 18,264 | 1,045 | 19,309 | 5,964 | -- | 5,964 |
Mineral property | ||||||
costs(i) and (iii) | 56,230 | (56,230) | 0 | 39,136 | (39,136) | 0 |
Other assets(ii) | 254 | (100) | 154 | 299 | (100) | 199 |
74,748 | (55,285) | 19,463 | 45,399 | (39,236) | 6,163 | |
Liabilities | ||||||
Current liabilities | 1,834 | -- | 1,834 | 444 | -- | 444 |
Other liabilities | 950 | -- | 950 | 4,017 | 10 | 4,027 |
2,784 | -- | 2,784 | 4,461 | 10 | 4,471 | |
Shareholders' | ||||||
Equity | ||||||
Capital stock(iii) | 99,658 | 169 | 99,827 | 66,434 | 169 | 66,603 |
Deficit(i) (ii) | ||||||
and (iii) | (27,694) | (55,454) | (83,148) | (25,496) | (39,415) | (64,911) |
71,964 | (55,285) | (16,679) | 40,938 | (39,246) | 1,692 | |
74,748 | (55,285) | (19,463) | 45,399 | (39,236) | 6,163 | |
F-30
c) Consolidated statements of loss and deficit
2002 $ (Restated - (f) | 2001 $ (Restated - (f) | 2000 $ (Restated - (f) | |
---|---|---|---|
Loss in accordance with Canadian GAAP | 2,198 | 3,377 | 1,705 |
Mineral property costs for the year (i) | 17,147 | 13,675 | 4,139 |
Mineral property costs written off during the year (i) | (534) | (1,744) | (68) |
Other | (10) | 9 | 1 |
Loss in accordance with U.S. GAAP | 19,282 | 15,317 | 5,777 |
Unrealized loss (gain) on available-for-sale | |||
securities (ii) | (1,045) | -- | 13 |
Comprehensive loss | 18,237 | 15,317 | 5,790 |
Basic and diluted loss per share | 0.54 | 0.58 | 0.26 |
d) Consolidated statements of cashflows
2002 $ (Restated - (f) | 2001 $ (Restated - (f) | 2000 $ (Restated - (f) | ||
---|---|---|---|---|
Cash flows from operating activities | ||||
Per Canadian GAAP | (2,250) | (1,646) | (1,996) | |
Mineral property costs (i) | (7,963) | (4,591) | (2,623) | |
Per U.S. GAAP | (10,213) | (6,237) | (4,619) | |
Cash flows from investing activities | ||||
Per Canadian GAAP | (12,255) | (7,212) | (3,514) | |
Mineral property costs (i) | 7,963 | 4,591 | 2,623 | |
Per U.S. GAAP | (4,292) | (2,621) | (891) | |
e) | Impact of Recently Issued Accounting Standards |
The FASB has issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.The cumulative effect of the change through January 1, 2003will result in an increase mineral property cost by $17,000 and reclamation expense by $21,000. |
F-31
The FASB has issued SFAS No. 146, “Accounting for Costs Associated with exit or disposal activities”. Under this standard, exit costs and restructuring liabilities generally will be recognized only when incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The company does not expect that the implementation of these guidelines will have a material impact on its consolidated financial position or results of operations. |
The Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA) has issued CICA 3063, “Impairment of Long-Lived Assets”. This statement establishes standards for recognition, measurement and disclosure of the impairment of non-monetary long-lived assets, including property, plant and equipment, intangible assets with finite useful lives, deferred pre-operating costs and long-term prepaid assets. The company does not expect that the implementation of this new standard will have a material impact on its consolidated financial position or results of operations. |
The CICA has approved, subject to written ballot, a new Handbook section, “Asset Retirement Obligations”, to replace the current guidance on future removal and site restoration costs included in CICA 3061, “Property, Plant and Equipment”. The standard, which is similar to SFAS No. 143, is effective for years beginning on or after January 1, 2004. The standard requires recognition of a liability at its fair value for the obligation associated with the retirement of a tangible long-lived asset. A corresponding asset retirement cost would be added to the carrying amount of the related asset and amortized to expense over the useful life of the asset. The company is analyzing the impact of this new standard which will be adopted on January 1, 2003. |
f) | Restatement |
The company has restated the US GAAP information to write off capitalised mineral property acquisition costs, the recovery of which cannot be supported under SFAS 144 (note 19(a)(i)) and the investment note 19(a)(ii). The effect of the restatement was to increase the US GAAP loss for the year ended December 31, 2002 from $8,759,000 to $19,281,000 (2001: from $5,526,000 to $15,317,000; and 2000: from $4,211,000 to $5,777,000) and to increase the US 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 US GAAP shareholders' equity as at December 31, 2002 from $56,465,000 to $19,463,000 (2001: from $32,642,000 to $6,163,000). |
F-32
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 onits behalf.
Silver Standard Resources Inc.
__________________________________
(Company)
By:
/s/ Robert A. Quartermain
________________________________
Robert A. Quartermain, President & Director
Date:May 17, 2004
- 85 -
Exhibit 12.1
CERTIFICATION
AS ADOPTED 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) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(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; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(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: May 17, 2004
/s/ Robert A. Quartermain ____________________________ Robert A. Quartermain President |
- 86/87 -
Exhibit 12.2
CERTIFICATION
AS ADOPTED 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) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(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; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(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: May 17, 2004
/s/ Ross A. Mitchell ____________________________ Ross A. Mitchell Vice President, Finance |
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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 Amendment No. 1 to the Annual Report on Form 20-F of Silver Standard Resources Inc. for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on the date hereof (the “Amended 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:
1. | The Amended 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 Amended Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: May 17, 2004
“Robert A. Quartermain”
Robert A. Quartermain
President
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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 Amendment No. 1 to the Annual Report on Form 20-F of Silver Standard Resources Inc. for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on the date hereof (the “Amended 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:
1. | The Amended 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 Amended Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: May 17, 2004
“Ross A. Mitchell”
Ross A. Mitchell
Vice President, Finance
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