UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2006 OR |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto _______________________ |
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring shell company report |
Commission file number 0-26424
SILVER STANDARD RESOURCES INC.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 1180 – 999 West Hastings Street, Vancouver, British Columbia 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 Not Applicable |
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. 61,646,120
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ Yes No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes þ No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer | Non-accelerated filer |
Indicate by check mark which financial statement item the Registrant has elected to follow.
Item 17 þ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes No
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws concerning the anticipated developments in our operations in future periods, our planned exploration activities, the adequacy of our financial resources and other events or conditions that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Statements concerning mineral reserve and resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects”, “anticipates”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives”, “potential” or variations thereof, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be “forward-looking statements”. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:
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· | risks and uncertainties associated with new mining operations; |
· | uncertainty of production at our mineral exploration properties; |
· | risks related to our ability to obtain adequate financing for our planned development activities and to complete further exploration programs; |
· | our history of losses and expectation of future losses; |
· | differences in U.S. and Canadian practices for reporting mineral reserves and resources; |
· | risks and uncertainties relating to the interpretation of drill results and the geology, grade and continuity of our mineral deposits; |
· | unpredictable risks and hazards related to the development and operation of a mine or mine property; |
· | commodity price fluctuations; |
· | risks related to governmental regulations, including environmental regulations; |
· | risks related to delay or failure to obtain required permits, or non-compliance; |
· | increased costs and restrictions on operations due to compliance with environmental laws and regulations; |
· | risks related to reclamation activities on our properties; |
· | uncertainties related to title to our mineral properties; |
· | risks related to political instability and unexpected regulatory change; |
· | our ability to successfully acquire additional commercially mineable mineral rights; |
· | currency fluctuations; |
· | increased competition in the mining industry for properties and qualified personnel; |
· | risks related to some of our directors’ and officers’ involvement with other natural resource companies; |
· | our ability to attract and retain qualified personnel and management; |
· | enforcement of U.S. judgments and laws in Canada; and |
· | our classification as a “passive foreign investment company” under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). |
This list is not exhaustive of the factors that may affect any of our forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and our actual achievements or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in this Annual Report under the heading ‘‘Risk Factors’’ and elsewhere in this Annual Report. Our forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and we do not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change. For the reasons set forth above, you should not place undue reliance on forward-looking statements.
In this Annual Report, “we”, “us”, “our”, “Silver Standard” and “the Company” refer to Silver Standard Resources Inc., a company incorporated under the Business Corporations Act (British Columbia), and its subsidiaries.
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DEFINITIONS AND ABBREVIATIONS
alteration - usually referring to chemical reactions in a rock mass resulting from the passage of hydrothermal fluids.
breccia - rock consisting of more or less angular fragments in a matrix of finer-grained material or cementing material.
claim - that portion of public mineral lands, which a party has staked or marked out in accordance with provincial or state mining laws, to acquire the right to explore for the minerals under the surface.
conglomerate - rock composed of mostly rounded fragments which are of gravel size or larger in a finer grained matrix.
crystalline - means the specimen is made up of one or more groups of crystals.
cut-off grade - the minimum grade of mineralization that delimits mineralization that has a reasonable prospect of economic extraction from mineralization that does not have a reasonable prospect of economic extraction.
deposit - a natural occurrence of a useful mineral of sufficient extent and degree to invite exploitation.
dilution - results from the mixing in of unwanted gangue or waste rock with the ore during mining.
dolomite - a magnesium bearing limestone usually containing at least 15% magnesium carbonate.
dyke - a tabular body of igneous rock that cuts across the structure of adjacent rocks or cuts massive rocks.
fault - a fracture in a rock where there has been displacement of the two sides.
feasibility study means a detailed study of a deposit in which all geological, engineering, operating, economic and other relevant factors are engineered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.
g/t - grams per tonne.
gangue - term used to describe worthless minerals or rock waste mixed in with the valuable minerals.
geophysics - the study of the physical properties of rocks, minerals, and mineral deposits.
grade - the concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit.
hectare - a square of 100 meters on each side.
host rock - the rock within which the ore deposit occurs.
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igneous - means a rock formed by the cooling of molten silicate material.
Indicated Mineral Resource - is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
induced polarization method - the method used to measure various electrical responses to the passage of alternating currents of different frequencies through near-surface rocks or to the passage of pulses of electricity.
Inferred Mineral Resource - is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
intrusion - general term for a body of igneous rock formed below the surface.
limestone - sedimentary rock that is composed mostly of carbonates, the two most common of which are calcium and magnesium carbonates.
massive - a geologic body more than 100 millimeters in thickness.
Measured Mineral Resource - is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Mineral Reserve - is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Mineral Resource - is a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
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mineralization - usually implies minerals of value occurring in rocks.
net profits interest royalty - 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.
net smelter return royalty - a royalty paid from cash flow that is free of any operating or capital costs and environmental liabilities.
outcrop - means an exposure of rock at the earth’s surface.
porphyry - a rock with conspicuous large grains in a fine grained ground mass.
oz/ton - ounces per ton.
plunge - the vertical angle between a horizontal plane and the line of maximum elongation of a body.
Preliminary Feasibility Study - is a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established and an effective method of mineral processing has been determined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, economic, social, and environmental factors and the 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 December 11, 2005.
Probable Mineral Reserve - is the economically mineable part of an Indicated and, in some circumstances, a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This 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 December 11, 2005.
Proven Mineral Reserve - is the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This 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 December 11, 2005.
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Qualified Person - means an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; has experience relevant to the subject matter of the mineral project and the technical report; and is a member or licensee in good standing of a professional association.
reclamation bond - a financial instrument or cash usually required when mechanized work is contemplated on a mineral claim. The bond may be used to reclaim any workings or put right any damage, if the reclamation of the mineral claim does not satisfy the requirements of the regulations.
sedimentary - a rock formed from cemented or compacted sediments.
sediments - are composed of the debris resulting from the weathering and breakup of other rocks that have been deposited by or carried to the oceans by rivers, or left over from glacial erosion or sometimes from wind action.
sericite - a fine-grained variety of mica occurring in small scales, especially in schists.
shear zone - where a fault affects a width of rock rather than being a single clean break, the width of affected rock is referred to as the shear zone. The term implies movement, i.e. shearing.
silicate - most rocks are made up of a small number of silicate minerals ranging from quartz (SiO2) to more complex minerals such as orthoclase feldspar (KAlSi3O8) or hornblende (Ca2Na(Mg,Fe)4(Al,Fe,Ti)Si8)22(OH)2).
sill - tabular intrusion which is sandwiched between layers in the host rock.
stockwork - a mineral deposit consisting of a three-dimensional network of closely spaced planar or irregular veinlets.
sulphide - a mineral compound characterized by the linkage of sulphur with a metal.
tailings - material rejected from a mill after recoverable valuable minerals have been extracted.
tailings pond - a pond in which tailings are disposed.
tuff - a finer grained pyroclastic rock made up mostly of ash and other fine grained volcanic material.
veins - the mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.
waste - rock which is not ore. Usually referred to that rock which has to be removed during the normal course of mining in order to get at the ore.
All disclosure about our exploration properties in this Annual Report conforms to the standards of United States Securities and Exchange Commission Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, other than disclosure of “Mineral Resources”, “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources”, which are Canadian geological and mining terms as defined in accordance with Canadian National Instrument 43-101 under the guidelines set out in the CIM Standards.
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In this Annual Report references to “Canadian National 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 December 11, 2005 as may be amended from time to time by the CIM.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources and Indicated Mineral Resources.
This Annual Report uses the terms “Measured Mineral Resource” and “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of the Mineral Resources in these categories will ever be converted into Mineral Reserves.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
This Annual Report uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
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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. |
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. |
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.
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 |
A. | Selected Financial Data |
The following table summarizes certain of our selected financial data. This information should be read in conjunction with the more detailed financial statements included in this Annual Report.
Table No. 1
Selected Financial Data
(expressed in thousands of Canadian dollars, except per share and number of shares data)
Year ended Dec 31, 2006 | Year ended Dec 31, 2005 | Year ended Dec 31, 2004 | Year ended Dec 31, 2003 | Year ended Dec 31, 2002 | |
1. Revenues | Nil | Nil | Nil | Nil | Nil |
2. Earnings (Loss) for period(1) | $16,382 | ($5,870) | ($1,518) | ($3,938) | ($2,198) |
3. Earnings (Loss) per common share(1) | $0.28 | ($0.11) | ($0.03) | ($0.10) | ($0.06) |
4. Total assets | $471,013 | $219,288 | $217,457 | $92,812 | $81,096 |
5. Long term obligations and redeemable pre-ferred stock(2) | Nil | Nil | Nil | $75 | $249 |
6. Share capital | $442,265 | $219,971 | $217,502 | $113,537 | $99,510 |
7. Cash dividends per common share | Nil | Nil | Nil | Nil | Nil |
8. Number of shares | 61,646,120 | 51,849,241 | 51,576,802 | 42,604,832 | 39,190,887 |
(1) All of our operations are continuing. (2) No preferred stock has been issued. |
The selected financial data is presented in Table 1 above and in the financial statements in accordance with generally accepted accounting principles (“GAAP”) prevailing in Canada as of the dates shown.
The selected financial data under U.S. GAAP for the above periods is indicated below in Table 2:
Table No. 2
Selected Financial Data
(expressed in thousands of Canadian dollars, except per share and number of shares data)
Year ended Dec 31, 2006 | Year ended Dec 31, 2005 | Year ended Dec 31, 2004 | Year ended Dec 31, 2003 | Year ended Dec 31, 2002 | |
1. Revenues | Nil | Nil | Nil | Nil | Nil |
2. Loss for period(1) | $11,045 | $26,581 | $61,680 | $14,099 | $19,282 |
3. Loss per common share(1) | $0.19 | $0.51 | $1.28 | $0.35 | $0.54 |
4. Total assets | $296,955 | $57,865 | $69,718 | $26,993 | $19,463 |
5. Long term obligations and redeemable pre-ferred stock(2) | Nil | Nil | Nil | $75 | $249 |
6. Share capital | $441,067 | $218,773 | $216,875 | $113,706 | $99,679 |
7. Cash dividends per common share | Nil | Nil | Nil | Nil | Nil |
8. Number of shares | 61,646,120 | 51,849,241 | 51,576,802 | 42,604,832 | 39,190,887 |
(1) All of our operations are continuing. (2) No preferred stock has been issued. |
Reference is made to note 20 to the consolidated financial statements for a description of material differences between Canadian and U.S. GAAP.
U.S./Canadian Dollar Exchange Rates
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars (Cdn$). The Government of Canada permits a floating exchange rate to determine the value of the Canadian dollar against the U.S. dollar (US$). In this Annual Report all references to “$” and “Cdn$” refer to Canadian Dollars, all references to “US$” refer to United States Dollars and all references to “A$” refer to Australian Dollars.
Table No. 3 below sets out the rate of exchange for the Canadian dollar at December 31, 2006, December 31, 2005, December 31, 2004, December 31, 2003 and December 31, 2002, the average rates for each period, and the range of high and low rates for each period. Table No. 4 sets out the high and low rates of exchange for the Canadian dollar for each month during the previous six months.
For purposes of these tables, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The tables set out the number of Canadian dollars required under that formula to buy one U.S. dollar. The average rate in Table No. 3 means the average of the exchange rates on the last day of each month during the period.
Table No. 3
U.S. Dollar/Canadian Dollar Exchange Rates for Five Most Recent Financial Years
Average | High | Low | Close | |
Fiscal Year Ended December 31, 2006 | 1.13 | 1.17 | 1.10 | 1.17 |
Fiscal Year Ended December 31, 2005 | 1.21 | 1.27 | 1.15 | 1.17 |
Fiscal Year Ended December 31, 2004 | 1.30 | 1.40 | 1.18 | 1.20 |
Fiscal Year Ended December 31, 2003 | 1.40 | 1.58 | 1.29 | 1.29 |
Fiscal Year Ended December 31, 2002 | 1.57 | 1.61 | 1.51 | 1.58 |
Table No. 4
U.S. Dollar/Canadian Dollar Exchange Rates for Previous Six Months
September | October | November | December | January | February | |
High | 1.13 | 1.14 | 1.15 | 1.16 | 1.18 | 1.19 |
Low | 1.11 | 1.12 | 1.13 | 1.14 | 1.16 | 1.16 |
On March 6, 2007, 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$1.18.
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.
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.
Pirquitas Project is our only mineral property under development and we may not be able to successfully establish mining operations.
The Pirquitas Project is our only mineral property currently under development. The development of our Pirquitas Project and the future development of any other properties found to be economically feasible and approved by the board will require the construction and operation of mines, processing plants and related infrastructure. As a result, we are and will be subject to all of the risks associated with establishing new mining operations including:
· | the timing and cost, which can be considerable, of the construction of mining and processing facilities; |
· | the availability and cost of skilled labor and mining equipment; |
· | the availability and cost of appropriate smelting and refining arrangements; |
· | the need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits; |
· | the availability of funds to finance construction and development activities; |
· | potential opposition from non-governmental organizations, environmental groups or local groups which may delay or prevent development activities; and |
· | potential increases in construction and operating costs due to changes in the cost of fuel, power materials and supplies. |
The costs, timing and complexities of mine construction and development for our Pirquitas Project and our other projects may be greater than we anticipate because the majority of our property interests are not located in developed areas and as a result may not be served by appropriate road access, water and power supply, and other support infrastructure, and cost estimates may increase as more detailed engineering work is completed on a project. It is common in new mining operations to experience unexpected costs, problems and delays during construction, development and mine start-up. In addition, delays in the commencement of mineral production often occur. Accordingly, we cannot assure you that our activities will result in profitable mining operations at the Pirquitas Project or any of our other mineral properties.
We have no revenue from operations and no ongoing mining operations of any kind.
We are a mineral exploration company and have no revenue from operations and no ongoing mining operations of any kind. Our properties are in the exploration stage, and we have not defined or delineated any proven or probable reserves on any of our properties, other than the Pirquitas Project. 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. If our current exploration programs do not result in the discovery of commercial ore, we may need to write-off part or all of our investment in our existing properties and we will be required to acquire additional properties.
The determination of whether any mineral deposits on our properties are economic is affected by numerous factors beyond our control. These factors include:
· | the metallurgy of the mineralization forming the mineral deposit; |
· | market fluctuations for metal prices; |
· | the proximity and capacity of natural resource markets and processing equipment; and |
· | government regulations governing prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. |
We may not have sufficient funds to develop our mineral properties or to complete further exploration programs.
We have limited financial resources (cash and cash equivalents of $229.616 million, silver bullion of $15.787 million and marketable securities of $5.817 million as of December 31, 2006), do not generate operating revenue, and must finance our exploration activity and the development of our mineral properties by other means. We intend to fund our immediate plan of operations and the development of our Pirquitas Project from our working capital. In the future, our ability to continue our exploration and development activities, if any, will depend on our ability to develop the Pirquitas Project and generate operating revenue or obtain additional external financing.
The sources of external financing that we may use for these purposes include public or private offerings of equity and debt. In addition, we may enter into one or more strategic alliances or joint ventures, or may decide to sell certain property interests, and may utilize one or a combination of all of these alternatives. The financing alternative chosen by us may not be available to us on acceptable terms, or at all. If additional financing is not available, we may have to postpone the development of, or sell, properties.
We have a history of losses and expect to incur losses for the foreseeable future.
We recorded a profit of $16.382 million for the year ended December 31, 2006, but have incurred losses during each of the following periods:
· | $5.870 million for the year ended December 31, 2005; and |
· | $1.518 million for the year ended December 31, 2004; |
We expect to continue to incur losses unless and until such time as the Pirquitas Project enters into commercial production and generates sufficient revenues to fund continuing operations. The development of the Pirquitas Project and any other mineral property will require the commitment of substantial financial resources.
The amount and timing of expenditures will depend on a number of factors, including the progress of ongoing exploration and development, the results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, the execution of any joint venture agreements with strategic partners, and our acquisition of additional property interests, some of which are beyond our control. We cannot assure you that we will ever achieve profitability.
We follow Canadian disclosure practices concerning our mineral reserves and resources which allow for more disclosure than is permitted for U.S. reporting companies.
Our resource estimates are not directly comparable to those made in filings subject to SEC reporting and disclosure requirements, as we generally report resources in accordance with Canadian practices. These practices are different from the practices used to report resource estimates in reports and other materials filed with the SEC in that the Canadian practice is to report measured, indicated and inferred resources. In the United States, mineralization may not be classified as a ‘‘reserve’’ unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. U.S. investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into reserves. Further, ‘‘inferred resources’’ have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Disclosure of ‘‘contained ounces’’ is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report ‘‘resources’’ as in place tonnage and grade without reference to unit measures. Accordingly, information concerning descriptions of mineralization and resources contained in this prospectus, or in the documents incorporated herein by reference, may not be comparable to information made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.
Our reserve and resource estimates are based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.
In making determinations about whether to advance any of our projects to development, we must rely upon estimated calculations as to the mineral reserves and grades of mineralization on our properties. Until ore is actually mined and processed, mineral reserves and grades of mineralization must be considered as estimates only. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling which may prove to be unreliable. We cannot assure you that:
· | reserve, resource or other mineralization estimates will be accurate; or |
· | mineralization can be mined or processed profitably. |
Any material changes in mineral reserve estimates and grades of mineralization will affect the economic viability of placing a property into production and a property’s return on capital. Our reserve and resource estimates have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for silver, gold, tin and zinc may render portions of our mineralization uneconomic and result in reduced reported mineral reserves.
Any material reductions in estimates of mineralization, or of our ability to extract this mineralization, could have a material adverse effect on our results of operations or financial condition. We cannot assure you that mineral recovery rates achieved in small scale tests will be duplicated in large scale tests under on-site conditions or in production scale.
Mining is inherently dangerous and subject to conditions or events beyond our control.
The development and operation of a mine or mine property is inherently dangerous and involves many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include:
· | unusual or unexpected geological formations; |
· | metallurgical and other processing problems; |
· | metal losses; |
· | environmental hazards; |
· | power outages; |
· | labor disruptions; |
· | industrial accidents; |
· | periodic interruptions due to inclement or hazardous weather conditions; |
· | flooding, explosions, fire, rockbursts, cave-ins and landslides; and |
· | the inability to obtain suitable or adequate machinery, equipment or labor. |
These risks could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums, or at all. Insurance against certain environmental risks, including potential liability for pollution and other hazards as a result of the disposal of waste products occurring from production, is not generally available to companies within the mining industry. We may suffer a material adverse effect on our business if we incur losses related to any significant events that are not covered by our insurance policies.
Changes in the market price of silver and other metals, which in the past have fluctuated widely, will affect our operations.
Our profitability and long-term viability will depend, in large part, on the market price of silver, gold, tin, zinc, lead and copper. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including:
· | global or regional consumption patterns; |
· | the supply of, and demand for, these metals; |
· | speculative activities; |
· | the availability and costs of metal substitutes; |
· | expectations for inflation; and |
· | political and economic conditions, including interest rates and currency values. |
We cannot predict the effect of these factors on metal prices. A decrease in the market price of silver and other metals would affect the profitability of the Pirquitas Project and could affect our ability to finance the exploration and development of any of our other mineral properties. The market price of silver and other metals may not remain at current levels. In particular, an increase in worldwide supply, and consequent downward pressure on prices, may result over the longer term from increased silver production from mines developed or expanded as a result of current metal price levels.
We are subject to significant governmental regulations.
Our exploration activities are, and the development of the Pirquitas Project is, subject to extensive federal, state, provincial, territorial and local laws and regulations governing various matters, including:
· | environmental protection; |
· | the management and use of toxic substances and explosives; |
· | the management of natural resources; |
· | the exploration of mineral properties; |
· | exports; |
· | price controls; |
· | taxation and mining royalties; |
· | labor standards and occupational health and safety, including mine safety; and |
· | historic and cultural preservation. |
Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, or the imposition of additional local or foreign parties as joint venture partners, any of which could result in significant expenditures. We may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of our activities and delays in the exploration and development of our properties.
We require further permits in order to conduct our current and anticipated future operations, and delays or a failure to obtain such permits, or a failure to comply with the terms of any such permits that we have obtained, would adversely affect our business.
Our current and anticipated future operations, including further exploration, development activities and commencement of production on our mineral properties, require permits from various governmental authorities.
We cannot assure you that all permits that we require for our operations, including any construction of mining facilities or conduct of mining, will be obtainable or renewable on reasonable terms, or at all. Delays or a failure to obtain such required permits, or the expiry, revocation or failure by us to comply with the terms of any such permits that we have obtained, would adversely affect our business.
Our activities are subject to environmental laws and regulations that may increase our costs and restrict our operations.
All of our exploration and potential development and production activities in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States are subject to regulation by governmental agencies under various environmental laws. To the extent that we conduct exploration activities or undertake new mining activities in other countries, we will also be subject to environmental laws and regulations in those jurisdictions. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Environmental legislation in many countries is evolving and the trend has been towards stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and increasing responsibility for companies and their officers, directors and employees. Compliance with environmental laws and regulations may require significant capital outlays on our behalf and may cause material changes or delays in our intended activities. Future changes in these laws or regulations could have a significant adverse impact on some portion of our business, causing us to re-evaluate those activities at that time.
Land reclamation requirements for our exploration properties may be burdensome.
Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance. Reclamation may include requirements to:
· | control dispersion of potentially deleterious effluents; and |
· | reasonably re-establish pre-disturbance land forms and vegetation. |
In order to carry out reclamation obligations imposed on us in connection with our exploration and potential development activities, we must allocate financial resources that might otherwise be spent on further exploration and development programs. Certain of our projects have been subject to historic mining operations and certain of the properties that were historically mined by us are subject to remediation obligations. We have set up a provision for our reclamation bonds but this provision may not be adequate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected.
Our properties may be subject to uncertain title.
We own, lease or have under option, unpatented and patented mining claims, mineral claims or concessions which constitute our property holdings. The ownership and validity, or title, of unpatented mining claims and concessions are often uncertain and may be contested. We also may not have, or may not be able to obtain, all necessary surface rights to develop a property. We have not conducted surveys of all of the claims in which we hold direct or indirect interests. A successful claim contesting our title to a property will cause us to lose our rights to explore and, if warranted, develop that property. This could result in our not being compensated for our prior expenditures relating to the property.
Political or economic instability or unexpected regulatory change in the countries where our properties are located could adversely affect our business.
Certain of our properties are located in countries, provinces and states more likely to be subject to political and economic instability, or unexpected legislative change, than is usually the case in certain other countries, provinces and states. Our mineral exploration or potential development activities could be adversely affected by:
· | political instability and violence; |
· | war and civil disturbance; |
· | labor unrest; |
· | expropriation or nationalization; |
· | changing fiscal regimes and uncertain regulatory environments; |
· | fluctuations in currency exchange rates; |
· | high rates of inflation; |
· | changes to royalty and tax regimes; |
· | underdeveloped industrial and economic infrastructure; and |
· | the unenforceability of contractual rights and judgments. |
There can be no assurance that we will successfully acquire additional commercially mineable mineral rights.
Most exploration projects do not result in the discovery of commercially mineable ore deposits and no assurance can be given that any anticipated level of recovery of ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be legally and economically exploited. Estimates of reserves, resources, mineral deposits and production costs can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions.
Material changes in ore reserves, grades, stripping ratios or recovery rates may affect the economic viability of any project. Our future growth and productivity will depend, in part, on our ability to identify and acquire additional commercially mineable mineral rights, and on the costs and results of continued exploration and potential development programs. Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:
· | establish ore reserves through drilling and metallurgical and other testing techniques; |
· | determine metal content and metallurgical recovery processes to extract metal from the ore; and |
· | construct, renovate or expand mining and processing facilities. |
In addition, if we discover ore, it would take several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of production may change. As a result of these uncertainties, there can be no assurance that we will successfully acquire additional commercially mineable (or viable) mineral rights.
We may be adversely affected by future fluctuations in foreign exchange rates.
We maintain our bank accounts primarily in Canadian and U.S. dollars. We expect that our future revenue, if any, will be in U.S. dollars while certain of our costs will be incurred in other currencies. In particular, any appreciation in the currencies of Argentina, Australia, Chile, Mexico or other countries where we carry out exploration or development activities against the Canadian or U.S. dollar will increase our costs of carrying on operations in such countries. With the development of our Pirquitas Project, our costs denominated in the currency of Argentina have increased over past levels and we have greater exposure to Argentinean currency fluctuations. In addition, any decrease in the U.S. dollar against the Canadian dollar will result in a loss on our books to the extent we hold funds in U.S. dollars.
We face industry competition in the acquisition of exploration properties and the recruitment and retention of qualified personnel.
We compete with other exploration companies, many of which have greater financial resources than us or are further advanced in their development, for the acquisition of mineral claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees and other personnel. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs and supplies. In particular, we face competition for qualified personnel and equipment for our Pirquitas Project, which may increase our estimated costs of developing the project or result in delays. We expect that a significant number of expatriate employees will be required in the early stages of the development of the Pirquitas Project to hire and train the local workforce. If we require and are unsuccessful in acquiring additional mineral properties or qualified personnel, we will not be able to grow at the rate we desire or at all.
Some of our directors and officers have conflicts of interest as a result of their involvement with other natural resource companies.
Some our directors and officers are directors or officers of other natural resource or mining-related companies such as, at present, our President, Robert Quartermain, who serves as a director and officer of Radiant Resources Inc. and as a director of Canplats Resources Corporation, Vista Gold Corporation, and Minco Silver Corporation (with which we have a strategic alliance to jointly pursue silver opportunities in China). In addition, our Senior Vice President, Joseph J. Ovsenek, is a director of Esperanza Silver Corporation (with which we have an agreement for the exploration of silver projects in Peru). These associations may give rise to conflicts of interest from time to time. As a result of these conflicts of interest, we may miss the opportunity to participate in certain transactions, which may have a material adverse effect on our financial position.
We may experience difficulty attracting and retaining qualified management to grow our business.
We are dependent on the services of key executives, including Mr. Quartermain, and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for the development of the Pirquitas Project and our other activities may have a material adverse effect on our business and financial condition.
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 laws of, and headquartered in, British Columbia, Canada, and none of our directors and officers are citizens or residents of the United States, other than our Vice President, Project Development. In addition, a substantial part of our assets are located outside the United States and Canada. As a result, it may be difficult or impossible for an investor to (i) enforce in courts outside the United States judgments against us and our directors and officers obtained in U.S. courts based upon the civil liability provisions of U.S. federal securities laws or (ii) bring in courts outside the United States an original action against us and our directors and officers to enforce liabilities based upon such U.S. securities laws. See ‘‘Enforceability of Civil Liabilities’’.
Under U.S. federal tax rules, we may be classified as a passive foreign investment company (a “PFIC”), which may result in special and generally unfavorable U.S. federal tax consequences to our U.S. shareholders.
As a non-U.S. corporation, we may be a PFIC depending on the percentage of our gross income which is “passive”, within the meaning of the Code, or the percentage of our assets that produce or are held to produce passive income. We were a PFIC in our 2006 taxable year, and we may be a PFIC in subsequent taxable years. If we are a PFIC for any taxable year during a U.S. shareholder’s holding period in our common stock, such U.S. shareholder may be subject to increased U.S. federal income tax liability on the sale of common shares or on the receipt of dividends. See Item 10.E - “Taxation - Certain U.S. Federal Income Tax Considerations”. The PFIC rules are complex and may be unfamiliar to U.S. shareholders. Accordingly, U.S. shareholders are urged to consult their own tax advisors concerning the application of the PFIC rules to their investment in our common shares.
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. On May 12, 2005, our shareholders adopted new articles as required by the new British Columbia Business Corporations Act and authorized an increase in our authorized capital from 100,000,000 common shares without par value to an unlimited number of common shares without par value.
Our head office and registered and records office is located at: Suite 1180 - 999 West Hastings Street, Vancouver, British Columbia, Canada V6C 2W2. The contact person is Robert A. Quartermain, President. The telephone number is (604) 689-3846; the facsimile number is (604) 689-3847. We do not have a registered agent in the United States.
In January 2006, we completed the acquisition of all of the shares of Sociedad Minera Berenguela S.A., the holder of the rights to the Berenguela Project located in Peru. See Item 4.B - “Business Overview - Secondary Properties - Berenguela Project”.
In March 2006, we entered into an agreement with Pan American Silver Corp. (“Pan American”) to sell our 50% interest in the Manantial Espejo Project in Argentina to Pan American, and in April 2006, we completed the sale. See Item 4.B - “Business Overview - Other Properties - Manantial Espejo Project”.
In April 2006, we announced the completion of a feasibility study update and proven and probable reserves for the Pirquitas Project in Argentina. See Item 4.D - “Property, Plant and Equipment”.
In August 2006, we granted an option to Geologix Explorations Inc. (“Geologix”) to acquire a 100% interest in the San Agustin Project. See Item 4.B - “Business Overview - Secondary Properties - San Agustin Property”.”.
The information contained in this Annual Report is current as at December 31, 2006, other than where a different date is specified.
All disclosure about our exploration properties in this Annual Report conforms to the standards of United States Securities and Exchange Commission Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, other than disclosure of “Mineral Resources”, “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources”, which are geological and mining terms as defined in accordance with Canadian National Instrument 43-101 under the guidelines set out in the CIM Standards. U.S. investors in particular are advised to read carefully the definitions of these terms as well as the explanatory and cautionary notes in the Glossary, and the cautionary notes below, regarding use of these terms.
We are engaged in the exploration of silver properties in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States and the acquisition of silver properties, if warranted, throughout the world. We are an exploration stage company and none of our properties are currently beyond the advanced exploration stage. There is no assurance that a commercially viable mineral deposit exists on any of our properties and further exploration work may be required before a final evaluation as to the economic and legal feasibility is determined. See Item 3.D - “Risk Factors”.
We have five principal mineral property interests: (1) the Pirquitas Project in the Province of Jujuy, Argentina, (2) a 55% interest (which may be increased to 80% by funding certain expenditures) in the San Luis Project in the Ancash Department, Peru, (3) the Pitarrilla Project in Durango State, Mexico, (4) the Diablillos Project in Salta Province, Argentina and (5) the Snowfield Project in British Columbia, Canada. We have 12 secondary mineral property interests: the Berenguela Project in Peru, the Bowdens Project in Australia, the Candelaria mine in west central Nevada, U.S.A., the Shafter Silver Project in Texas, U.S.A., the Veta Colorada Project in Mexico, a 55% interest in the Maverick Springs Project in northern Nevada, U.S.A., the Challacollo Project in Chile, the San Marcial Project in Mexico, the Sulphurets Project in British Columbia, Canada, the Silvertip Property in northern British Columbia, Canada, the Sunrise Lake Deposit in the Northwest Territories, Canada and the San Agustin Property in Durango State, Mexico (which interest we have optioned to Geologix Explorations Inc. See Item 4.B - “Business Overview - Secondary Properties”. In categorizing our projects, we consider, among other things, the priority of the project for the ensuing year, proposed expenditures in respect of the project for the ensuing year and the stage of exploration of the project.
In addition, we have formed a strategic alliance with Minco Mining Corporation (“Minco”) to jointly pursue silver opportunities in China and a number of other property holdings in Argentina, Australia, Canada, Chile, Mexico and the United States, which are not considered principal or secondary properties. During 2006, we sold our 50% interest in the Manantial Espejo Project in Argentina to Pan American.
Principal Properties
Pirquitas Project
Under an agreement dated June 21, 2002, we acquired from Stonehill Institutional Partners, L.P., Stonehill Offshore Partners Limited and Stonehill Capital Management, LLC a 43.4% interest in Sunshine Argentina, Inc., a Delaware corporation, the holder of the rights to the Pirquitas Project located in the Province of Jujuy, Argentina. The total purchase price for the 43.4% interest was:
· | the payment at closing of US$3,000,000 in cash; and |
· | the issuance of a US$1,340,000 convertible debenture, with a term of one year, an exercise price of Cdn$5.80 per share and an interest rate of 10% per annum. |
The debenture was fully converted by the holder by December 31, 2002 into 360,636 common shares in our capital. At the time of the acquisition of 43.4% interest in Sunshine Argentina, Inc., we became the operator of the Pirquitas Project.
Under an agreement dated October 20, 2004, we acquired from Elliott International L.P., The Liverpool Limited Partnership and Highwood Partners, L.P. a 56.6% interest in Sunshine Argentina, Inc., for a 100% total interest, on the issuance of 2.663 million common shares in our capital.
We currently own 100% of the issued and outstanding shares in the capital of Sunshine Argentina, Inc. (now known as Mina Pirquitas, Inc.) for a 100% interest in the Pirquitas Project.
San Luis Project
On March 22, 2005, we entered into an agreement with Esperanza for the evaluation of mineral prospects in central Peru. Under the evaluation agreement,
· | we agreed to contribute US$300,000; and |
· | Esperanza agreed to contribute US$200,000 and certain know-how; |
to carry out agreed upon evaluation programs for mineral prospects, with Esperanza acting as operator. In the event Esperanza acquires or proposes to acquire any mineral property as a result of an evaluation program, we may elect to enter into a joint venture with Esperanza for the exploration of the mineral property on the following terms:
· | we will initially hold a 50% interest in the joint venture and Esperanza will initially hold a 50% interest in the joint venture; |
· | we may elect on the formation of the joint venture to increase our interest in the joint venture to 55% by funding the first US$500,000 in exploration expenditures; |
· | once we incur the first US$500,000 in exploration expenditures or, if we do not elect to increase our interest to 55%, following the formation of the joint venture, we will incur with Esperanza US$1.5 million in exploration expenditures in proportion to our respective interests in the joint venture; |
· | once we incur with Esperanza US$1.5 million in exploration expenditures, we may elect to increase our interest in the joint venture to 70% by paying all costs required to be incurred to complete a feasibility study for the project; and |
· | if we elect to increase our interest to 70% by completing a feasibility study, on completion of the feasibility study we may elect to increase our interest in the joint venture to 80% by paying all costs required to be incurred to place the property into commercial production. |
In August 2005, Esperanza advised us of the acquisition of certain mineral concessions, known as the San Luis Project, as the result of an evaluation program carried out under the evaluation agreement. On September 6, 2005, we entered into a joint venture agreement with Esperanza for the exploration of the San Luis Project (the “San Luis Joint Venture”) on the terms set out above and elected to increase our interest in the joint venture to 55% by funding the first US$500,000 in exploration expenditures. During 2006, we earned a 55% interest in the joint venture and commenced incurring US$1.5 million in exploration expenditures with Esperanza in proportion to our respective interests in the joint venture. As at December 31, 2006, the joint venture had incurred US$1.355 million in exploration expenditures on the San Luis Project, with a further US$145,000 to be incurred prior to our being required to elect whether to increase our interest in the joint venture to 70% by paying all costs required to be incurred to complete a feasibility study.
We currently hold a 55% interest in the San Luis Joint Venture.
Pitarrilla Project
We acquired by staking the original mineral claim covering the Pitarrilla Project in November 2002, acquired two contiguous claims by staking in 2003 and 2004 and acquired a fourth contiguous claim by staking in 2005. In addition, in 2004/2005 we acquired two adjoining claims, the Pena and Pena 1 claims, on payment of US$300,000 and a third adjoining claim, the America claim, on payment of US$250,000. In 2006, we applied for an additional contiguous claim by staking. We have agreed to pay the following finder’s fee to La Cuesta International, Inc. in respect of our acquisition of the Pitarrilla Project:
· | US$5,000 in cash following the staking of the property (paid); |
· | the greater of (i) US$5,000 and (ii) 2% of our direct exploration expenditures on the property, payable every six months; and |
· | a 0.25% net smelter returns royalty applicable to all gold and silver produced from the property; |
provided that the maximum amount payable in respect of the finder’s fee is an aggregate of US$500,000.
We currently own a 100% interest in the Pitarrilla Project, subject to the above described finder’s fee capped at US$500,000.
Diablillos Project
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 Project located in Salta Province, Argentina through the acquisition of all of the shares of two indirect wholly owned subsidiaries of Pacific Rim: Salta Gold Ltd. and Pacific Rim Mining Corporation Argentina S.A. Under the terms of the agreement, we agreed to pay Pacific Rim US$3,400,000 in staged payments of:
· | US$1,000,000 payable in cash on closing; |
· | US$500,000 payable in cash on December 31, 2001; |
· | US$500,000 payable in cash or our shares, at our election, on or before June 30, 2002; |
· | US$500,000 payable in cash or our shares, at our election, on or before December 31, 2002; |
· | US$500,000 payable in cash or our shares, at our election, on or before June 30, 2003; and |
· | US$400,000 payable in cash or our shares, at our election, on or before December 31, 2003. |
On December 14, 2001, we completed the acquisition of the Diablillos Project 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 shares in our capital in satisfaction of the payments due on June 30, 2003 and December 31, 2003. The total purchase price was Cdn$5,433,000, with Cdn$5,430,000 allocated for the property and Cdn$3,000 allocated for a provision for reclamation.
We currently own a 100% interest in the Diablillos Project.
Snowfield Project (Newhawk Arrangement)
On September 30, 1999 pursuant to a plan of arrangement (the “Newhawk Arrangement”), holders of common shares of Newhawk Gold Mines Ltd. (“Newhawk”) exchanged every six Newhawk shares for one of our common shares. There were 13,712,707 common shares of Newhawk issued and outstanding at the time of the Newhawk Arrangement, which were exchanged for 2,285,451 of our common shares. On completion of the Newhawk Arrangement, Newhawk became our wholly-owned subsidiary.
At the time of the acquisition of Newhawk, its principal assets were a 60% interest in the Sulphurets Project (described below and at the time 40% owned by Black Hawk Mining Inc. (“Black Hawk”), which interest we subsequently acquired) and a 100% interest in the Snowfield Project, each of which is located in northwest British Columbia, Canada.
In November 2001, we granted Sean Morriss an option to acquire all of the shares of Newhawk, the holder of the Sulphurets Project, the Snowfield Project and Blue Ice property exercisable on payment of Cdn$3,800,000. The option could have been exercised by Mr. Morriss at any time on or before the close of business on May 30, 2002. In the event the option was exercised, we anticipated recording a gain of approximately $151,000 on the disposition. We did not contemplate the granting of the option to Mr. Morriss at the time of the acquisition of Newhawk. The option granted to Mr. Morriss expired without exercise.
We currently own a 100% interest in the Snowfield Project.
Secondary Properties
Berenguela Project
On March 31, 2004, we and our wholly-owned subsidiary Silver Standard Peru S.A., entered into an option agreement with Sociedad Minera Berenguela S.A. (“SOMINBESA”), a Peruvian corporation and the holder of the rights to the Berenguela Project located in Peru, and Fossores Ltd. (“Fossores”) under which we acquired an option to acquire all of the in-ground silver resources contained in the Berenguela Project in Peru. In order to maintain the option in good standing, we were required to:
· | issue 17,500 of our common shares to SOMINBESA following acceptance for filing of the option agreement by the TSX Venture Exchange (issued); |
· | substantially complete an exploration program on the Berenguela Project having an in-ground expenditure of a minimum of US$500,000 (completed); |
· | cause a silver resource estimate (the “Berenguela Resource Estimate”) for the Berenguela Project to be prepared using all existing data, including data generated in the exploration program (prepared); |
In order to exercise the option, we were required to issue to SOMINBESA the number of common shares in our capital that had a value (at the time of exercise) equal to:
· | if the price of silver was less than or equal to US$5.50 per ounce, US$0.02 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate; |
· | if the price of silver was greater than US$5.50 per ounce but less than or equal to US$6.50 per ounce, US$0.025 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate; |
· | if the price of silver was greater than US$6.50 per ounce, US$0.03 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate; |
on or before the earlier to occur of:
· | July 31, 2005; and |
· | the expiry of a period of 60 days following the filing of the Berenguela Resource Estimate with the Canadian Securities Administrators; |
provided that we had not less than a period of 60 days following the completion of the Berenguela Resource Estimate to exercise the option, if the Berenguela Resource Estimate was completed prior to July 31, 2005.
Under the terms of the option agreement, we had the right on exercise of the option, among other things, to:
· | to acquire and mine all silver resources in excess of those contained in the Berenguela Resource Estimate on payment of US$0.10 per ounce; and |
· | independently exploit the silver resources on the property if SOMINBESA had not completed a feasibility study and commenced the development of the property at the time the average London fix of the price of silver had exceeded US$7.00 per ounce, averaged over a consecutive 130 day period. |
On March 31, 2004, we also entered into a funding agreement with Fossores, under which Fossores agreed to provide us with:
· | all the data in Fossores’ files concerning the Berenguela Project; |
· | a computerized index of the data; |
· | the metallurgical processes that can be used to recover the silver resources from the Berenguela Project; and |
· | a pre-feasibility study that presents an economically viable plan for the development of the Berenguela Project, including silver recovery. |
Under the funding agreement, we agreed to pay Fossores:
· | US$20,000 on execution of the Berenguela option agreement (paid); |
· | US$180,000 following acceptance for filing of the Berenguela option agreement by the TSX Venture Exchange (paid); and |
· | on exercise of the Berenguela option agreement: |
o | if the price of silver was less than or equal to US$5.50 per ounce, US$0.02 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate; |
o | if the price of silver was greater than US$5.50 per ounce but less than or equal to US$6.50 per ounce, US$0.025 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate; |
o | if the price of silver was greater than US$6.50 per ounce, US$0.03 for each ounce of measured, indicated and inferred silver resources in the Berenguela Resource Estimate. |
Under letters dated September 2, 2005, October 31, 2005 and November 30, 2005, the period for exercising the option under the option agreement was extended to January 15, 2006.
On December 30, 2005, we entered into an agreement for the acquisition of all of the shares of SOMINBESA. Under the purchase agreement, we agreed to pay to the vendors, Daniel Kappes, Michael Cassiday and Victor Raul Eyzaguirre, an aggregate payment of US$2.0 million in cash, to issue to the vendors common shares in our capital having a value of US$8.0 million and to grant to the vendors a 2% net smelter returns royalty on copper produced from the project capped at US$3.0 million. On January 12, 2006, we completed the acquisition of the shares of SOMINBESA, and the Berenguela Project, and issued 530,504 shares in our capital to satisfy the obligation to issue shares in our capital having a value of US$8.0 million.
We currently have a 100% interest in the Berenguela Project, subject to:
· | a royalty of 2% of net smelter returns on copper produced from the project capped at US$3.0 million. |
Bowdens Project
We entered into an agreement on December 23, 1996 with Golden Shamrock Mines Limited, as amended by an amending agreement dated August 4, 1997, to acquire all of the issued shares of GSM Exploration Pty Limited (“GSM Exploration”) (now known as Silver Standard Australia Pty Limited) at a cost of US$6,712,845. The acquisition of the shares of GSM Exploration was completed on August 22, 1997. At the time, the only asset of GSM Exploration was the Bowdens Project located in New South Wales, Australia, which it acquired from CRA Exploration Pty Limited (“CRA Exploration”) (now known as Rio Tinto Exploration Pty Limited) pursuant to the terms of a tenement sale agreement dated August 11, 1994. Under the terms of the tenement sale agreement, CRA Exploration had the right, among other things, to:
· | receive a payment of A$1,429,397 on GSM Exploration making a decision to mine in respect of the Bowdens Project; |
· | reacquire up to a 51% interest in the Bowdens Project in the event gold and silver resources were delineated on the Bowdens Project in excess of A$800,000,000 or base metal resources were delineated on the Bowdens Project in excess of A$3,000,000,000 within the six month period following the decision to mine; and |
· | reacquire a 100% interest in the Bowdens Project at no cost in the event GSM Exploration did not make a decision to mine in respect of the Bowdens Project by August 11, 1999. |
On July 31, 1997, prior to completing the acquisition of the shares of GSM Exploration, we entered into an agreement with CRA Exploration under which CRA Exploration agreed to release all of its rights to reacquire an interest in the Bowdens Project in return for:
· | the issuance of 160,000 of our common shares (which have since been issued); |
· | the payment of A$1,500,000 on the commencement of commercial production on the Bowdens Project; and |
· | the granting of a royalty of 2% of net smelter returns reducing to 1% of net smelter returns after the payment of US$5,000,000 in royalties. |
Accordingly, with the completion of the acquisition of the shares of GSM Exploration and the signing of the agreement with CRA Exploration, we own 100% of the shares of GSM Exploration for a 100% interest in the Bowdens Project, subject to the rights of CRA Exploration to receive:
· | the payment of A$1,500,000 on the commencement of commercial production on the Bowdens Project; and |
· | a royalty of 2% of net smelter returns reducing to 1% of net smelter returns after the payment of US$5,000,000 in royalties. |
Candelaria Mine
On November 1, 1999, we entered into an option agreement with Kinross Candelaria Mining Company, a Delaware corporation and an indirect wholly-owned subsidiary of Kinross Gold Corporation, a Toronto Stock Exchange listed company (together “Kinross”), under which we acquired an option to acquire a 100% interest in the Candelaria mine, located in Mineral and Esmeralda counties of the State of Nevada.
Under the option agreement, in consideration of the issuance to Kinross of 50,000 of our common shares, we were granted the right to carry out a six month due diligence review of the Candelaria mine. In order to exercise the option, we were required to:
· | make staged cash payments to Kinross totalling Cdn$300,000 over a period of 12 months; |
· | issue 600,000 units to Kinross (each unit to consist of one common share and one common share purchase warrant, with each warrant entitling Kinross to acquire one additional common share for a period of one year at a price of Cdn$3.50); and |
· | pay US$1,000,000 to Kinross on commencement of commercial production. |
In addition to the payments and share issuances, on exercise of the option:
· | Kinross could have elected to require us to purchase the processing facility located on the mine site for Cdn$300,000; and |
· | we were to 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 Cdn$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:
· | payment to Kinross Gold of US$65,834; |
· | issuance to Kinross Gold of 600,000 common shares in our capital and 600,000 common share purchase warrants, with each warrant entitling Kinross Gold to acquire one additional common share until October 1, 2002 at a price of Cdn$3.50 per share; |
· | delivery to Kinross Gold of a promissory note in the amount of Cdn$300,000 payable on or before April 1, 2002 in cash or our shares, at our election, at a price equal to the 20-day average closing price of our shares on the Canadian Venture Exchange (we paid the full amount of the promissory note on March 26, 2002 by the issuance to Kinross Gold of 70,922 of our common shares); |
· | reimbursement of Kinross Gold of US$209,607 for expenses incurred by Kinross Gold in respect of the Candelaria mine from April 1, 2001 to September 30, 2001; and |
· | the assumption of all liabilities associated with the Candelaria mine. |
Under the purchase agreement, Kinross Gold agreed to maintain the reclamation bonding for the Candelaria mine in place until April 1, 2003, extendable to April 1, 2004 on our payment to Kinross Gold of US$50,000. Reclamation bonding for the property was US$1,679,435, and we pledged the shares of Kinross Candelaria Mining Company to Kinross Gold, Inc. as collateral pending our arrangement of reclamation bonding. In March 2003, we paid the US$50,000 for Kinross Gold to maintain the reclamation bonding in place until April 1, 2004. In March 2004, we filed a substitute reclamation bond and related documents with the Bureau of Land Management to assume the reclamation bonding for the Candelaria Mine. On July 30, 2004, the Bureau of Land Management processed our filing and, effective March 8, 2004, accepted our substitute reclamation bond and terminated the period of liability of the Kinross Gold reclamation bond. As a result, the shares of Kinross Candelaria Mining Company (now known as Candelaria Mining Company) are no longer pledged to Kinross Gold.
Under the terms of the purchase agreement, Kinross Gold was responsible for completing the reclamation of the mine (including the seeding of certain parts of the property), and we agreed, among other things, to assume all liabilities, including environmental monitoring, relating to the mine following the completion of reclamation by Kinross Gold. Kinross Gold completed the reclamation of the Candelaria mine in 2003. With the completion of the reclamation of the mine by Kinross Gold, we are responsible for the establishment of plant growth on the property. In the event the seeding by Kinross Gold on the property does not result in sufficient plant growth, we will be required to reseed the property at an estimated cost of US$136,800; 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 nine holes in the Deep Diablo area, limited metallurgical studies, engineering scoping studies and a complete environmental audit. Our drilling confirmed the original resource estimate. Metallurgical and engineering studies demonstrated that conventional milling of the ore was 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 own all of the shares of Candelaria Mining Company, which owns a 100% interest in the Candelaria mine.
Shafter Silver Project
On September 19, 2000, we entered into an agreement with SSR Acquisition, Inc. (our wholly-owned subsidiary), Coastal Capital Partners L.P., John H. Bailey, Peter Galli, Carolyn E. Galli, Mark Fidler, Kathleen Fidler and David Fraser. Under the agreement, we acquired 91.8% of the issued shares of Silver Assets, Inc. in consideration of the payment of US$0.00654 per share for a total purchase price of US$599,305. On November 9, 2000, a short-form merger between SSR Acquisition, Inc. and Silver Assets, Inc. was effected (under the laws of the State of California), under which we acquired the remaining issued shares of Silver Assets, Inc. for US$0.00654 per share. The purchase price for 100% of the issued shares of Silver Assets, Inc. was US$693,601 (Cdn$1,024,293).
At the time of our acquisition of Silver Assets, Inc., its sole asset was a 90.56% interest in Rio Grande Mining Company (“Rio Grande”), the holder of the Shafter Silver Project located near Shafter, Texas. On February 4, 2002, the Nevada Secretary of State accepted a filing document that effected our acquisition of the remaining 9.44% outstanding minority stockholdings in Rio Grande. The cost of acquiring the minority stockholding was US$55,053, which was paid out over time as shares were surrendered. In late 2005, US$49,000 in unclaimed minority stockholding interests were remitted to states of last known residence in settlement of our obligations for the minority stock holdings of Rio Grande.
Prior to our acquisition of Silver Assets, Inc. and Rio Grande, Rio Grande purchased all of the “major” outstanding royalties on metal production from the Shafter Silver Project. One of these royalties was a 6.25% net smelter return royalty payable to Cyprus Amax out of future mining revenues, which Rio Grande purchased from Cyprus Amax for US$50,000 cash and a US$475,000 note. Following our acquisition of Silver Assets, Inc.:
· | we made the final payment of US$75,000 plus interest due to Cypress Amax under the US$475,000 note; and |
· | we acquired one of the two remaining royalties on metal production from the Shafter Silver Project of 6.5% on the Chavez-Miller portion of the property, covering an area of approximately 137.4 hectares, for US$117,500. |
The only remaining material royalty on metal production from the Shafter Silver Project is a 6.25% royalty on a narrow strip of land, covering an area of 10 acres, leased from the State of Texas that contains only a minor amount of the Mineral Resource.
With the acquisition of the minority stockholdings in Silver Assets, Inc. and Rio Grande, we own a 100% interest in the Shafter Silver Project, subject to the above described royalty payable to the State of Texas.
Veta Colorada Project
On July 27, 2005, we entered into agreements with Mexicana del Arco, S.A. de C.V. and Industrial Minera Mexico, S.A. de C.V. to acquire a 100% interest in the Veta Colorada Project located in the Parral District of Chihuahua State, Mexico. Under the purchase agreements, we agreed to pay US$50,000 (paid) on signing the agreements and a further US$3.45 million on satisfactory completion of due diligence within 120 days of signing the agreements. We also agreed to grant a royalty of 1% of net smelter returns to the vendors. In December 2005, the vendors agreed to extend the due diligence period to March 31, 2006 in consideration of an advance payment of US$120,000 (paid) with the remaining US$3.33 million due by March 31, 2006.
In March 2006, we advised Mexicana del Arco, S.A. de C.V. and Industrial Minera Mexico, S.A. de C.V. that we had completed our due diligence of the Veta Colorada Project and were ready to complete the acquisition of the project. In June 2006, we completed the acquisition of the Veta Colorada Project by paying US$3.3 million.
We currently own a 100% interest in the Veta Colorada Project, subject to:
· | a 1% net smelter returns royalty payable to the vendors. |
Maverick Springs Project
As required by a letter agreement dated November 7, 2002 among Vista Gold Corporation (“Vista”), Vista Nevada Corp. (“VNC”), a wholly-owned subsidiary of Vista, and us, on June 9, 2003, our wholly-owned subsidiary, Maverick Silver Inc., entered into an exploration and development agreement with Vista and VNC, pursuant to which we acquired an option to acquire a 55% interest in the Maverick Springs Project located in northern Nevada, representing all of the silver resources hosted in the project, subject to underlying agreements and royalties described below. This option was exercisable on:
· | payment of US$300,000 on execution of the exploration and development agreement (paid); and |
· | incurring US$1,200,000 over four years to fund required exploration expenditures, and payments and option payments, all of which was incurred before December 31, 2005. |
Under an option agreement dated October 7, 2002 among Newmont Mining Corporation and Newmont Capital Limited (together, “Newmont”), Vista and VNC, Newmont granted Vista and VNC an option to acquire a 100% interest in the Maverick Springs Project. In order to maintain the option in good standing, Vista and VNC assumed responsibility for the following payments and expenditures that Newmont was required to make under its mining lease with the owner of the property:
· | payment of US$15,000 on October 1, 2002 (paid); |
· | payment of US$50,000 on October 1, 2003 (paid); |
· | payment of US$100,000 on each October 1st thereafter (paid up-to-date); |
· | a net smelter returns royalty ranging from 1.9% for gold and silver prices that are less than US$250 and US$4.50 per ounce, respectively, to 5.9% for gold and silver prices that are greater than US$550 and US$8.50 per ounce, respectively; |
· | a net smelter returns royalty of 2.9% for all metals other than gold and silver; and |
· | completion of a minimum of 6,400 feet of exploration drilling in each of the first three years of the agreement (completed). |
In order for Vista and VNC to exercise their option from Newmont, they were required to:
· | pay Newmont US$250,000 in cash (paid); |
· | reimburse Newmont for 2003 federal maintenance fees of US$37,300 (paid); |
· | issue to Newmont 141,243 shares of Vista (issued) and 141,243 warrants of Vista (issued) (with each warrant exercisable for one share of Vista for a period of two years at US$4.43 per share); |
· | issue to Newmont, on the first anniversary of the option agreement, the number of shares of Vista determined by dividing US$500,000 by the weighted average closing price of the shares of Vista on the American Stock Exchange averaged over the 10-day trading period ending on the day before the first anniversary of the agreement (the “Weighted Average Price”) and an equal number of share purchase warrants (with each warrant exercisable for a period of two years from the closing at a price equal to 125% of the Weighted Average Price) (on October 7, 2003, Vista issued 122,923 common shares and warrants to Newmont); and |
· | grant to Newmont a 1.5% net smelter returns royalty on production from the Maverick Springs Project. |
In addition, following the fourth anniversary of the option agreement with Newmont, Newmont had the right, on payment of 200% of Vista’s expenditures on the Maverick Springs Project, to acquire a 51% interest in the project. If Newmont had elected to acquire a 51% interest in the Maverick Springs Project, expenditures by Vista, following the acquisition of 51% of the project by Newmont, would have been capped at US$2,000,000 until a feasibility study was completed for the project.
In October 2005, we incurred the last of the US$1.2 million in required expenditures and vested our interest in the Maverick Springs Project.
In January 2007, Newmont elected not to acquire a 51% interest in the Maverick Springs Project.
We currently have a 55% interest in the Maverick Springs Project, representing all of the silver resources hosted in the project, subject to:
· | the net smelter returns royalties payable to the property owner and Newmont as described above. |
Challacollo Project
Under the terms of an option agreement dated November 16, 2001, we acquired from Sociedad Contractual Minera Septentrion (“Minera Septentrion”) an option to acquire a 100% interest in the Challacollo Project located in northern Chile. Under the terms of the option agreement, we were required to make the following cash option payments totaling US$1,500,000 over two years:
· | US$20,000 due on signing the option agreement; (paid) |
· | US$130,000 due on March 1, 2002; (paid) |
· | US$250,000 due on August 1, 2002; (paid) |
· | US$500,000 due on March 1, 2003 (paid); and |
· | US$600,000 due on August 1, 2003 (paid). |
On August 1, 2003, we exercised the option and acquired a 100% interest in the Challacollo Project.
A five percent finder’s fee was included in the cash option payments. The project is subject to an existing 2% production royalty capped at US$850,000 and a 2% production royalty to Minera Septentrion increasing to 3% once the existing 2% royalty is fully paid. The Minera Septentrion royalty may be purchased for US$1,500,000 at any time.
In 2005, we agreed to acquire certain mineral claims adjacent to the Challacollo Project, which acquisition has not yet been completed.
At the date of this Annual Report, we have a 100% interest in the Challacollo Project, subject to:
· | a 2% production royalty capped at US$850,000; and |
· | a 2% production royalty increasing to 3% once the above 2% royalty is fully paid, which may be purchased for US$1,500,000 at any time. |
San Marcial 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 Project located in Sinaloa State, Mexico. Under the terms of the option:
· | we could have earned a 50% interest by: |
o | making cash payments totaling US$29,000 by February 4, 2002 (paid); and |
o | incurring exploration expenditures of at least US$175,000 by April 30, 2002 (incurred). |
· | We could have then earned 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 a combination of cash and our common shares with at least US$150,000 in cash. |
In addition, if, following the exercise of the option, within three years of the date of the option agreement:
· | we outlined 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 were to pay to Gold-Ore, in cash or our common shares, at our election, US$0.005 per ounce for each ounce of silver outlined in excess of 50 million ounces; and |
· | the afternoon fix of the price of silver on the London Mercantile Exchange was greater than or equal to US$6.50 per ounce for a minimum of 60 consecutive days, we were to 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 Project pursuant to the underlying option agreement, we were required to:
· | make cash payments to the project vendor, Met-Sin Industriales, S.A. de C.V., totaling US$462,500 as follows: |
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; |
· | incur US$400,000 in further exploration expenditures on the project by February 4, 2004 (US$200,000 of which was required to be incurred by February 4, 2003); |
· | pay US$100,000 on commencement of commercial production to International American Resources Inc.; and |
· | grant a 3% net smelter returns royalty to the project vendor, provided that each 1% of the royalty could 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:
· | paying to Gold-Ore US$150,000 in cash; |
· | issuing to Gold-Ore 45,706 common shares in our capital; and |
· | entering into an option agreement with the owner of the San Marcial Project to acquire a 100% interest in the San Marcial Project on the terms contained in the original option agreement between Gold-Ore and the owner of the project as described above. |
In February 2004, we exercised our option to acquire a 100% interest in the San Marcial Project by making the final payment due under the option agreement of US$387,500, for total payments of US$462,500.
At the date of this Annual Report, we have a 100% interest in the San Marcial Project, subject to:
· | paying US$100,000 on commencement of commercial production to International American Resources Inc.; and |
· | a 3% net smelter returns royalty, provided that each 1% of the royalty could be acquired for US$600,000. |
Sulphurets Project (Newhawk Arrangement)
On September 30, 1999 pursuant to a plan of arrangement (the “Newhawk Arrangement”), holders of common shares of Newhawk Gold Mines Ltd. (“Newhawk”) exchanged every six Newhawk shares for one of our common shares. There were 13,712,707 common shares of Newhawk issued and outstanding at the time of the Newhawk Arrangement which were exchanged for 2,285,451 of our common shares. On completion of the Newhawk Arrangement, Newhawk became our wholly-owned subsidiary.
At the time of the acquisition of Newhawk, its principal asset was a 60% interest in the Sulphurets Project (at the time 40% owned by Black Hawk Mining Inc. (“Black Hawk”), which interest we subsequently acquired) and a 100% interest in the Snowfield Project (described above), each of which is located in northwest British Columbia, Canada.
Following the Newhawk Arrangement, we completed reclamation work on the Sulphurets Project, which was 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 Cdn$1,161,333. As at the date of this Annual Report, reclamation bonding totals Cdn$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” below, 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 Cdn$125,000 and a 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, the Snowfield Project and Blue Ice property exercisable on payment of Cdn$3,800,000. The option could have been exercised by Mr. Morriss at any time on or before the close of business on May 30, 2002. In the event the option was exercised, we anticipated recording a gain of approximately Cdn$151,000 on the disposition. We did not contemplate the granting of the option to Sean Morriss at the time of the acquisition of Newhawk. The option granted to Mr. Morriss expired without exercise.
We currently own a 100% interest in the Sulphurets Project, subject to:
· | the 1.2% net smelter returns royalty payable to Black Hawk described above. |
Silvertip Property
Under an agreement dated November 27, 2002 with Imperial Metals Corporation and its wholly-owned subsidiary Silvertip Mining Corporation (together “Imperial”), we acquired a 100% interest in the Silvertip Property located in northern British Columbia, Canada. Under the agreement:
· | we paid Imperial Cdn$1,200,000 in cash; |
· | issued to Imperial 100,000 of our common shares; and |
· | assumed the remaining reclamation obligations associated with the property (at the date of this Annual Report, reclamation bonding totals Cdn$79,000 in respect of the Silvertip Property). |
Certain of the non-core claims comprised in the property are subject to a 5% net profits interest royalty.
We currently own a 100% interest in the Silvertip Property, subject to:
· | a 5% net profits interest royalty on certain of the non-core claims comprised in the property. |
Sunrise Lake Deposit
Under an agreement dated June 9, 2003 with Northern Hemisphere Development Corp. (“Northern”) and Aber Diamond Corporation (“Aber”), we acquired a 100% interest in the Sunrise Lake Deposit located in the South MacKenzie District, Northwest Territories, Canada. Under the agreement:
· | we paid Northern US$252,442 in cash and issued to Northern 42,938 of our common shares; |
· | we paid Aber US$235,558 in cash and issued to Aber 40,066 of our common shares; and |
· | we assumed the remaining reclamation obligations associated with the property. |
The claims comprised in the Sunrise Lake Deposit are subject to a 5% net profits interest royalty.
We currently own a 100% interest in the Sunrise Lake Deposit, subject to:
· | a 5% net profits interest royalty on claims comprised in the Sunrise Lake Deposit. |
San Agustin Property
We acquired by staking the mineral claims covering the San Agustin Property located in Durango State, Mexico in April 2003. We have agreed to pay the following finder’s fee to La Cuesta International, Inc. in respect of our acquisition of the San Agustin Property:
· | US$5,000 in cash following the staking of the property (paid); |
· | the greater of (i) US$5,000 and (ii) 2% of our direct exploration expenditures on the property, payable every six months; and |
· | a 0.25% net smelter returns royalty applicable to all gold and silver produced from the property; |
provided that the maximum amount payable in respect of the finder’s fee is an aggregate of US$500,000.
In August 2006, we granted an option to acquire a 100% interest in the San Agustin Property to Geologix under an agreement dated August 25, 2006 with Silver Standard Mexico S.A. de C.V., Geologix Explorations Inc. and Geologix Explorations Mexico, S.A. de C.V. (Silver Standard Mexico S.A. de C.V. and Geologix Explorations Mexico, S.A. de C.V. are wholly-owned subsidiaries of Silver Standard and Geologix, respectively). In order to maintain the option in good standing under the terms of the option agreement, Geologix must:
· | issue to us: |
o | 500,000 shares of Geologix following the signing of the agreement (issued); and |
o | 500,000 shares of Geologix on or before the first anniversary of the agreement; |
· | incur exploration expenditures of not less than US$2 million on or before the second anniversary of the date of the agreement, which expenditures are to include: |
o | exploration expenditures of not less than US$500,000 on or before the first anniversary of the agreement; and |
o | at least 15,000 meters of drilling completed in accordance with an agreed upon drill program on or before the second anniversary of the agreement; and |
· | cause an estimate of the silver resource and gold resource for the property to be prepared in accordance with Canadian National Instrument 43-101 within 27 months after the date of the agreement. |
In order to exercise the option under the terms of the option agreement, Geologix must:
· | pay us in respect of the silver resource: |
o | 10% of the gross value of the silver resource, if the price of silver is less than or equal to US$10.00 per ounce, provided that if the silver price is less than US$5.50 per ounce, the silver price shall be deemed to be US$5.50 per ounce; or |
o | US$1.00 per ounce of silver resource, if the price of silver is greater than US$10 per ounce, but less than or equal to US$20 per ounce; or |
o | US$1.50 per ounce of silver resource, if the price of silver is greater than US$20 per ounce; |
· | pay us in respect of the gold resource: |
o | US$15 per ounce of gold resource, if the price of gold is less than or equal to US$750 per ounce; or |
o | US$20 per ounce of gold resource, if the price of gold is greater than US$750 per ounce; |
less:
o | exploration expenditures incurred, up to a maximum of US$2,000,000; and |
o | the value of the shares of Geologix issued to us to maintain the option described above; and |
· | grant us a royalty of 2.5% of net smelter returns applicable to all minerals produced from the San Agustin Property, that are not within the estimate of the silver resource and gold resource, up to a maximum of 2 million ounces of gold equivalent. |
If the estimate of the silver resource is equal to or greater than 50 million ounces of silver and Geologix exercises the option, we shall have the right to elect to acquire a 50% interest in San Agustin Property by incurring expenditures over two years equal to three times the exploration expenditures incurred by Geologix, provided that Geologix may elect that we pay to Geologix up to 1.5 times their exploration expenditures in cash and incur the remaining 1.5 times their exploration expenditures on exploration.
We currently own a 100% interest in the San Agustin Property, subject to:
· | the above described finder’s fee capped at US$500,000; and |
· | the option granted to Geologix to acquire the property described above. |
Minco Silver - Strategic Alliance
In October 2004, we formed a strategic alliance with Minco to jointly pursue silver opportunities in China. Under the terms of the alliance, we invested Cdn$2,000,000 in Minco Silver Corporation (“Minco Silver”), a subsidiary of Minco, to acquire a 20% interest in Minco Silver. In addition, we have preferential purchase rights to participate in future financings of Minco Silver in order to increase our interest to up to 30% of Minco Silver. As part of the strategic alliance, Minco Silver is the exclusive entity for both Minco and Silver Standard to pursue silver projects in China. Robert Quartermain, our
President and one of our directors, represents us on the board of directors of Minco Silver. William Meyer, one of our directors, is the Chairman of Minco and is also on the board of directors of Minco Silver.
Minco has evaluated many silver projects in China over the past two years and has assembled a large silver database. Minco Silver has the right to acquire 100% of the equity interest in the Fuwan Silver project, Guangdong, China, which includes four exploration permits covering a total of 205.63 square kilometers.
On May 9, 2005, Minco Silver completed a financing of 4,276,000 special warrants (each special warrant exchangeable for one common share of Minco Silver without payment of any additional consideration) at a price of Cdn$1.25 per special warrant for gross proceeds of Cdn$5,345,000. We acquired 960,000 of the special warrants at a cost of Cdn$1.2 million to maintain our interest in Minco Silver.
On December 2, 2005, the shares of Minco Silver began trading on the Toronto Stock Exchange under the symbol MSV.
Other Properties
Duthie Property
We acquired the Duthie Property in November 1978 for its then known silver reserve, based on the then prevailing price of silver, and functioning mill. The Duthie Property is located 12 kilometers west of Smithers, British Columbia, approximately 1.2 kilometers north of Aldrich Lake. It operated intermittently from 1923 to the mid-1980s. 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 1990s, British Columbia adopted legislation which resulted in our becoming responsible for the reclamation of historical tailings on the Duthie Property. As a result, we submitted a reclamation proposal for the tailings impoundment area that contained three reclamation options to the Province of British Columbia in March 1994. We have since completed a study which defines the most appropriate reclamation option and in March 1998 submitted the results of the study to the Province of British Columbia. A reclamation option was accepted by the Province of British Columbia in June 1999, subject to possible refinements. During 2004, 2005 and 2006, we carried out reclamation work of Cdn$205,000, Cdn$202,000 and Cdn$313,000, respectively. Reclamation work will continue in 2007 at an estimated cost of Cdn$551,065. Remaining reclamation obligations include placing perimeter ditches around the tailings impoundment area, capping the tailings, constructing a wetland and monitoring the results in subsequent years. Estimated costs for the remaining reclamation beyond 2007 are Cdn$343,000, which amount has been included in our provision for reclamation and includes Cdn$20,000 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 have studied the property and have prepared a conceptual reclamation plan with possible reclamation alternatives for the reclamation of the property. In 2006, we submitted the conceptual reclamation plan to the appropriate government agencies for comment. With the finalization of the conceptual reclamation plan, we have estimated the fair value of the liability associated with the reclamation of the property to be Cdn$2,037,000. This estimate will be adjusted to reflect any changes to the reclamation plan resulting from the regulatory review. Until the conceptual reclamation plan is accepted by the regulatory agencies, monitoring is not required.
In 2005, we spent Cdn$90,000 completing required reclamation work on the property, which involved the closure of mine workings. Once the conceptual reclamation plan is accepted by the regulatory agencies, we will commence reclamation of the property.
Manantial Espejo Project
On November 4, 1998, we entered into an agreement with Triton Mining Corporation (“Triton Mining”), a wholly-owned subsidiary of Black Hawk Mining Inc., a Toronto Stock Exchange listed company, pursuant to which we acquired an option to acquire a 50% interest in Minera Triton Argentina S.A. (“Minera Triton”), a wholly-owned subsidiary of Triton Mining. In order to exercise the option, we were required to:
· | make staged cash option payments to Triton Mining of US$1,536,500 (paid); and |
· | incur exploration expenditures on the Manantial Espejo Project of US$4.5 million by December 31, 2001, extendable to December 31, 2002 in certain circumstances. |
At the time we acquired our option to acquire a 50% interest in Minera Triton:
· | Minera Triton owned 80% of the issued and outstanding shares of Compania Minera Altovalle S.A., an Argentine corporation (“Altovalle”), which owned certain mineral properties known as the “Manantial Espejo Project” located in the Santa Cruz Province of Argentina. |
· | The remaining 20% of the shares of Altovalle were owned by Barrick Exploraciones Argentinas S.A., a subsidiary of Barrick Gold Corporation (“Barrick Gold”). |
Under the terms of the Altovalle shareholders’ agreement between Minera Triton and Barrick Gold, on completion of a feasibility study for the Manantial Espejo Project, Barrick Gold was required to elect to either:
· | increase its interest in Altovalle to 40% by paying Minera Triton 40% of its reasonable costs incurred in respect of the Manantial Espejo Project; or |
· | sell its interest in Altovalle to Minera Triton for US$5.00 per ounce of gold plus US$0.06 per ounce of silver contained in the proven and probable reserve supporting the feasibility study with any ounces of gold or silver mined in addition to the ounces contemplated in the proven and probable reserve in the feasibility study subject to a 3% net smelter returns royalty. |
In addition, under the terms of the Altovalle shareholders’ agreement between Minera Triton and Barrick Gold, the following royalties were payable to Barrick Gold:
· | a payment of 60 cents (US) per tonne of ore mined from the Manantial Espejo Project and fed to process with a maximum of one million tonne; and |
· | 0.5% net smelter returns royalty derived from the production of minerals from the Manantial Espejo Project. |
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 a 50% interest in Minera Triton, we acquired Barrick Gold’s 20% interest in Altovalle and terminated Barrick Gold’s rights under the Altovalle shareholders’ agreement by:
· | issuing to Barrick Gold 400,000 of our common shares valued at Cdn$920,000; |
· | granting to Barrick Gold a royalty of US$5.00 per ounce of gold plus US$0.06 per ounce of silver contained in the proven and probable reserve supporting the feasibility study for the Manantial Espejo Project payable prior to the commencement of construction of a mine at the Manantial Espejo Project; |
· | granting to Barrick Gold a 3% net smelter returns royalty on any ounces of gold or silver mined in addition to the ounces contemplated in the proven and probable reserve in the feasibility study; |
· | agreeing to maintain in place the following royalties payable to Barrick Gold: |
o | the payment of 60 cents (US) per tonne of ore mined from the Manantial Espejo Project and fed to process with a maximum of 1 million tonnes; and |
o | 0.5% net smelter returns royalty derived from the production of minerals from the Manantial Espejo Project. |
At the time of the acquisition of Barrick Gold’s interest, we were not contemplating the subsequent transactions in 2002 described below with Triton Mining and Pan American. No gain or loss was recorded on the completion of this transaction with Barrick.
Under our option agreement for the acquisition of a 50% interest in Minera Triton, we agreed with Triton Mining that if either party acquired Barrick Gold’s 20% interest in the Manantial Espejo Project, the acquiring party would offer one-half of the 20% interest to the other party for 50% of the acquisition cost. Accordingly, we transferred to Triton Mining one-half of the 20% interest (representing 10%, valued at Cdn$460,000) and cash of Cdn$125,000 in exchange for a 40% direct interest in the Sulphurets property. The net allocation of the Cdn$528,000 purchase cost of the 40% Sulphurets property interest was Cdn$499,000 to the Sulphurets property, Cdn$21,000 to working capital (including Cdn$8,000 cash) and Cdn$8,000 for reclamation deposits. We agreed to accept the 40% interest in the Sulphurets property we did not already own as consideration for the 10% interest in Manantial Espejo Project in order to increase our interest in the Sulphurets property to 100%. No gain or loss was recorded on the completion of this transaction.
On January 22, 2002, we received from Triton Mining an offer to sell to us all of its interest in the Manantial Espejo Project pursuant to the terms of the right of first refusal contained in the shareholders’ agreements for Minera Triton and Altovalle. On February 22, 2002, we elected to exercise our right of first refusal and entered into an agreement with Triton Mining under which we agreed to purchase Triton Mining’s remaining interest in Altovalle and the Manantial Espejo Project for US$2,000,000, which at the time consisted of:
· | the ownership of a 10% interest in Altovalle for a 10% interest in the Manantial Espejo Project; and |
· | 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 to sell to Pan American:
· | the ownership of a 50% interest in Minera Triton for a 40% interest in the Manantial Espejo Project; and |
· | the ownership of a 10% interest in Altovalle for a 10% interest in the Manantial Espejo Project; |
in consideration of the payment of US$2,000,000 in cash or common shares and the obligation to contribute the first US$3,000,000 towards mine construction once a production decision is made for the Manantial Espejo Project.
On March 27, 2002, we concurrently closed our agreements with Triton Mining and Pan American and paid the cash and share consideration we received from Pan American, for the sale of the interest in the Manantial Espejo Project, to Triton Mining as consideration for its remaining interest in the Manantial Espejo Project. As part of our acquisition of Triton Mining’s interest, we deemed our option to acquire a 50% interest in Minera Triton to be exercised. As part of the sale to Pan American of an interest in the Manantial Espejo Project, we entered into a joint venture agreement with Pan American for the exploration and development of the Manantial Espejo Project. Under the terms of the joint venture agreement, we would remain operator of the project until a decision was made to complete a feasibility study. Thereafter, Pan American would be the operator of the project until the commencement of commercial production. On commencement of commercial production, we, together with Pan American, would form an operating company to act as operator of the project, which would 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 were to be incurred by the two of us in proportion to our respective interests in the joint venture.
On March 27, 2002, we also acquired from Repadre Capital all of Repadre Capital’s interest in the net smelter returns royalty granted to Repadre Capital by Minera Triton equal to 1.5% of 80% of net smelter returns in respect of production from the Manantial Espejo Project. The purchase price for the royalty interest was US$200,000. We also agreed to sell a 50% interest in the royalty we acquired from Repadre Capital to Pan American for US$100,000.
In November 2002, Pan American acquired from Barrick Gold all of Barrick Gold’s rights to receive a royalty from the Manantial Espejo Project of US$5.00 per ounce of gold plus US$0.06 per ounce of silver contained in the proven and probable reserve supporting the feasibility study for the project with any ounces of gold or silver mined in addition to the ounces contemplated in the proven and probable reserve in the feasibility study subject to a 3% net smelter returns royalty. In December 2002, we acquired from Pan American a 50% interest in the royalty for US$300,000.
On March 21, 2006, we entered into an agreement with Pan American to sell to Pan American all of our 50% interest in the Manantial Espejo Project, including all shareholder loans and interests in royalties, in consideration of the issue to us of 1.95 million common shares of Pan American, having a value of US$46.3 million as of March 21, 2006. In addition, if Pan American sells all or a portion of the Manantial Espejo Project at any time over the three years following March 21, 2006, we will receive 50% of the sale proceeds, after deducting Pan American’s acquisition and other project costs. The agreement with Pan American closed on April 10, 2006.
Following the completion of the sale of our 50% interest in the Manantial Espejo Project to Pan American, we have no interest in the Manantial Espejo Project.
Others
We have a number of other property holdings in Argentina, Australia, Canada, Chile, Mexico and the United States, which are not considered our principal, secondary, tertiary or long-term properties. These property interests are being held for possible future exploration and development, reclamation work, sale, or joint venture. Interests in all of our properties are currently held through claims, leases and options and through working interests. We review such holdings on a regular basis to determine if they should be retained.
We have four significant subsidiaries. The following table sets out the name, jurisdiction of incorporation and incorporation date, date of our acquisition and our interest in each of our material subsidiaries:
Table No. 5
Material Subsidiaries
Name of Subsidiary | Jurisdiction of Incorporation and Incorporation Date | Date Acquired | Silver Standard Interest |
777666 B.C. Ltd. | British Columbia; December 19, 2006 | December 19, 2006 | 100% |
Mina Pirquitas, Inc. | Delaware, USA; September 8, 1994 | October 22, 2004 | 100%(1) |
Pacific Rim Mining Corporation Argentina S.A. | Argentina; October 1, 1993 | December 14, 2001 | 100% |
Silver Standard Durango S.A. de C.V. | Mexico; January 21, 2004 | January 21, 2004 | 100% |
(1) | Formerly known as Sunshine Argentina, Inc. We acquired a 43.4% interest on June 27, 2001 and acquired the remaining 56.6% interest on October 22, 2004. |
Principal Properties
Pirquitas Project
Location, Access and Infrastructure
Our 100% owned Pirquitas development project is a primary silver deposit situated in the Puna de Atacama of northwestern Argentina, in the Province of Jujuy. The project is held by our wholly owned subsidiary Mina Pirquitas, Inc. (formerly know as Sunshine Argentina, Inc.), and the project site is located approximately 355 kilometers northwest of the city of San Salvador de Jujuy. Access to the site is on public roads. The project is located in mountainous terrain with elevations ranging from 4,100 to 4,400 meters above mean sea level. There are no nearby power lines or telecommunication lines; however, a natural gas pipeline passes within 40 kilometers of the project. See the following Pirquitas Project, Location Map.
Land Tenure
The Pirquitas Project consists of 47 mineral concessions covering a total of 3,841 hectares. In order to maintain our rights to these concessions, we are required to make “canon” payments to the Argentine government.
The Pirquitas Project also includes surface rights covering an area of approximately 7,498 hectares, which can be used for purposes such as housing, infrastructure facilities, processing plants, waste and tailing disposal sites, and other facilities to support mining operations.
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. |
1932-1935 | The source of the tin placers was discovered in 1935 and mining of the tin and silver lodes started in 1935. Twelve mines operated in the area and it was often found that mineralization from one mine would turn out to be the same zone as in another, leading to the eventual interconnecting of the mines. The largest mines were San Miguel, Chocaya, Llallagua, and Potosí. Reported total production during this time is estimated to be 777,600 kg of silver, 9,100 tonnes of tin from placer deposits, and 18,200 tonnes of tin mined from the vein systems. |
1995-2003 | Sunshine Argentina, Inc. 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 sampled and mapped. Sunshine Argentina also conducted extensive diamond and reverse circulation drilling from the surface and core drilling from underground. A feasibility study was completed for the project by Sunshine Argentina in 1999-2000. |
2004-2005 | With the acquisition of a 100% interest in the Pirquitas Project, we commenced updating the feasibility study completed in 1999/2000 to take into account current economic conditions. We also commenced an underground ramp to (a) provide a platform area to allow underground drilling, if required, to better define the base of the open pit in the proposed 1999/2000 feasibility study and (b) access the Oploca vein mineralization, which is located outside the proposed open pit. |
2006-2007 | In 2006, we announced the completion of the update of the feasibility study and proven and probable reserves for the Pirquitas Project as described below and announced our decision to proceed with the development of the Pirquitas mine. We also continued with the underground ramp to, and accessed, the Oploca vein mineralization. |
Geology and Mineralization
Geology in northwestern Argentina is divided into three subparallel north by northeasterly-oriented structural belts: the Sub-Andean Range, the Eastern Cordillera, and the Puna, in which Pirquitas is located. These belts are defined by differences in mineral deposits, tectonic activity, and rock types.
The Sub-Andean Range is approximately 110 kilometers wide, with elevations ranging from 300 to 2,500 meters. This belt is mostly void of known mineral deposits, and is characterized by thick sequences of sedimentary rocks that have large open folds. The rocks range from Proterozoic to Recent, have no sign of volcanic activity and very little intrusive activity.
The Eastern Cordillera is 70 to 130 kilometers wide, with elevations ranging from 1,300 to 6,200 meters. Mineral deposits are mostly base metals. This belt contains granites intruding sedimentary rocks. Regional high angle reverse faulting and associated uplift are present, separating it from the Sub-Andean Range to the east.
The Puna is 90 to 240 kilometers wide, with elevations ranging from 3,900 to 6,700 meters. Mineral deposits are dominated by base and precious metals but sulfur and borax deposits also exist. Proterozoic rocks are dominant and include interbedded sandstone and shale. Pirquitas’ mineralization is located in the latter unit.
Mineralization is controlled by the dominant structural fabric and, to a lesser extent, by the permeability and porosity characteristics of the host rocks. Silver, tin, and zinc are spatially associated in a broad sense, but locally, the relationship is tenuous; there are veinlets with only one, all three, or any combination of the three metals. There are also veinlets devoid of any silver, tin, and zinc.
There appear to be three principal styles of mineralization: low-grade disseminated/weak, discontinuous stockwork, sheeted zones of microveinlets, and veins/veinlets. The broad, low-grade halo of silver mineralization is centered on San Miguel, but in general, also encompasses the Potosí vein. Isolated, discontinuous zones of higher-grade micro-stockwork sporadically occur within this broad halo of low-grade mineralization.
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.
Feasibility Study Update
Based on a report prepared by Hatch Ltd., in conjunction with Mine Development Associates, Inc., in accordance with the standards of Canadian National Instrument 43-101 dated April 26, 2006, as amended (the ‘‘Pirquitas Project Report’’), which modified and superseded the April 2006 feasibility study update prepared by Hatch Ltd. and Mine Development Associates, Inc., the Pirquitas Project is estimated to have proven and probable reserves of 107.1 million ounces of silver, based on a silver price of US$5.35 per ounce, a tin price of US$2.75 per pound and a zinc price of US$0.42 per pound. The Pirquitas Project Report envisions an open-pit mine producing an average of 9.6 million ounces of silver per year over a mine operating life of 8.8 years. The Pirquitas Project is expected to produce 10.8 million ounces of silver and 10.2 million ounces of silver in the first and second years, respectively. Project capital costs over the operating life of the Pirquitas Project are estimated to be US$146 million to an accuracy of +/-15%, which is refundable in stages once construction starts. We expect construction to take 21-24 months.
As envisioned in the Pirquitas Project Report, the Pirquitas Project can be developed by a conventional openpit, truck and shovel mining operation at a mining rate of 6,000 tonnes per day of ore over an expected mine life of 8.8 years. A simple and conventional process plant using crushing, grinding, flotation, thickening and filtration unit operations is proposed by the Pirquitas Project Report to process the mined ore into silver, tin and zinc concentrates. Proven and probable reserves were used for the mine plan and to define the ultimate limits of the open-pit for the economic analysis.
Reserve Estimates
In the Pirquitas Project Report, Mine Development Associates, Inc. of Reno, Nevada developed the following reserve estimates for the Pirquitas Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards.
Table 6
Silver Standard Resources Inc.
Pirquitas Project
Proven and Probable Reserves(1)
Ore (Kilo tonnes) | Silver Grade (g/t) | Tin Grade (%) | Zinc Grade (%) | Silver (Oz. in millions) | |
Proven | 3,342 | 191 | 0.25 | 0.67 | 20.5 |
Probable | 15,118 | 172 | 0.19 | 0.62 | 83.6 |
Subtotal In-pit | 18,460 | 175 | 0.21 | 0.62 | 104.1 |
Jig Tails(3) (Probable) | 400 | 234 | 0.37 | 0.13 | 3.0 |
Total Project Reserves | 18,860 | 177 | 0.21 | 0.61 | 107.1 |
(1) | Reserve estimates were developed from a diluted resource and calculated using metal prices of US$5.35 per ounce of silver, US$2.75 per pound of tin and US$0.42 per pound of zinc. Reserve estimates are adjusted based on metallurgical recovery rates for silver, tin and zinc, which are outlined in the Pirquitas Project Report. |
(2) | The reserves are defined by diamond and reverse circulation drilling and underground channel samples. |
(3) | The ore reserves are in place, other than the jig tails that are the product of previous mining operations at the Pirquitas Project. |
San Luis Project
Location, Access and Infrastructure
The San Luis Project in Peru is a newly discovered gold-silver property located in the Ancash Department of central Peru, approximately 25 kilometers northwest of Barrick Gold Corporation's Pierina gold mine. Property elevations range from 3,800 to 4,700 meters above sea level. The project can be accessed from all-weather roads: to the west from Casma, Peru and to the east from Huaraz, Peru. See the following San Luis Property Location Map.
Land Tenure
The San Luis Project is comprised of 28 mineral concessions covering an area of approximately 24,000 hectares. In order to maintain our rights to these concessions, we are required to pay a mining good standing fee in respect of each concession to the government of Peru.
History
The veins that form the San Luis Project were discovered in mid-2005 by an Esperanza field crew carrying out an evaluation program under the evaluation agreement between Esperanza and Silver Standard. In September 2005, Esperanza, as operator of the San Luis Joint Venture, announced the
following assays from channel samples taken by its exploration crews from the Ayelén vein, one of the five veins that comprise the project.
Table 7
Silver Standard Resources Inc.
San Luis Project
Initial Channel Sample Results - Ayelén Vein
Sample No. | Sample Length (vein width in meters) | Gold Grade (g/tonne) | Silver Grade (g/tonne) |
C-A1 | 4.2 | 40.7 | 1,198 |
C-A2 | 4.6 | 27.1 | 694 |
C-A3 | 4.6 | 1.8 | 29 |
C-A4 | 7.0 | 84.8 | 1,628 |
In March 2006, Esperanza announced the results from a follow-up channel sampling program initiated in January 2006. Channel samples were spaced approximately every 82 feet (25 meters) along the strike length of the Ayelén vein. Based on the results of the channel samples, a drill program was commenced by Esperanza in late 2006. At December 31, 2006, a total of 3,765 meters of diamond drilling had been completed in 28 drill holes. Highlights of the 2006 drill program are set out in Table 8 below.
Table 8
Silver Standard Resources Inc.
San Luis Project
Select Drill Results - Ayelén Vein
Drill Hole | From (meters/ feet) | To (meters/ feet) | Interval* (meters/ feet) | Gold (grams per tonne/ ounces per ton) | Silver (grams per tonne/ ounces per ton) |
SL06-01 | 45.0 147.6 | 51.3 168.3 | 6.3 20.7 | 48.7 1.42 | 1,180 34.4 |
SL06-04 includes | 77.9 255.6 | 86.1 282.5 | 8.2 26.8 | 18.6 0.54 | 509 14.8 |
77.9 255.6 | 81.8 268.4t | 3.9 12.8 | 32.6 0.95 | 806 23.5 | |
SL06-09 | 38.7 127.0 | 41.6 136.5 | 2.9 9.5 | 197.13 5.75 | 3578 104 |
SL06-10 | 62.0 203.4 | 68.4 224.4 | 6.4 21.0 | 91.57 2.67 | 2050 59.8 |
SL06-13 | 88.4 290.0 | 92.9 304.8 | 4.5 14.8 | 30.09 0.88 | 906 26.4 |
SL06-16 includes | 42.9 140.7 | 53.8 176.5 | 10.9 35.8 | 50.16 1.46 | 914 26.7 |
44.5 146.0 | 50 164.0 | 5.5 18.0 | 92.01 2.68 | 1508 44.0 |
* True width to be determined.
Diamond drilling is continuing at San Luis with two drills currently operating on the project.
Diamond drilling utilizes a type of rotary drill in which the cutting is done by abrasion using diamonds embedded in a matrix with the drill cutting a core of rock which is recovered in long cylindrical sections. Diamond drilling provides a greater degree of information than reverse circulation drilling about the geology of a potential mineral deposit. Reverse circulation drilling utilizes a rotary percussion drill in which the drilling mud and cuttings return to the surface through the drill pipe.
Geology and Mineralization
At the San Luis Project, gold and silver veins are hosted within Tertiary-age volcanic rocks. Five separate veins have been identified so far with a cumulative strike length of over 5,000 meters. The veins range from several hundreds of meters to over 2,000 meters in length and up to 10 meters or more wide.
Mineralization within the veins is typical of classic quartz-adularia or low-sulfidation epithermal systems. Vein textures such as well developed banding and brecciation indicate that repeated episodes of gold and silver deposition have occurred in the veins. Early investigations at San Luis suggest that concentrations of precious metals will likely form ore shoots within the veins.
As of the date of this report, the San Luis Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Pitarrilla Project
Location, Access and Infrastructure
The Pitarrilla Project is located in the northern part of the State of Durango, Mexico, approximately 150 kilometers north of Durango City. The property can be accessed from several all-weather roads. Electrical power is generated at a dam at Palmito located 30 kilometers to the north. See the following Pitarrilla Project Location Map.
Land Tenure
The Pitarrilla Project is comprised of seven mineral claims covering an area of approximately 29,660 hectares and an application has been filed for an additional claim covering an area of approximately 113,000 hectares. In order to maintain our rights to these concessions, we are required to pay surface mining taxes to the Mexican government.
History
In the late 1990s, Monarch Resources drill tested several gold anomalies on the eastern flank of Cerro Pitarrilla. We acquired the property by staking in late 2002 and shortly thereafter undertook two programs of mapping and prospecting. This work located the three known zones of silver mineralization (Cordon Colorado, Peña Dyke and Javelina Creek), and subsequent programs located two additional zones of silver mineralization (Breccia Ridge and South Ridge). Drilling of the Breccia Ridge and South Ridge zones is continuing at the property. As of January 31, 2007, a total of 186 reverse circulation drill holes totalling approximately 20,500 meters have been completed and a total of 180 diamond drill holes totalling approximately 53,900 meters have been completed. The greater the number of drill holes and closer the spacing between holes, the greater the knowledge of the mineral deposit. There are five diamond drills currently operating at the Pitarrilla Project.
Geology and Mineralization
The silver mineralization at the Cordon Colorado and Peña Dyke zones is localized in a porphyry sill. The silver mineralization at the other three known zones, Javelina Creek, Breccia Ridge and South Ridge, is hosted by a combination of brecciated volcanic rocks and porphyry sills. At Breccia Ridge and South Ridge, the silver mineralization is locally associated with significant values of zinc and to a lesser extent with lead. All areas of mineralization formed as part of a large volcanic complex measuring two and one-half kilometers by four kilometers.
Resource Estimates
As of the date of this report, the Pitarrilla Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Pitarrilla Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated September 28, 2006.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table 9 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 9
Silver Standard Resources Inc.
Pitarrilla Project
Measured Mineral Resource Estimate
(40 g/t Silver - Cutoff Grade)
Classification | Tonnes (millions) | Silver Grade (g/t) |
Measured | 27.2 | 120.6 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 10 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 10
Silver Standard Resources Inc.
Pitarrilla Project
Indicated Mineral Resource Estimate
(40 g/t Silver - Cutoff Grade)
Classification | Tonnes (millions) | Silver Grade (g/t) |
Indicated | 35.6 | 112.5 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 11 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 11
Silver Standard Resources Inc.
Pitarrilla Project
Inferred Mineral Resource Estimate
(40 g/t Silver - Cutoff Grade)
Classification | Tonnes (millions) | Silver Grade (g/t) |
Inferred | 64.4 | 92.7 |
Diablillos Project
Location, Access and Infrastructure
The Diablillos Project is located 160 kilometers southwest of Salta on the altiplano of northern Argentina. The property is road accessible and is 300 kilometers south of the Pirquitas Project. See the following Diablillos Project Location Map.
Land Tenure
The project consists of seven concessions totalling 13.9 square miles (3,600 hectares) and is accessible by road. In order to maintain our rights to these concessions, we are required to make “canon” payments to the Argentine government.
History
Discovered in the 1970s, the property was primarily explored from 1988 to 2001. Much of the recent work on the Oculto deposit at the Diablillos Project was completed by Barrick Gold Corporation in 1999 and 2000. The Oculto deposit was initially defined by 17 diamond drill holes totalling 3,010 meters and 79 reverse circulation holes totalling 19,114 meters. Barrick drilled altogether 24 diamond drill holes and 150 reverse circulation holes. In 2003, we drilled 20 holes totaling 3,046 meters, chiefly to test geophysical anomalies outside of the Oculto deposit and to test for continuity of several high grade trends within the zone. The peripheral drilling intersected several areas with anomalous values. The drilling within the zone confirmed continuity of the target mineral trends. During 2006, a geological review of the project in preparation for an update of the Barrick pre-feasibility study determined that the previous reverse circulation drilling may have understated the gold and silver values. As a result, a 15,000 meter diamond drilling program is planned for the second quarter of 2007. The drill program has been designed to investigate whether drill results obtained by the previous drilling campaigns understated values and also to test a number of gold targets separate from the Oculto Zone where a re-interpretation of the geology indicates potential for the discovery of new gold zones.
Geology and Mineralization
The silver-dominant mineralization at the Diablillos Project is hosted by a high sulphidation epithermal system in volcanic rocks. The mineralization is largely confined between two northeast-striking faults approximately 1,300 feet (400 meters) apart.
Silver mineralization in the Oculto deposit (the main area of mineralization) occurs as native silver, chlorargyrite and matildite. As mineralization is both oxide and sulphide, recoveries in heap leach tests were sufficiently low to recommend milling as the optimal method of recovery.
Resource Estimate
As of the date of this report, the Diablillos Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Mine Development Associates of Reno, Nevada completed the following resource estimate for the Oculto deposit within the Diablillos Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated August 3, 2001.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 12 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 12
Silver Standard Resources Inc.
Diablillos Project
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.
Snowfield Project
Location, Access and Infrastructure
The Snowfield Project is located 65 kilometers north-northwest of Stewart, British Columbia along the eastern limit of the Coast Mountain Range. The simplest access to the project is via Stewart or Bell II, British Columbia by helicopter. The trip is approximately 30 minutes from Stewart and slightly less from Bell II by helicopter, but Stewart has an established year-round helicopter base. Heavy equipment, fuel and camp provisions can be driven along a gravel road in good condition to the Granduc staging site (north-northwest of Stewart) and then flown to Snowfield cutting the helicopter flight time from Stewart in half. See the following Snowfield Project Location Map.
Land Tenure
The project consists of one claim totaling 1267.4 hectares (4.89 square miles) and spans 3.3 kilometers north-south and 4.2 kilometers east-west. The claims are in good standing until 2017 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.
History
The following is a chronological description of mineral exploration on the Snowfield Project:
1933 - 1959 | The earliest documented work consisted of drilling for placer gold in Sulphurets Creek in or around 1933 followed by the discovery of several small copper and gold-silver occurrences in the Sulphurets-Mitchell Creek and Brucejack Lake area between 1935 and 1959. |
1960-1980 | Reconnaissance prospecting, mapping and rock sampling was completed on a regional scale over the entire Sulphurets area, which resulted in the discovery of several copper-molybdenum and copper-gold porphyry targets as well as gold-silver vein targets. |
1980 - 1985 | Detailed mapping, trenching and rock geochemical sampling led to the discovery of the Snowfield, Quartz Stockwork and Moly Zones. |
1985 - 1999 | Five diamond drill holes totaling 740 meters were completed on the Snowfield Zone, in 1985 which all bottomed in mineralization. Preliminary metallurgical testing was also carried out on the drill core. A further 1,514 meters of drilling was completed at Snowfield between 1991 and 1993. |
1999 - 2006 | Silver Standard acquired the project in 1999, and in 2006 completed a 27-hole diamond drill program consisting of 6,141 meters of drilling. The drill program was designed to test the lateral boundaries and depth limits of the mineralization. In December 2006, a resource estimate was prepared based on the 2006 program and prior work. |
Geology and Mineralization
The Snowfield Project is predominately underlain by volcanic rocks, which form the host rocks for the gold mineralization. Pervasive alteration minerals include: chlorite, sericite, quartz and pyrite. The entire sequence of rocks appears to be cut by dykes and sills.
Resource Estimate
As of the date of this report, the Snowfield Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Snowfield Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated January 19, 2007.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table 13 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 13
Silver Standard Resources Inc.
Snowfield Project
Measured Mineral Resource Estimate
(0.5 g/t Gold Cutoff Grade - capped)
Classification | Tonnes (millions) | Gold Grade (g/t) | Mo Grade (%) | Mo Grade (MoS2 %) |
Measured | 11.9 | 1.45 | 0.01 | 0.017 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 14 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 14
Silver Standard Resources Inc.
Snowfield Project
Indicated Mineral Resource Estimate
(0.5 g/t Gold Cutoff Grade - capped)
Classification | Tonnes (millions) | Gold Grade (g/t) | Mo Grade (%) | Mo Grade (MoS2 %) |
Indicated | 37.46 | 1.49 | 0.013 | 0.022 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 15 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 15
Silver Standard Resources Inc.
Snowfield Project
Inferred Mineral Resource Estimate
(0.5 g/t Gold Cutoff Grade - capped)
Classification | Tonnes (millions) | Gold Grade (g/t) | Mo Grade (%) | Mo Grade (MoS2 %) |
Inferred | 14.66 | 1.41 | 0.012 | 0.020 |
Secondary Properties
Berenguela Project
The Berenguela Project is located three miles northeast of Santa Lucia, in the Province of Lampa on the Altiplano of southern Peru and is comprised of two mining concessions covering an area of approximately 200 hectares. The project can be accessed from a major paved highway adjacent to the project, and a main-line railway passes within five kilometers of the project. See the following Berenguela Project Location Map.
The mineral deposit that comprises the Berenguela Project is hosted by limestone overlying a layer of gypsum. The limestone varies in thickness from 30 meters to 100 meters. Mineralization consists of massive replacement of the limestone by manganese dioxide minerals and variable amounts of silver and copper. The deposit is a tabular body that occurs at surface over an area of approximately 75 hectares and is accessible by underground workings and several open pits.
The project was mined continuously from 1905 to 1965 by Lampa Mining Company, of Britain, as a silver-copper mine. In the 1960s, Charter Consolidated Mining Co. and Asarco Inc. each explored the Berenguela Project. The two companies completed a total of 6,600 meters of diamond drilling and channel-sampled underground workings at 1.5-meter intervals over 5,108 meters. In 1968, Charter Consolidated developed an open pit plan and calculated a mineable ore reserve for the project. Since the completion of the mineable ore reserve estimate, no significant amount of ore has been mined from the project. The ore reserve calculated by Charter Consolidated does not comply with Canadian National Instrument 43-101 and the CIM Standards. Under Canadian National Instrument 43-101 and the CIM Standards, the mineable reserve would be classified as a mineral resource.
In the late 1960s the Peruvian Government nationalized the Berenguela Project. SOMINBESA acquired the project from Minero-Peru (a state owned mining company) in 1995 and completed engineering studies for the development of the project. Under our option agreement, we agreed to undertake additional drilling and prepare a resource estimate for the project in accordance with Canadian National Instrument 43-101 and the CIM Standards.
In late 2004 through mid 2005, we completed a reverse circulation drill program that totaled 19,029 meters in 222 holes. The program objectives were: (1) to twin historic, wider-spaced drilling to verify the grade of mineralization, and (2) to complete sufficient additional infill drilling in two areas of mineralization on the project to determine the scope of future drilling requirements for a measured, indicated and inferred resource.
Resource Estimates
As of the date of this report, the Berenguela Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Berenguela Project, in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated October 26, 2005.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 16 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 16
Silver Standard Resources Inc.
Berenguela Project
Indicated Mineral Resource Estimate
(50 g/t Silver Cutoff Grade - capped)
Classification | Tonnes (millions) | Silver Grade (g/t) | Copper (%) |
Indicated | 15.6 | 132.0 | 0.924 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 17 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 17
Silver Standard Resources Inc.
Berenguela Project
Inferred Mineral Resource Estimate
(50 g/t Silver Cutoff Grade - capped)
Classification | Tonnes (millions) | Silver Grade (g/t) | Copper (%) |
Inferred | 6.0 | 111.7 | 0.74 |
Bowdens Project
Location and Access
Our Bowdens Project is located approximately 200 kilometers northwest of Sydney in eastern New South Wales, Australia, near latitude 32º 39’S, longitude 149º 52’E. Access is by the paved road between Mudgee (population 7,500) and Rylstone (population 750) and by numerous gravel and dirt roads that criss-cross the area. See the following Bowdens Project 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.
Land Tenure
The Bowdens Project consists of one exploration tenement covering 93 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 29, 2007 and January 29, 2008, minimum required expenditures are A$62,000 per year.
In April 1999, we purchased the 133.75 hectare farm that overlies the mineralization and a large portion of the area currently being considered for the process plant, waste dumps and tailings pond. The surface rights to the adjoining 50.05 hectare farm, which is the proposed location for the planned mill facilities, were purchased in 2001. In March, 2003, we completed the purchase of a third farm covering an area of 1,140 hectares, which provides us with surface rights for the location of the waste dumps and tailings pond and adjoins the previously purchased farms.
History
The original tenements covering the mineralization of the Bowdens Project were granted to CRA Exploration Pty Limited (“CRA Exploration”) during 1989 and 1990. The following is a chronological description of mineral exploration on the Bowdens Project:
1989 - 1992 | The earliest documented work consisted of drilling for placer gold in Sulphurets Creek in or around 1933 followed by the discovery of several small copper and gold-silver occurrences in the Sulphurets-Mitchell Creek and Brucejack Lake area between 1935 and 1959. |
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 meters on the Bowdens Project. Based on the results of the drill programs, we initiated an updated block model resource estimate for the Bowdens Project, which was completed in October 2001. |
2002 - 2004 | We completed an in-fill drill program in order to better define silver resources on the property for completion of the feasibility study on the Bowdens Project and continued work on elements of the feasibility study. |
2005 - 2006 | We completed an airborne geophysics survey and a drill program to follow up on drill targets identified by the airborne survey. No significant intersections were achieved in this regional drill program. We also completed additional metallurgical test work. |
As of December 31, 2006, a total of 420 drill holes totalling 45,327 meters, including water exploration holes, have been completed on the Bowdens Project since 1989.
Regional Geology and Mineralization
The Bowdens Project is located within a shallow depression that formed during the Late Silurian to Middle Devonian ages. Other rocks exposed in the area include Devonian age marine sediments, Middle Carboniferous age granite intrusives and the Permian age Rylstone volcanics.
Outcropping along the eastern margin of the depression are volcanic rocks. Mineralization at Bowdens is hosted by the rocks near the base of this formation.
Our geologists have identified three styles of mineralization and alteration. First, a silica alteration that is best developed within the volcanics with pervasive silica forming up to 60 percent of the rock. Visible sulfides comprise five to seven percent of the rock and are composed of mainly fine-grained pyrite with minor galena and sphalerite. Occasionally quartz-sulfide veinlets form stockworks and sheeted zones within this style of mineralization. Second, a quartz vein or vein-breccia style of alteration is well developed in an area of mineralization. Vein widths range from 5.0 centimeters up to 1.5 meters and consist of fine layers of chalcedonic and crystalline quartz with thin rhodochrosite bands. Sulphides are associated with quartz and sometimes form bands of pyrite, sphalerite and galena. Third, a sericitic green clay alteration is best developed in the crystal tuff and ignimbrites and consists of sericite, carbonate, epidote, and minor one to two percent pyrite.
Resource Estimates
As of the date of this report, the Bowdens Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following resource estimate for the Bowdens Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards in March 18, 2004.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table 18 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 18
Silver Standard Resources Inc.
Bowdens Project
Measured Mineral Resource Estimate
(40 g/t Silver-Equivalent Cutoff Grade - capped)
Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) |
Measured | 22.9 | 50.4 | 0.33 | 0.46 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 19 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 19
Silver Standard Resources Inc.
Bowdens Project
Indicated Mineral Resource Estimate
(40 g/t Silver-Equivalent Cutoff Grade - capped)
Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) |
Indicated | 24.7 | 53.33 | 0.26 | 0.36 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 20 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 20
Silver Standard Resources Inc.
Bowdens Project
Inferred Mineral Resource Estimate
(40 g/t Silver-Equivalent Cutoff Grade - capped)
Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) |
Inferred | 13.4 | 40.9 | 0.21 | 0.32 |
Candelaria Mine
The Candelaria mine is located in the Candelaria Hills in west central Nevada approximately 55 miles south of Hawthorne, Nevada and approximately five miles west of Highway 95, which connects Reno, Nevada to Las Vegas, Nevada. Access to the property is by paved road from Highway 95. The mine site is connected to the local power grid and has water wells and pumping equipment in place. See the following Candelaria mine Location Map.
The Candelaria District developed into the richest silver district in the State of Nevada, following discovery of high grade veins in 1864. From then until 1954, the property produced 22 million ounces of silver. The property was acquired by Occidental Minerals and later Nerco Minerals, who built a 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 Gold Corporation (“Kinross”), purchased the Candelaria mine in 1994 and operated the mine until January 1999. Kinross produced over 13 million ounces of silver, bringing the total historical production for the property to over 68 million ounces of silver.
Mineralization within the district is confined to the Candelaria Shear. High grade veins form along contacts of intrusive dikes within the host volcanics. Lower grade, bulk tonnage mineralization extends as a halo from the veins into the surrounding shear zone. The main ore bodies vary in width from 80 to 120 feet averaging 3.5 to 4.1 ounces of silver per ton.
Reclamation of the Candelaria mine has been ongoing for the past several years. The mine dumps have been recontoured and re-seeded, and both of the heap leach piles have been rinsed with fresh water and re-seeded. Kinross completed re-contouring and re-seeding of the leach ponds in the first quarter of 2002. We have completed an environmental audit of the mine. The environmental audit did not identify any significant environmental issues and confirmed that the substantial amount of reclamation work completed to date met all state and federal guidelines. See Item 4.B - “Business Overview - Secondary Properties - Candelaria Mine”.
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.
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 43 miles south of Marfa, and 18 miles northeast of Presidio on the Mexico border, at the northeast border of the Mexican State of Chihuahua. The Big Bend National Park is about 60 miles to the southeast of Shafter. Access to the property is by paved roads from El Paso via Marfa. The closest major airport is at El Paso. See the following Shafter Silver Project Location Map.
Land Tenure
The Shafter Silver Project is on private land in the State of Texas, other than a narrow strip of land leased from the state. We control approximately 3,500 acres of private land on and around the mine sites. We also have the right to acquire, via a lease option taken out in April 1998 by Rio Grande Mining Company (“Rio Grande”), now our indirect subsidiary, a contiguous approximately 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.
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. |
1950s | After World War II, the Shafter district was quiet until Phelps Dodge commenced evaluation of the Red Hills intrusive five miles west of Presidio, Texas when the copper price increased in the 1950s. |
1970s | 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 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 Silver Project. Gold Fields abandoned the project after the silver price decline in the early 1980s. |
2000-2006 | Since our acquisition of the project, we have focused our efforts on completing the permitting to place the Shafter Silver Project in production. We have also acquired and transported to Shafter a used 800 ton-per-day mill for processing ore from the project. |
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 1600s. 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 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 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 Silver Project 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.
Pincock, Allen & Holt, a division of Hart Crowser Inc. (“PAH”) developed a three-dimensional computerized model of the Shafter Silver Project that was used in the development of the geologic resource estimate. PAH’s estimated geologic resource includes all material in the model without regard to mineability. The resource estimation does not provide for any dilutional effects that will be experienced during mining and is based on a density factor of 12.0 cubic-feet per ton applied to all material. PAH, in a report dated April 10, 2001, believes that the classification of the resources meets the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table 21 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 21
Silver Standard Resources Inc.
Shafter Silver Project
Measured Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
Classification | Tons | Silver Grade (oz/ton) |
Measured | 658,000 | 9.89 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 22 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 22
Silver Standard Resources Inc.
Shafter Silver Project
Indicated Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
Classification | Tons | Silver Grade (oz/ton) |
Indicated | 1,427,000 | 10.14 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 23 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 23
Silver Standard Resources Inc.
Shafter Silver Project
Inferred Mineral Resource Estimate
(5.0 oz/ton Silver - Cutoff Grade)
Classification | Tons | Silver Grade (oz/ton) |
Inferred | 1,572,000 | 12.83 |
Veta Colorada Project
The Veta Colorada Project is located in the Parral District in Chihuahua State, Mexico, approximately 210 kilometers south of Chihuahua City. The project can be accessed from paved Highway 24 that connects the City of Hidalgo del Parral, Mexico and Durango City, Mexico. The Veta Colorada Project is comprised of nine mining concessions covering an area of approximately 4,244 hectares. In order to maintain our rights to these concessions we are required to pay surface mining taxes to the Mexican government.
Veta Colorada is the principal vein structure in the district, oriented north/south and traceable for over 10 kilometers. The footwall vein is a typical banded quartz vein measuring one to four meters in thickness. The hanging wall is brecciated up to 30 meters in thickness and is mineralized with lower grade material that was generally left in place by previous miners.
Mining in the Parral District commenced in the late 1500s when high-grade silver-gold mineralization was discovered in the Veta Colorada vein system, which was mined up until the 1990s. We are currently compiling historical sampling and geological data for the Veta Colorada Project.
As of the date of this report, the Veta Colorada Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Maverick Springs Project
The Maverick Springs Project is located approximately half-way between Elko and Ely, Nevada and covers approximately 3,970 acres within the prospective region of gold/silver mineralization known as the Carlin Trend. The project can be accessed year-round by fifteen miles of gravel road from the Ruby Lakes National Wildlife Refuge, located west of the Maverick Springs Project. See the following Maverick Springs Project Location Map. The Carlin Trend is thought to mark a deep penetrating fault that separates relatively thick and stable continental crust to the east from a zone of thinned transitional crust to the west.
The Maverick Springs Project is underlain primarily by sediments covered by local basin-fill volcanic rocks. Limestones and sediments are the dominant hosts to the silver-gold mineralization at the Maverick Springs Project. The mineralization does not outcrop and has been delineated by programs of reverse circulation and diamond core drill holes. The mineralization trends north-northeast and occurs as a gently-folded sub-horizontal zone, of dimensions of approximately 8,000 feet in length and 2,500 feet wide. The zone of mineralization is approximately 200 feet thick and occurs at depths of 500 feet to 600 feet below surface.
Prior to Vista and VNC acquiring the option on the property from Newmont, geological mapping, soil and stream geochemical surveys, and a substantial amount of drilling were carried out on the property. A total of 130 drill holes were completed during this period, of which 37 were shallow conventional rotary or percussion holes, 39 were reverse circulation holes, and 54 were diamond core holes. Following the acquisition of the option from Newmont, Vista completed a wide-spaced seven hole reverse circulation drill program to test for continuation of the previously identified mineralized zone. In 2003 and 2004, Vista completed an additional 16 and 13, respectively, reverse circulation holes to further test for the continuation of mineralization. In 2006, an 18-hole, 16,035 foot reverse circulation drill program encountered additional silver mineralization at the north end of the mineralized zone.
As of the date of this report, the Maverick Springs Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Snowden Mining Industry Consultants of Vancouver, British Columbia completed the following resource estimate for the Maverick Springs Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated April 13, 2004.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 24 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 24
Silver Standard Resources Inc.
Maverick Springs Project
Indicated Mineral Resource Estimate
(1 oz/ton Silver-Equivalent Cutoff Grade)
Classification | Tons (millions) | Silver Grade (oz/ton) | Gold Grade (oz/ton) |
Indicated | 69.63 | 1.0 | 0.010 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 25 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 25
Silver Standard Resources Inc.
Maverick Springs Project
Inferred Mineral Resource Estimate
(1 oz/ton Silver-Equivalent Cutoff Grade)
Classification | Tons (millions) | Silver Grade (oz/ton) | Gold Grade (oz/ton) |
Inferred | 85.55 | 1.0 | 0.008 |
Challacollo Project
The Challacollo Project is located 130 kilometers southeast of Iquique and 15 kilometers east of the Pan American Highway at an elevation is 4,900 feet (1,500 meters) above sea level in the Region of Tarapaca (Region One) in northern Chile and covers an area of approximately 14.5 square miles (37.5 square kilometers). The project can be accessed by a dirt road off of the Pan American Highway. In order to maintain our rights to the concessions that comprise the project, we are required to pay annual patentes (taxes) to the Chilean government. See the following Challacollo Project Location Map.
The Challacollo Project consists of four main north-south trending veins. The principal vein, Lolon is 2,000 meters in length and has historically been prospected and developed along 700 meters. Mineralization is hosted in a dominant quartz-rich zone that averages up to 13 meters in width and crosscuts volcanic rocks. During the 1990s, 22 holes, along with significant underground sampling was undertaken by various exploration groups.
In late 2001 and early 2002, we completed an extensive sampling program of the underground workings at 25 meter intervals comprised of over 1,000 samples and a seven hole, 746-meter drill program which tested approximately 600 meters of strike length of the Lolon vein that extends on surface for 2,000 meters. In 2003, a 5,685 meter drill program of infill and step out drilling was completed and a resource estimate for the project was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards.
As of the date of this report, the Challacollo Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
We completed an updated polygonal estimate of the resources for the Challacollo Project in July 2003, which included the results of the 2001 and 2002 underground sampling and drill programs and the 2003 drill program. The resource estimate is based on a cut-off of 50 g/t of silver and was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards. Sundance Ventures reviewed and confirmed our classification of Indicated and Inferred Mineral Resources for the Challacollo Project, in a report dated September 17, 2003.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 26 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 26
Silver Standard Resources Inc.
Challacollo Project
Silver Standard Indicated Mineral Resource Estimate with Sundance Review
(50 g/t Silver Cutoff Grade)
Classification | Tonnes | Silver Grade (g/t) |
Indicated | 3,390,000 | 170.6 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 27 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 27
Silver Standard Resources Inc.
Challacollo Project
Silver Standard Inferred Mineral Resource Estimate with Sundance Review
(50 g/t Silver Cutoff Grade)
Classification | Tonnes | Silver Grade (g/t) |
Inferred | 4,569,000 | 160.7 |
San Marcial Project
The San Marcial Project is located in Sinaloa State, Mexico 56 miles (90 kilometers) due east of Mazatlan in the Sierra Madre Mountains in west central Mexico and is comprised of two claims covering an area of 4.8 square miles (1,250 hectares). The concession is generally road accessible year round except during the rainy season when 4-wheel drive vehicles are required. See the following San Marcial Project Location Map. In order to maintain our rights to these concessions, we are required to pay surface mining taxes to the Mexican government.
The geology at the San Marcial Project can be sub-divided into two distinct underlying rock types, an upper volcanic group of rocks occurring in the higher and more mountainous portions of the project in the northeast, and the underlying lower volcanic group of rocks that occur at lower elevations. The known silver prospects at the San Marcial Project are hosted along what appears to be a narrow set of northwest trending fault structures in two known vein systems, both of which outcrop and can be identified by small historical diggings over a strike length of approximately 300 meters. Prior to our acquisition of the project, Gold-Ore carried out regional stream sediment sampling, geological mapping, rock sampling and trenching and completed the drilling of six holes totaling 601.7 meters. Following acquisition, we completed two drill programs totalling 2,526.8 meters in 14 holes.
As of the date of this report, the San Marcial Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
We completed an estimate of the resources for the San Marcial Project in August 2002. The resource estimate is based on a cut-off of 30 g/t of silver and was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards. Sundance Ventures reviewed and confirmed our classification of Indicated and Inferred Mineral Resources for the San Marcial Project in a report dated October 15, 2002.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 28 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 28
Silver Standard Resources Inc.
San Marcial Project
Silver Standard Inferred Mineral Resource Estimate with Sundance Review
(30 g/t Silver Cutoff Grade - uncapped)
Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) |
Inferred | 2.31 | 191.79 | 0.32 | 0.66 |
Sulphurets Project
The Sulphurets Project is located in the Coast Range Mountains of northwestern British Columbia approximately 900 kilometers north of Vancouver and 240 kilometers north of the town of Prince Rupert. Latitude and longitude are 56 degrees 29 minutes north and 129 degrees 13 minutes west, respectively.
Access from the town of Stewart (62 kilometers south-southeast of the property) is currently by helicopter. During the underground exploration period in the late 1980s, freight, supplies and personnel were transported from Stewart overland via paved Highway 37, then by gravel road to Bowser Lake, then by barge along Bowser Lake (25 kilometers) then by road along Bowser River and finally by tracked vehicle up the Knipple Glacier (15 kilometers) and a further 3.0 kilometers of gravel roads to the camp site.
The towns of Terrace and Smithers are located in the same general region as the Sulphurets Project. Both are directly accessible by daily air service from Vancouver. Stewart has good road access but does not have scheduled air service.
The Sulphurets Project consists of 6 recorded claims covering an area of 3,199 hectares contiguous and to the south of our Snowfield project. The claims are in good standing until January 31, 2017 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 Project has been intermittently explored for precious and base metals for more than 100 years.
A north-trending zone of intense quartz-sericite-pyrite alteration 100 to 450 meters wide and 4.5 kilometers long cuts through the central part of the claim group. The alteration is pervasive and hosts over 40 known zones of structurally controlled quartz-carbonate gold-silver bearing veins, stockworks and breccias. The most important ore-bearing structures occur within a complex vein system and can range from a few centimeters up to 50 meters wide and can contain up to 60 percent quartz. Individual mineralized zones range in length from several meters to several hundred meters.
The project was actively explored from the 1970s to 1994. Newhawk acquired its initial interest in the property in 1984 and carried out a series of exploration programs that included mapping, trenching, sampling, underground development on the West Zone of the project, and both surface and underground diamond drilling. A feasibility study was completed in 1990. Prior to our acquisition of Newhawk, in excess of $40 million had been spent on the exploration and development of the project. We have not carried out any exploration work on the project since we acquired it in 1999.
As of the date of this report, the Sulphurets Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
Silvertip Property
The Silvertip Property is located in northern British Columbia approximately 85 kilometers (50 miles) south of Watson Lake, Yukon Territory. The property can be accessed by a 25 kilometer dirt road that connects to the Alaska Highway. See the following Silvertip Property Location Map.
Silvertip is a high grade carbonate replacement deposit. Exploration work to date has included 71,472 meters of drilling in 491 holes and 2.67 kilometers of underground development. We have not carried out any work on the Silvertip Property since our acquisition of the property.
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, disclosed the following resource estimate for the property in accordance with CIM Standards in its Annual Information Form filed on www.sedar.com on October 30, 2002.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 29 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 29
Silver Standard Resources Inc.
Silvertip Project
Indicated Mineral Resource Estimate
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 30 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 30
Silver Standard Resources Inc.
Silvertip Project
Inferred Mineral Resource Estimate
Classification | Tonnes (millions) | Silver Grade (g/t) | Lead (%) | Zinc (%) | Gold Grade (g/t) |
Inferred | 1.45 | 284 | 5.4 | 8.3 | 0.46 |
Sunrise Lake Deposit
The Sunrise Lake Deposit is located about 130 kilometers by air east-northeast of Yellowknife, Northwest Territories, Canada. Access to the property is typically by ski or float-equipped aircraft. The Sunrise Lake Deposit consists of 6 mining leases, which form a contiguous block with an aggregate area of 1,618 hectares.
The Sunrise Lake Deposit consists of a lens of polymetallic massive sulphides overlying stringer zones of low-grade mineralization. The massive sulphide lens is three meters to four meters thick and has a strike length of about 120 meters at the surface. At depth it is up to 190 meters long. The deposit remains open down plunge.
Hemisphere and Aber discovered the Sunrise Lake Deposit in October 1987. During 1987 and 1988, they drilled a total 18,951 meters in 65 diamond drill holes on the Sunrise Lake Deposit and 1,280 meters in 12 holes on peripheral targets. In 1998, they completed an additional seven diamond drill holes aggregating 1,543 meters. We have not carried out any exploration activities on the property since acquisition.
As of the date of this report, the Sunrise Lake Deposit is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
We completed an updated polygonal estimate of the resources for the Sunrise Lake Deposit in August 2003. The resource estimate is based on a cut-off of 30 g/t of silver and was prepared in accordance with Canadian National Instrument 43-101 and the CIM Standards. Roscoe Postle Associates Inc. (now known as Scott Wilson Roscoe Postle Associates Inc.) reviewed and confirmed our classification of Indicated and Inferred Mineral Resources for the Sunrise Lake Deposit in a report dated September 3, 2003.
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table 31 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table 31
Silver Standard Resources Inc.
Sunrise Lake Deposit
Silver Standard Indicated Mineral Resource Estimate with Roscoe Postle Review
(30 g/t Silver Cutoff Grade - Uncut)
Classification | Tonnes | Silver Grade (g/t) | Lead (%) | Zinc (%) | Copper (%) | Gold Grade (g/t) |
Indicated | 1,522,000 | 262 | 2.39 | 5.99 | 0.08 | 0.67 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 32 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 32
Silver Standard Resources Inc.
Sunrise Lake Deposit
Silver Standard Inferred Mineral Resource Estimate with Roscoe Postle Review
(30 g/t Silver Cutoff Grade - Uncut)
Classification | Tonnes | Silver Grade (g/t) | Lead (%) | Zinc (%) | Copper (%) | Gold Grade (g/t) |
Inferred | 2,555,000 | 169 | 1.92 | 4.42 | 0.07 | 0.51 |
San Agustin Property
The San Agustin Property is comprised of two mineral claims covering an area of approximately 575 hectares and is located 85 kilometers north of Durango City in the State of Durango. Infrastructure is located nearby and paved Highway 45 passes 10 kilometers east of the property. See the following San Agustin Property Location Map. In order to maintain our rights to these concessions, we are required to pay surface mining taxes to the Mexican government.
The local geology consists of a volcanic dome complex resting on fine sedimentary rocks. Blocks of the sedimentary rocks are locally separated by volcanic rocks. The entire package was structurally brecciated and mineralized with gold and silver, which outcrops at surface. Surface oxidation averages 20 meters to 30 meters in depth.
Prior to our staking the property, exploration activities were completed on the property in the 1990’s consisting of mapping, soil sampling and 69 drill holes totaling 10,400 meters outlining the San Agustin gold silver mineralization. In early 2004, we completed a reverse circulation drill program, which totaled 3,890 meters in 24 holes. The results of this program, along with the prior drill holes, have been used to calculate a preliminary resource.
In 2006, Geologix carried out an exploration program on the property, and in 2007, it commenced a drill program on the property in accordance with the terms of its option agreement (see Item 4.B - “Business Overview - Secondary Properties - San Agustin Property”).
As of the date of this report, the San Agustin Property is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
James A. McCrea, P. Geo., of Surrey, British Columbia completed the following polygonal preliminary resource estimate for the San Agustin Property, in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated April 16, 2004.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table 33 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table 33
Silver Standard Resources Inc.
San Agustin Property
Preliminary Inferred Mineral Resource Estimate
(0.5 g/t Gold Cutoff Grade)
Classification | Tonnes (millions) | Gold Grade (g/t) | Silver Grade (g/t) |
Inferred | 11.2 | 0.96 | 12.86 |
Office Space
On March 31, 2003, we renewed the lease of our head office, 3,969 square feet of office space in Vancouver, British Columbia at 1180 - 999 West Hastings Street, Vancouver, British Columbia. The lease expires on March 31, 2008. On June 30, 2004, we leased the 3,230 square feet of office space adjoining our head office and entered into an amendment to lease dated June 30, 2004, which provides for lease payments of $4,796 per month for our existing space plus operating costs and property taxes of $5,302 per month and $4,576 per month for the adjoining space plus operating costs and property taxes of $4,315 per month until August 31, 2007. Following this date and until March 31, 2008, the combined payment for both spaces will be $18,988 per month, plus operating costs and property taxes. On May 11, 2006, we leased a further 1,162 square feet of adjoining office space under an amendment to lease dated May 11, 2006, which provides for lease payments of $1,937 per month for the additional space plus operating costs and property taxes.
A. | Operating Results |
This management discussion and analysis (MD&A) of the financial position and operating results of the company for the twelve months ended December 31, 2006 and 2005 is prepared as of March 1, 2007 and should be read in conjunction with the audited consolidated financial statements and the related notes thereto, which have been prepared in accordance with Canadian generally accepted accounting principles. All dollar amounts referred to in this discussion and analysis are expressed in Canadian dollars except where indicated otherwise. Reference is made to note 20 to the consolidated financial statements for a description of material differences between Canadian and U.S. GAAP. Additional information relating to us, including our annual information form, is available free of charge on our website at www.silverstandard.com, on the Canadian Securities Administrators’ (CSA) website at www.sedar.com, and on the EDGAR section of the U.S. Securities and Exchange Commission’s (SEC) website at www.sec.gov.
The MD&A contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws concerning the anticipated developments in our operations in future periods, our planned exploration activities, the adequacy of our financial resources and other events or conditions that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management (see “Note Regarding Forward-Looking Statements”).
Business Overview
We are a company focused on the acquisition, exploration and development of silver-dominant projects, with a portfolio of core properties in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States. Our strategy is to acquire, hold and advance high quality geopolitically diverse silver projects with defined resources in anticipation of higher silver prices. In October 2006, we announced the production decision on our Pirquitas property in Argentina. Our common stock is quoted on the Nasdaq Global Market under the trading symbol SSRI and on the Toronto Stock Exchange under the symbol SSO.
Financial Overview for 2006
· | In April we closed the sale of our 50% interest in the Manantial Espejo property in Argentina for a gain of $35.4 million. |
· | In May we closed a public offering of 7.2 million common shares for net proceeds of $171.1 million. |
· | We completed a feasibility study update on our Pirquitas property in Argentina and in October we announced the production decision for this property. |
· | We completed the acquisition of the Berenguela property in Peru and the Veta Colorada property in Mexico. |
· | We had record earnings of $16.4 million or $0.28 per share and ended the year with a record $250.2 million in working capital, including $229.6 million of cash with no debt. |
· | We had record cash exploration investment of $39.4 million on our various mineral properties with significant results reported at our San Luis joint venture property in Peru, our Pitarrilla property in Mexico and our Snowfield property in Canada. |
Pirquitas Production Decision
In October 2006, we made a production decision on our Pirquitas property. This property is located in the province of Jujuy in northwest Argentina and is expected to produce in excess of nine million ounces of silver per year over a nine-year mine life. The mine is also estimated to produce in excess of 2,500 tonnes of tin and 6,600 tonnes of zinc annually. The mine is estimated to require 21-24 months to construct at an estimated cost of US$146 million, plus value added tax that is recoverable. In the fourth quarter of 2006, engineering commenced and equipment purchases were made including the purchase of the ball mill.
Critical Accounting Estimates
The preparation of our consolidated financial statements requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities, as well as revenues and expenses. Our accounting policies are set out in full in note 2 of the annual financial statements.
Mineral Property Costs
We regularly review the net carrying value of each mineral property for conditions that suggest impairment. This review requires significant judgment where we do not have any proven and probable reserves that would enable us to estimate future cash flows to be compared to the carrying values. Factors considered in the assessment of asset impairment include, but are not limited to, whether there has been a significant decrease in the market price of the property; whether there has been a significant adverse change in the legal, regulatory, accessibility, title, environmental or political factors that could affect the property’s value; whether there has been an accumulation of costs significantly in excess of the amounts originally expected for the property’s acquisition, development or cost of holding; whether exploration activities produced results that are not promising such that no more work is being planned in the foreseeable future and whether we have significant funds to be able to maintain our interest in the mineral property.
Where we do have proven and probable reserves, as is now the case at our Pirquitas property, the expected undiscounted future cash flows from an asset are compared to its carrying value. These future cash flows are developed into models using assumptions that reflect the long-term operating plans for an asset given our best estimate of the most probable set of economic conditions. Commodity prices used reflect market conditions at the time the models are developed. These models are updated from time to time, and lower prices are used should market conditions deteriorate. Inherent in these assumptions are significant risks and uncertainties.
In 2006, two properties were written-off and a $101,000 expense was recorded. Changes in market conditions, reserve estimates and other assumptions used in these estimates may result in future writedowns.
Stock-based compensation
We provide compensation benefits to our employees, directors, officers and consultants through a share option plan. The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model. Expected volatility is based on historical volatility of our stock. We utilize historical data to estimate option exercises and termination behaviour with the valuation model. The risk-free rate for the expected term of the option is based on the Government of Canada yield curve in effect at the time of the grant. Actual results may differ materially from those estimates based on these assumptions.
Asset Retirement Obligations
The amounts recorded for asset retirement costs are based on estimates included in closure and remediation plans. These estimates are based on engineering studies of the work that is required by environmental laws or public statements by management which results in an obligation. These estimates include an assumption on the rate at which costs may inflate in future periods. Actual costs and the timing of expenditures could differ from these estimates.
Income and Resource Taxes
The determination of our future tax liabilities and assets involves significant management estimation and judgment involving a number of assumptions. In determining these amounts we interpret tax legislation in a variety of jurisdictions and make estimates of the expected timing of the reversal of future tax assets and liabilities. We also make estimates of the future earnings which affect the extent to which potential future tax benefits may be used. We are subject to assessment by various taxation authorities, which may interpret tax legislation in a manner different from our view. These differences may affect the final amount or the timing of the payment of taxes. When such differences arise we make provision for such items based on our best estimate of the final outcome of these matters.
Changes in Accounting Policies
Recent Canadian accounting pronouncements
Financial Instruments
Effective January 1, 2007, we have adopted CICA Handbook Section 3855 Financial Instruments - Recognition and Measurement, CICA Handbook Section 3865 Hedges and CICA Handbook Section 1530 Comprehensive Income (the “Financial Instrument Standards”). As we have not previously undertaken hedging activities, adoption of Section 3865 will have no impact on us. Prior to January 1, 2007, the principal accounting policies affecting our financial instruments related to marketable securities that were valued at the lower of original cost and quoted market value.
The adoption of the Financial Instrument Standards will result in our classifying marketable securities and cash equivalents as available for sale investments and all derivative and other financial instruments as held for trading assets or liabilities measured at fair value. We have no derivative financial instruments or other financial instruments held for trading at December 31, 2006. Transitional adjustments in respect of these available for sale assets will be recorded to the opening investment balances and accumulated other comprehensive income on January 1, 2007.
As a consequence of adopting the Financial Instrument Standards on January 1, 2007, accumulated other comprehensive income will increase by approximately $29,800,000 with a corresponding increase of approximately $29,800,000 in investments. As a result of the adoption of this standard, the carrying value of this investment is increased by $29,800,000, with a corresponding increase, net of tax, to accumulated comprehensive income. This represents the net gain on measuring the fair value of available for sale investments, which had been not recognized on a fair value basis prior to January 1, 2007.
Upon adoption of the financial instrument standards, all regular-way purchases of financial assets are accounted for at the settlement date. Transaction costs on financial assets and liabilities classified other than as held for trading will be treated as part of the investment cost.
Gains or losses associated with items designated as held for trading are recorded in the income statement, separate from any interest or dividends earned on these investments. Gains or losses associated with items classified as available for sale will be separately recorded as unrealized within our other comprehensive income until such time the investment is disposed of or incurs a decline in fair value that is on an other-than-temporary basis, at which time any gains or losses will then be realized and reclassified to the income statement. We have elected to designate cash equivalents (consisting of mainly commercial paper and banker’s acceptances) and marketable securities (all of which are investments in common shares) as available for sale.
Financial Review
We had net earnings for the year ended December 31, 2006 of $16,382,000, or $0.28 per share, compared to a net loss of $5,870,000 or $0.11 per share in 2005.
The net earnings in 2006 included a $35,390,000 gain on disposal of our joint venture interest in the Manantial Espejo property. Offsetting some of the impact of this gain were higher expenses and higher non-cash stock-based compensation expenses.
Financial Results from Operations
The following is a summary and discussion on the various components of the expenses and income items recorded during the year compared to the prior year:
Year ended December 31, | ||
Exploration and mineral property costs | 2006 $ | 2005 $ |
Property examination and exploration | 267,000 | 434,000 |
Mineral property costs written-off | 101,000 | 372,000 |
Reclamation and accretion | 2,131,000 | 507,000 |
2,499,000 | 1,313,000 |
We incurred $267,000 in property examination and exploration expenditures in 2006 compared to $434,000 in 2005. As our focus turned to the advancement and development of our existing properties, less emphasis was placed on grass roots exploration during 2006. In 2006, $136,000 of the amount spent on exploration was in Peru and $90,000 in Mexico. In 2006, we wrote-off $101,000 in mineral property costs compared to write-offs of $372,000 in 2005. One property in Mexico and one property in Argentina were written off in 2006.
Reclamation and accretion expense in 2006 amounted to $2,131,000 compared to $507,000 in 2005. The various components of the expense were: $243,000 of accretion in 2006 compared to $44,000 of accretion in 2005, $77,000 of cash site restoration and clean-up costs in 2006 compared to $63,000 of cash site restoration and clean-up costs in 2005 and $1,811,000 of changes in estimates of the amount or timing of underlying future cash flows in 2006 compared to $400,000 of changes in estimates of the amount or timing of underlying future cash flows in 2005. The increase in expense in 2006 relates to a revised provision at the Silver Standard Mine property in northern British Columbia. During the second quarter of 2006, we submitted to the regulatory authorities a report from our environmental consultants outlining conceptual plans for reclamation of this site. From this report we had sufficient information to re-estimate and record the value of the liability associated with this property.
Year ended December 31, | ||
Expenses | 2006 $ | 2005 $ |
Salaries and employee benefits | 2,160,000 | 1,031,000 |
Salaries and employee benefits - stock-based compensation | 9,954,000 | 3,468,000 |
Depreciation | 142,000 | 74,000 |
Internal control over financial reporting | 363,000 | 226,000 |
Professional fees | 614,000 | 176,000 |
General and administration - other | 3,762,000 | 2,172,000 |
General and administration - stock-based compensation | 2,981,000 | 567,000 |
Foreign exchange loss | 75,000 | 18,000 |
20,051,000 | 7,732,000 |
Salaries and employee benefits for 2006 were $2,160,000 compared to $1,031,000 in 2005. The $1,129,000 increase in salaries and benefits over 2005 was the result of a number of factors including the impact of salary adjustments that were effective at the beginning of 2006 and higher bonus payments. In May 2006, we made a non-recurring $500,000 bonus payment to certain employees following the successful closing of our public offering where net proceeds of $171 million were raised. In December 2006, the bonus payments were $286,000 higher than the payments made in 2005.
Depreciation expense during 2006 was $142,000 compared to $74,000 recorded in 2005. The increase was mainly due to the depreciation and amortization of equipment and leasehold improvements in our Vancouver corporate office.
We incurred $363,000 in internal control over financial reporting costs during 2006 compared to $226,000 in 2005. We established this cost category in 2005 to record both internal and external costs associated with compliance with Section 404 of the Sarbanes-Oxley Act in the United States and Multilateral Instruments 52-109 and 52-111 in Canada. Our costs to date are broken down into $137,000 compared to $89,000 in 2005 for allocations of our staff time and expenses and $226,000 for services of external consultants and auditors compared to $137,000 in 2005.
Professional fees include fees for the annual audit, accounting, tax and legal services. Total costs for 2006 were $614,000 compared to $176,000 in 2005. The $438,000 increase in expenses in 2006 over the prior year relates to higher accounting, tax and legal fees. These higher costs are expected to continue as we grow and develop our properties into producing mines.
General and administrative expenses for 2006 were $3,762,000 compared to $2,172,000 in 2005. The large $1,590,000 increase over 2005 related to several areas, a number of which are non-recurring. During the year we commenced discussions with lenders relating to project financing of the Pirquitas property. We have maintained in the discussions that we wanted a nominal amount of silver hedging in order to maximize our exposure to the price of silver. Late in 2006, we terminated our project financing discussions with one lender and wrote off $498,000 in lender fees and due diligence costs. We are continuing financing discussions with various lenders but these discussions will not affect our construction timetable for the Pirquitas property as we have sufficient liquidity already in place. In 2006, we made $351,000 in donations compared to $23,000 in 2005. In 2006, we made donations totaling $230,000 to the University of New Brunswick and the University of British Columbia to further mineral exploration and mining education. As a company with a long history in the advancement of mineral projects, we understand the need for exploration and engineering excellence in the mining industry. These donations will help ensure our prominence in the minds of the best and brightest. Consulting fees in 2006 have increased in the areas of public relations and in the hiring costs of new technical staff as we move towards production. During 2006, we used a placement agency for the search of a Senior Vice President, Operations and a Manager of Environmental and Community Relations. We continue our search for a Senior Vice President, Operations and expect to announce a hiring by the second quarter of 2007. Other areas where we experienced higher general and administrative costs were in the areas of insurance, listing and filing fees, travel, director expenses and an event in recognition of our 60th anniversary celebration. Expenditures in these areas, other than the 60th anniversary, are expected to continue to increase as we grow.
Stock-based compensation expense for 2006 was $12,935,000 compared to $4,035,000 in 2005. Due to the intense competition for skilled employees currently existing in the mining business and, in order to ensure we remain competitive within our peer group, in 2006 we employed a compensation consultant to assist us in our remuneration policies. Their report resulted in a greater number of options being granted in 2006 compared to 2005. Of the current year’s expense, $2,981,000, compared to $567,000 in 2005, related to general and administration for directors and consultants and $9,954,000, compared to $3,468,000 in 2005, related to employee salaries and benefits. We value stock options granted to employees, directors and consultants using the Black-Scholes pricing model. An additional $751,000 in stock-based compensation was assigned to mineral property costs in 2006 compared to $159,000 in 2005.
Year ended December 31, | ||
Other income (expenses) | 2006 $ | 2005 $ |
Investment income | 5,984,000 | 881,000 |
Gain (loss) on sale of marketable securities | (2,667,000) | 2,289,000 |
Write-up (down) of marketable securities | 52,000 | (15,000) |
Gain on sale of mineral properties | 173,000 | 20,000 |
Gain on sale of joint venture interest | 35,390,000 | - |
38,932,000 | 3,175,000 |
Investment income was $5,984,000 for 2006 compared to $881,000 in 2005. The large increase in investment income resulted from interest earned on the larger cash balances from the closing of the $171,067,000 public offering in May and the sale of marketable securities in the last quarter of 2006.
In April 2006, we closed the sale of our 50% interest in the Manantial Espejo property to our joint venture partner, Pan American Silver Corp. We received 1,950,000 common shares of Pan American valued at $55,056,000 recording a gain on sale of $35,390,000. During the last quarter of 2006, we sold all our Pan American shares for proceeds of $51,955,000. A $3,101,000 loss on sale of marketable securities was recorded with the result that the net gain relating to our joint venture interest sale was $32,289,000. Gains of $434,000 were recorded on the sale of other marketable securities and this compares to gains of $2,289,000 recorded in 2005.
In 2006, we sold a number of mineral properties for a gain of $173,000 compared to gains of $20,000 in 2005.
Selected Financial Data
The following table sets forth selected financial data from our audited consolidated financial statements and should be read in conjunction with these statements:
Year ended December 31, | |||
2006 $ | 2005 $ | 2004 $ | |
Total revenues | nil | nil | nil |
Earnings (loss) for year | 16,382,000 | (5,870,000) | (1,518,000) |
Basic and diluted earnings (loss) per share | 0.28 | (0.11) | (0.03) |
Total assets | 471,013,000 | 219,288,000 | 217,457,000 |
Long term debt | nil | nil | nil |
Working capital | 250,234,000 | 40,344,000 | 61,582,000 |
Cash dividends declared | nil | nil | nil |
The following table sets forth selected quarterly financial information for each of our last eight quarters:
Quarter ending (unaudited) | Total Revenues $ | Earnings (Loss) $ | Earnings (Loss) Per Share $ |
December 31, 2006 | nil | (1) (1,701,000) | (0.02) |
September 30, 2006 | nil | (2) 2,695,000 | 0.04 |
June 30, 2006 | nil | (3) 16,469,000 | 0.28 |
March 31, 2006 | nil | (1,081,000) | (0.02) |
December 31, 2005 | nil | (4) (3,908,000) | (0.07) |
September 30, 2005 | nil | (5) 21,000 | 0.00 |
June 30, 2005 | nil | (1,040,000) | (0.02) |
March 31, 2005 | nil | (943,000) | (0.02) |
Explanatory notes:
(1) | Includes $12,935,000 in non-cash expenses relating to values assigned to stock options and $9,722,000 in gains on sale and write-ups of marketable investments. |
(2) | Includes a $3,090,000 write-up of investments and $2,138,000 of interest income. |
(3) | Includes a $35,390,000 gain on sale of joint venture interest and a $15,860,000 write-down of investments. |
(4) | Includes $2,986,000 in non-cash expenses relating to values assigned to stock options. |
(5) | Includes $1,323,000 in gains on sale of marketable securities. |
Impact of Inflation
Currently, inflation in Canada is similar to that in the United States. Inflation is not expected to have a material impact on us beyond the impact on all businesses generally, such as higher cost of materials, services and salaries.
Operating Activities
Cash flow from operations was a usage of $3,827,000 in 2006, compared to a usage of $2,951,000 in 2005. This increase was due to increases in salaries, professional fees, general and administrative costs and charges to non-cash working capital items offset partially by higher investment income.
Financing Activities
During 2006, a net total of $203,267,000 was raised by issuing new equity compared to $1,795,000 in 2005. The following table shows how the funds were raised:
Year ended December 31, | ||
2006 $ | 2005 $ | |
Public offering | 182,663,000 | - |
Exercise of stock options | 6,548,000 | 1,610,000 |
Exercise of warrants | 25,652,000 | 185,000 |
Share issue costs | (11,596,000) | - |
203,267,000 | 1,795,000 |
On May 16, 2006, we closed a public offering of 7.2 million common shares for gross proceeds of $182,663,000. The price received was $25.37 (US$23.00) per share. After deducting underwriting fees and offering expenses of $11,596,000, net proceeds were $171,067,000. There were no public or private share offerings in 2005.
A total of 668,750 shares were issued on the exercise of stock options for total proceeds received of $6,548,000 in 2006 compared to 259,269 shares issued on the exercise of stock options for total proceeds received of $1,610,000 in 2005. The weighted average price received on the exercise of options was $9.79 per share in 2006 compared to $6.21 in 2005. A further 1,386,625 shares were issued in 2006 for proceeds of $25,652,000 on the exercise of share purchase warrants, with a weighted average price received of $18.50 per share, compared to 10,000 shares issued in 2005 for proceeds of $185,000 on the exercise of share purchase warrants, with a weighted average price received of $18.50 per share.
Investing Activities
Mineral Properties
Total cash invested in mineral properties in 2006 compared to 2005 was as follows:
Year ended December 31, | ||
2006 $ | 2005 $ | |
Berenguela | 2,079,000 | 2,947,000 |
Bowdens | 579,000 | 308,000 |
Candelaria | 401,000 | 375,000 |
Challacollo | 407,000 | 695,000 |
Diablillos | 407,000 | 534,000 |
Manantial Espejo | 182,000 | 3,691,000 |
Maverick Springs | 404,000 | 341,000 |
Pirquitas | 5,046,000 | 4,271,000 |
Pitarrilla | 21,083,000 | 5,789,000 |
San Luis | 1,402,000 | 135,000 |
Shafter | 499,000 | 365,000 |
Snowfield | 1,911,000 | - |
Veta Colorada | 4,103,000 | 569,000 |
Other | 876,000 | 913,000 |
39,379,000 | 20,933,000 |
We spent a record $39,379,000 on our various mineral properties compared to our previous year record of $20,933,000. The preceding table shows the allocation of cash expenditures by our main properties. In 2006, by far the most active property was the Pitarrilla property in Mexico. A total of $21,083,000 or a little over half of our total mineral property expenditures was spent on this property and of this amount, $9,473,000 was spent on exploration with the remainder on land acquisitions. This compares to $5,789,000 spent in 2005. We continued our exploration of this property in 2006 with the completion of over 40,000 meters of diamond drilling in 118 holes. We also continued our acquisition of land underlying our mineral rights. The second most active property was at our Pirquitas property, where $5,046,000 was spent in 2006 compared to $4,271,000 in 2005. We completed the update of the feasibility study in the first quarter of 2006 and work continued advancing the property leading to the production decision in October 2006. Also in 2006, we completed our acquisition of both the Berenguela property in Peru and the Veta Colorada property in Mexico. A further $1,911,000 was spent at our Snowfield property in British Columbia and $1,402,000 was spent at the San Luis property. We funded the initial US$500,000 of exploration expenditures on the San Luis property, thereby earning a 55% interest. Our agreement with Esperanza Silver Corporation calls for the next US$1,500,000 of exploration expenditures in our respective interests. To the end of 2006, US$1,355,000 of this amount had been spent. Once we reach the US$1,500,000, we may elect to increase our interest to 70% by paying all cost required to complete a feasibility study and this interest can be increased to 80% by paying all costs required to place the property into commercial production. We expect to make our election to earn 70% interest in the first half of 2007. We also have a significant equity interest in Esperanza. See Item 4.B - “Business Overview - Principal Properties - San Luis Project”.
Construction in Progress
We spent $1,826,000 during the year relating to the construction of the Pirquitas property. The main expenditures include engineering and the purchase of pipe for the gas pipeline that will be used to produce the power at the mine site.
Property, Plant and Equipment
We spent $1,782,000 on property, plant and equipment in 2006 compared to $1,202,000 spent in 2005. Of the amount spent in 2006, $1,298,000 related to the ball mill and mobile equipment for the Pirquitas property and the balance related to furniture, equipment and leasehold improvements relating to an expansion of our corporate head office in Vancouver.
Proceeds on Sale of Marketable Securities
We received $52,410,000 in proceeds on the sale of marketable securities in 2006 compared with $3,077,000 in 2005. Of the amount received in 2006, $51,955,000 related to the sale of Pan American Silver Corp. shares and $455,000 related to sales of various other marketable securities.
Liquidity
With our cash position and market value of our silver bullion and marketable securities, we have slightly under $295 million of liquidity at December 31, 2006 and no debt. This strong position will provide us with sufficient funds to meet all our corporate, development, administrative and mineral property obligations for 2007. We will continue to have discussions with project lenders for a portion of the construction costs of the Pirquitas mine but funds are in place now to complete this construction over the next two years.
Cash
At December 31, 2006, we had a cash balance of $229,616,000 and no debt. This compares to a cash balance of $23,030,000 at December 31, 2005, also with no debt.
Silver Bullion
We hold 1,953,985 ounces of silver valued at $15,787,000 at the end of the year. The average cost of our silver bullion is $8.08 (US$5.85) per ounce. Our silver bullion is carried on the balance sheet at the lower of cost or net realizable value. The market value of our silver bullion was $29,373,000 for an unrealized gain of $13,586,000 at December 31, 2006 compared to a market value of $20,093,000 for an unrealized gain of $4,306,000 at December 31, 2005. The purchase of silver bullion was made, in part, to recognize that silver is an investment alternative for our cash reserves and to provide maximum exposure to silver. Our silver bullion is a highly liquid asset.
Marketable Securities
Our marketable securities at December 31, 2006 have a carried cost of $5,817,000 and a market value of $35,617,000 for an unrealized gain of $29,800,000 compared to a carried cost of $4,985,000 and a market value of $15,087,000 for an unrealized gain of $10,102,000 at December 31, 2005. These investments were made in various mineral exploration companies and are considered to be liquid.
Long-term Contractual Obligations
The following table discloses our contractual obligations for office rent of our Vancouver office:
Payments due by Period | |||||
Total $ | Less Than 1 Year $ | 1-3 Years $ | 4-5 Years $ | After 5 Years $ | |
Lease obligations | 341,000 | 274,000 | 67,000 | - | - |
Financial Instruments and Other Instruments
Our financial instruments consist of cash and cash equivalents, silver bullion, marketable securities, accounts receivable and accounts payable. It is management’s opinion that we are not exposed to significant interest, currency or credit risks arising from our cash and cash equivalents, accounts receivable and accounts payable.
Marketable securities and silver bullion are, by their nature, subject to market price and exchange rate fluctuations. We value our marketable securities and silver bullion at the lower of cost and market. There were unrealized gains of $29,800,000 relating to marketable securities and $13,586,000 relating to silver bullion at December 31, 2006 compared to unrealized gains of $10,102,000 relating to marketable securities and $4,306,000 relating to silver bullion at December 31, 2005.
We are exposed to currency risk on the acquisition and exploration expenditures on our properties since we have to settle expenditures either in local currency or U.S. dollars. Our expenditures are negatively impacted by increases in value of either the U.S. dollar or local currencies versus the Canadian dollar.
Risks and Uncertainties
As a mineral exploration and development company, we are exposed to a number of risks and uncertainties. See Item 3.D.-“Risk Factors”.
We are a mineral exploration company with no producing properties and, as such, the information required by this item is inapplicable.
We are a mineral exploration company with no producing properties, and, as such, the information required by this item is inapplicable.
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
See Item 5.B - “Liquidity and Capital Resources”.
A. | Directors and Senior Management |
The following table lists as of February 28, 2007 the names of our directors and senior management. Each of the directors and senior officers has served in his or her respective capacity since his or her election and/or appointment and will serve until the next annual general meeting of shareholders or until a successor is duly elected, unless the office is vacated in accordance with our Articles.
Table No. 34
Our Directors and Senior Management
Name | Position with Silver Standard | Date of First Appointment | Age |
John R. Brodie FCA(1) (2)(3) (4) | Director | January 2006 | 62 |
R.E. Gordon Davis(1) (2) (3) (4) | Director | February 1996 | 68 |
David L. Johnston(1) | Director | May 2000 | 67 |
William Meyer(1) (2)(3) (4) | Director | March 1993 | 69 |
Robert A. Quartermain(1) | President and Director | January 1985 | 52 |
Peter Tomsett(1) | Director | November 2006 | 49 |
Kenneth C. McNaughton(1) | Vice President, Exploration | July 1991 | 48 |
Ross A. Mitchell(1) | Vice President, Finance | January 1996 | 58 |
Joseph J. Ovsenek(1) | Senior Vice President | February 2003 | 48 |
R. Michael Robb (5) | Vice President, Project Development | May 1, 2005 | 66 |
Linda J. Sue(1) | Corporate Secretary | November 1985 | 52 |
(1) | Resident of Canada |
(2) | Member of the Audit Committee |
(3) | Member of the Compensation Committee |
(4) | Member of the Nominating Committee |
(5) | Resident of the United States |
Our Board of Directors and Senior Management
The following is a brief description of the principal business activities of our directors and senior management:
John R. Brodie FCA
Mr. Brodie is our audit committee financial expert. Mr. Brodie has been the President of John R. Brodie Capital Inc., a private consulting firm, since 2003. From 1975 to 2003, Mr. Brodie was a partner at KPMG LLP and from 1987 to 1995 served as a director of KPMG LLP. Mr. Brodie graduated from the University of Manitoba with a Bachelor of Science degree in 1967 and attended the Stanford Executive Program at Stanford University in 1982. He is a member of the Canadian Institute of Chartered Accountants, British Columbia Institute of Chartered Accountants and a lifetime member of Certified Fraud Examiners. Mr Brodie was elected a Fellow and awarded the FCA designation by the Institute of Chartered Accountants of British Columbia in 2003 for distinguished service to the accounting profession. Mr. Brodie is also a director of Far West Mining Inc., Ag Growth Income Fund, Rubicon Minerals Corporation, Copper Belt Resources Ltd. and Pacific Safety Products.
R.E. Gordon Davis
Mr. Davis was a director and senior executive with Dynasty Explorations Ltd. and its successor corporation, Cyprus Anvil Mining Corporation, from 1964 to 1982. Since 1982, Mr. Davis has been a director of a number of resource companies, including Pine Point Mines Ltd., Cabre Exploration Ltd., Golden Knight Resources Inc. and Northern Crown Mines Ltd. In addition, Mr. Davis has been a director of Canplats since October 1999, and President of Canplats since March 2000. Mr. Davis also serves as a director of Western Prospector Group Ltd. and Pacific Ridge Exploration Ltd. Mr. Davis graduated with a Bachelor of Applied Science degree in Geological Engineering in 1962 and is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia.
David L. Johnston
Mr. Johnson is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia with a lengthy career in senior management at several major Canadian mining companies. Prior to his election to our board, Mr. Johnston was president and general manager from 1996 to 2000 of Highland Valley Copper Corporation, operator of North America’s third largest open pit copper mine. From 1990 to 1996, he served as vice president of Cominco Metals, and from 1985 to 1990, he was president of Pine Point Mines Limited, operator of a significant open pit lead-zinc mine in Canada’s Northwest Territories. Mr. Johnston is also a director of Eagle Plains Resources Ltd.
William Meyer
Mr. Meyer was formerly Vice President, Exploration for Teck Corporation and President of Teck Exploration Ltd. He graduated from the University of British Columbia with a Bachelor of Science degree 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 Corporation in 1999. Mr. Meyer is also a director of Minco Mining and Metals Corporation, Minco Silver Corporation, GGL Diamond Corporation, Cantech Ventures Inc., Transamerica Resources Corporation and Lysander Minerals Corp.
Robert A. Quartermain
Mr. Quartermain is our President and a director, and is responsible for our day to day operations as well as strategic planning and the raising of capital to fund our operations. Mr. Quartermain devotes all of his time to our business. We have employed Mr. Quartermain as our President since January 1985 and have entered into an employment agreement with him. See “Compensation - Employment Agreements”.
Mr. Quartermain graduated in 1977 from the University of New Brunswick with a Bachelor of Science degree in geology and from Queen’s University in 1981 with a Master of Science degree in mineral exploration. Mr. Quartermain is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. From 1976 to 1982, he worked for the Geological Survey of Canada and in private industry on mapping and exploration programs. Mr. Quartermain also worked for Teck Corporation before becoming our President in 1985. Mr. Quartermain serves as a director and officer of Radiant Resources Inc. and as a director of Canplats Resources Corporation (“Canplats”), a mineral resource exploration company whose shares are listed on the TSX Venture Exchange, Vista Gold Corporation and Minco Silver Corporation.
Peter Tomsett
Mr. Tomsett graduated with a Bachelor of Engineering (Honors) in Mining Engineering from the University of New South Wales, later attaining a Master of Science (Distinction) in Mineral Production Management from the Imperial College in London. Mr. Tomsett most recently served as President and Chief Executive Officer of Placer Dome Inc., after 20 years with Placer Dome Inc., until its acquisition by Barrick Gold Corporation. Mr. Tomsett is also a director of Africo Resources Ltd., a mineral resource exploration company whose shares are listed on the TSX, and North American Energy Partners Inc., a service provider to oil, natural gas and natural resource companies, with a major focus in the Canadian oil sands.
Kenneth C. McNaughton
Mr. McNaughton has served as our Vice President, Exploration since July 1991. Before joining us, Mr. McNaughton worked as a contract engineer for Oretech Engineering, Inc. 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. Mr. McNaughton earned a Bachelor of Applied Science degree and Master of Applied Science degree in Geological Engineering in 1981 and 1983, respectively, from the University of Windsor, and is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. Mr. McNaughton devotes approximately 93% of his time to our business.
Ross A. Mitchell
Mr. Mitchell has served as our Vice President, Finance since January 1996. Before joining us, Mr. Mitchell was employed by Westmin Resources Limited (“Westmin”) and its predecessor, Western Mines Ltd., from 1975. He held various financial positions, including controller treasurer, with Western Mines Ltd. from 1975 to 1980 and was assistant treasurer and controller of the mining division at Westmin until 1985. He was then appointed treasurer of Westmin and became vice president and treasurer in 1989, the position he held until 1995. He earned a Bachelor of Commerce degree from the University of British Columbia in 1971 and a C.A. designation from the Institute of Chartered Accountants of British Columbia in 1973. Mr. Mitchell devotes approximately 95% of his time to our business.
Joseph J. Ovsenek
Mr. Ovsenek has served as our Senior Vice President since February 2003. Mr. Ovsenek graduated from the University of British Columbia with a Bachelor of Applied Science degree in Mechanical Engineering in 1983 and from the University of Toronto with a Bachelor of Laws degree in 1989. Mr. Ovsenek is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia. Prior to joining us, he was a partner with the law firm of Bragagnolo & Ovsenek, Solicitors. Mr. Ovsenek is a director of Esperanza Silver Corporation and Nova Uranium Corp. Mr. Ovsenek devotes 99% of his time to our business.
R. Michael Robb
Mr. Robb has served as our Vice President, Project Development since May 2005. Mr. Robb has been actively involved in the mining industry since the late 1960s, with his more recent positions including Vice President of Operations, Mexico, for Eldorado Gold Corp. from 1995 to 1997, Vice President of Operations for Fischer-Watt Gold Company from 1997 to 2001 and Vice President and General Manager for Queenstake Resources Ltd. from 2001 to 2003. Mr. Robb earned a Bachelor of Science degree (Mining) from the University of Idaho in 1963 and has done Masters of Business Administration work at the Universities of Arizona and New Mexico. He is also a registered professional engineer in Arizona, Maine, Nevada, New Mexico and Virginia. Mr. Robb devotes 100% of his time to our business.
Linda J. Sue
Ms. Sue has been employed by us since 1981. Since November 1985, she has held the position of Corporate Secretary. Her responsibilities include all corporate secretary duties and management of our land titles system. Ms. Sue devotes approximately 74% of her time to our business.
There are no family relationships among the members of our board of directors or the members of our senior management.
Effective January 1, 2005, the board of directors adopted a policy on board compensation. See “Compensation to Directors and Executive Officers” below. In addition, the board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. Other than indicated below, no director received any compensation for his or her services as a director, including committee participation and/or special assignments.
Compensation of Named Executive Officers
We currently have five named executive officers, Robert Quartermain, our President, Joe Ovsenek, our Senior Vice President, Ross Mitchell, our Vice President, Finance, Ken McNaughton, our Vice President, Exploration and Mike Robb, our Vice President, Project Development (the “Named Executive Officers”). The following table sets out the compensation awarded, paid to or earned by our Named Executive Officers during the fiscal year ended December 31, 2006:
Table No. 35
Summary Compensation Table
Annual Compensation | Long Term Compensation | |||||||
Awards | Pay Outs | |||||||
Name and Principal Position | Fiscal Year Ending (1) | Salary (2) | Bonus | Other Annual Compen-sation | Securities Under Options Granted | Restricted Shares or Restricted Share Units | LTIP Pay-Outs | All Other Compen-sation (3) |
Robert Quartermain | 2006 | $275,000 | $500,000 | 0 | 600,000 | 0 | 0 | $13,909 |
President | 2005 | $250,000 | $175,000 | 0 | 200,000 | 0 | 0 | $10,060 |
2004 | $200,000 | $80,000 | 0 | 100,000 | 0 | 0 | $9,537 | |
Joe Ovsenek | 2006 | $190,000 | $300,000 | 0 | 320,000 | 0 | 0 | $10,238 |
Senior Vice President | 2005 | $175,000 | $60,000 | 0 | 120,000 | 0 | 0 | $8,899 |
2004 | $130,000 | $50,000 | 0 | 60,000 | 0 | 0 | $6,958 | |
Ross Mitchell | 2006 | $140,000 | $50,000 | 0 | 70,000 | 0 | 0 | $12,709 |
Vice President, Finance | 2005 | $130,000 | $25,000 | 0 | 50,000 | 0 | 0 | $8,002 |
2004 | $100,000 | $25,000 | 0 | 40,000 | 0 | 0 | $6,161 | |
Ken McNaughton | 2006 | $140,000 | $81,000 | 0 | 175,000 | 0 | 0 | $10,132 |
Vice President, Expl. | 2005 | $130,000 | $40,000 | 0 | 75,000 | 0 | 0 | $9,377 |
Mike Robb | 2006 | US$ | US$ | 0 | 45,000 | 0 | 0 | 0 |
Vice President, Project Development | 144,000 | 30,430 |
(1) | Fiscal years ended December 31, 2006, December 31, 2005 and December 31, 2004. |
(2) | A portion of the salaries of our Named Executive Officers are recovered from various outside companies, some of which are related. |
(3) | All Other Compensation is comprised of term life insurance payments and group registered retirement savings plan (“RRSP”) payments made on behalf of the employee by us. |
Long-Term Incentive Plans - Awards in Most Recently Completed Fiscal Year
We have no long-term incentive plans in place and therefore there were no awards made under any long-term incentive plan to the Named Executive Officers during our most recently completed fiscal year. A “Long-Term Incentive Plan” is a plan under which awards are made based on performance over a period longer than one fiscal year, other than a plan for options, SARs (stock appreciation rights) or restricted share compensation.
SARs Granted During the Most Recently Completed Fiscal Year
During the most recently completed fiscal year, no SARs (stock appreciation rights) were granted to the Named Executive Officers.
Option Grants During the Most Recently Completed Fiscal Year
The following stock options were granted to the Named Executive Officers and our directors during the year ended December 31, 2006:
Table No. 36
Options Granted for the Fiscal Year Ended December 31, 2006
Name | Securities Under Options Granted (#) | % of Total Options Granted to Employees in Fiscal Year | Exercise Price ($/Security) | Market Value of Securities Underlying Options on Date of Grant ($/Security) | Expiration Date |
Robert Quartermain | 200,000 400,000 | 9.84 19.69 | 21.30 35.34 | 21.30 35.34 | July 27, 2011 Dec 12, 2011 |
Joseph Ovsenek | 120,000 200,000 | 5.91 9.84 | 21.30 35.34 | 21.30 35.34 | July 27, 2011 Dec 12, 2011 |
Ross Mitchell | 50,000 20,000 | 2.46 0.98 | 21.30 35.34 | 21.30 35.34 | July 27, 2011 Dec 12, 2011 |
Ken McNaughton | 75,000 100,000 | 3.69 4.92 | 21.30 35.34 | 21.30 35.34 | July 27, 2011 Dec 12, 2011 |
Mike Robb | 25,000 20,000 | 1.23 0.98 | 21.30 35.34 | 21.30 35.34 | July 27, 2011 Dec 12, 2011 |
Directors (5) | 60,000 120,000 90,000 250,000 | 2.95% 5.91% 4.43% 12.31 | 18.73 21.30 27.78 35.34 | 18.73 21.30 27.78 35.34 | Jan 19, 2011 July 27, 2011 Nov 7, 2011 Dec 12, 2011 |
Aggregated Option/SAR Exercises During the Most Recently Completed Fiscal Year and Fiscal Year End Option/SAR Values
The following table sets out incentive stock options exercised by the Named Executive Officers, during the most recently completed fiscal year as well as the fiscal year end value of stock options held by the Named Executive Officers. During this period, no outstanding SARs were held by the Named Executive Officers.
Table No. 37
Option Exercises / Year-End Option Values
Name | Securities Acquired on Exercise (#)(1) | Aggregate Value Realized ($)(2) | Unexercised Options at Financial Year-End (#)(3) Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Financial Year-End ($)(3)(4) Exercisable/Unexercisable |
Robert Quartermain | 43,500 | 651,265 | 619,000 exercisable 500,000 unexercisable | 9,834,700 exercisable 4,899,000 unexercisable |
Joseph Ovsenek | 50,000 | 732,682 | 250,000 exercisable 280,000 unexercisable | 3,196,000 exercisable 2,930,200 unexercisable |
Ross Mitchell | 54,700 | 1,218,796 | 135,000 exercisable 85,000 unexercisable | 2,878,050 exercisable 1,206,350 unexercisable |
Ken McNaughton | 45,000 | 562,750 | 162,500 exercisable 162,500 unexercisable | 2,450,825 exercisable 1,825,625 unexercisable |
Mike Robb | 5,000 | 74,500 | 80,000 exercisable 35,000 unexercisable | 1,530,600 exercisable 367,100 unexercisable |
Directors (5) | 172,200 | 2,212,175 | 235,000 exercisable 380,000 unexercisable | 1,926,500 exercisable 3,648,950 unexercisable |
(1) | Number of common shares of the Company acquired on the exercise of stock options. |
(2) | Calculated using the closing prices for a board lot of common shares of the Company on the Toronto Stock Exchange on day of exercise. |
(3) | As freestanding SARs have not been granted, the number of shares relate solely to stock options. |
(4) | Value using the closing price of common shares of the Company on the Toronto Stock Exchange on December 29, 2006 of $35.80 per share, less the exercise price per share. |
Compensation to Directors and Executive Officers
During 2006, we had no arrangements, standard or otherwise, pursuant to which we or our subsidiaries compensated our directors for their services in their capacity as directors, or for committee participation, involvement in special assignments or for services as consultants or experts, other than the grant of stock options and as described below. On January 15, 2006, following Mr. Brodie’s appointment to the board, he was granted stock options to acquire 60,000 of our shares at a price of $18.73 for a period of five years. On July 27, 2006, each director was granted stock options to acquire 30,000 of our shares at a price of $21.30 for a period of five years. On November 7, 2006, following Mr. Tomsett’s appointment to the board, he was granted stock options to acquire 90,000 of our shares at a price of $27.78 for a period of five years. On December 12, 2006, each director was granted stock options to acquire 50,000 of our shares at a price of $35.34 for a period of five years.
Effective January 1, 2005, the board of directors adopted a policy on board compensation to provide an annual retainer of $10,000 to each independent board member, with a further $2,000 to the lead director. Members of board committees received an additional $1,000 per annum and the committee chairman was paid a further $1,000 per annum. In January 2006, the board of directors amended its policy on board compensation by increasing the annual retainer to $15,000 for each independent board member, with an additional $5,000 to each of the lead director and the Chair of the Audit Committee. Members of board committees also received an additional $2,000 per annum. In January 2007, the board of directors amended its policy on board compensation by increasing the annual retainer to $25,000 for each independent board member, with an additional $10,000 to each of the lead director and the Chair of the Audit Committee. Members of board committees also receive an additional $5,000 per annum.
Executive Benefits
We do not have a defined benefit or actuarial plan under which benefits are determined primarily by final compensation and years of service and none are proposed at this time. We have a group RRSP available to all full-time employees after one year of service. We do not provide retirement benefits for directors. Other than as disclosed in this Annual Report, we have not paid any additional compensation to our directors and senior officers for the fiscal year ended December 31, 2006.
Employment Agreements
We engaged Robert A. Quartermain to act as our chief executive officer under an agreement dated January 1, 2004. The agreement provides for Mr. Quartermain to receive a base salary of $200,000 per year for a period of two years to be renewed for further one-year terms on agreement between the parties. Upon termination, Mr. Quartermain may receive, depending on the circumstances, a payment of up to two times his base salary. Mr. Quartermain’s agreement has been amended each of January 1, 2005, 2006 and 2007 to increase his base salary to $250,000, $275,000 and $375,000, respectively.
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. At our annual general meeting held on May 12, 2005, our shareholders approved a stock option plan that reserved 8% of our issued and outstanding shares for issuance on exercise of stock options, including previously granted stock options.
Under our stock option plan, (a) the maximum number of shares reserved for issuance under the plan is 8% of our issued and outstanding shares, (b) stock options in favor of any one individual may not exceed 5% of the issued and outstanding shares of common stock, (c) no stock option is transferable by the optionee other than by will or the laws of descent and distribution, (d) a stock option is exercisable during the lifetime of the optionee only by such optionee, (e) the maximum term of each stock option is five years, with the vesting period determined at the discretion of the board of directors and (f) the minimum exercise price for a stock option is equal to the volume weighted average trading price of our common shares on the Toronto Stock Exchange, calculated by dividing the total value by the total volume of common shares traded, for the five trading days 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, to directors who are not executive officers as a group and employees and consultants as a group are set out below as of December 31, 2006. The exercise price of the stock options is stated in Canadian dollars.
Table No. 38
Outstanding Stock Options
Number of Options Outstanding | Exercise Price | Expiry Date | |
Executive Officers | 89,000 | $8.00 | August 2, 2007 |
200,000 | $9.10 | January 31, 2008 | |
125,000 | $12.85 | December 22, 2008 | |
260,000 | $14.47 | December 31, 2009 | |
70,000 | $14.00 | May 12, 2010 | |
470,000 | $16.73 | December 20, 2010 | |
495,000 | $21.30 | July 27, 2011 | |
765,000 | $35.34 | December 12, 2011 | |
Directors who are not | 20,000 | $12.85 | December 22, 2008 |
Executive Officers | 20,000 | $14.47 | December 31, 2009 |
75,000 | $16.73 | December 20, 2010 | |
40,000 | $18.73 | January 19, 2011 | |
120,000 | $21.30 | July 27, 2011 | |
90,000 | $27.78 | November 7, 2011 | |
250,000 | $35.34 | December 12, 2011 | |
Employees and Consultants | 15,400 | $4.25 | January 1, 2007 |
81,400 | $8.00 | August 2, 2007 | |
52,650 | $9.10 | January 31, 2008 | |
35,000 | $12.85 | December 22, 2008 | |
25,000 | $14.47 | September 16, 2009 | |
32,500 | $14.47 | October 4, 2009 | |
107,500 | $14.47 | December 31, 2009 | |
246,000 | $16.73 | December 20, 2010 | |
10,000 | $18.12 | February 17, 2011 | |
311,500 | $21.30 | July 27, 2011 | |
50,000 | $24.31 | September 22, 2011 | |
400,000 | $35.34 | December 12, 2011 | |
Total: | 4,455,950 |
As at December 31, 2006, we did not have any share purchase warrants outstanding.
Our directors are elected annually and hold office until the next annual general meeting of our shareholders or until their successors in office are duly elected or appointed. We do not have an executive committee. All directors are elected for a one-year term. All officers serve at the pleasure of the board. The next annual general meeting of our shareholders has been called for May 2, 2007.
Our board of directors has three committees: the Audit Committee, the Compensation Committee and the Nominating Committee. The members of the Audit Committee, Compensation Committee and Nominating 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 receive separate remuneration for acting as members of the committees.
The Audit Committee, comprised of John R. Brodie FCA, R.E. Gordon Davis and William Meyer, has the responsibility of, among other things, recommending to the board the independent auditor; determining the extent of involvement of the independent auditor in reviewing unaudited quarterly financial results; evaluating the qualifications, performance and independence of the independent auditor; reviewing and recommending approval to the board of our annual and quarterly financial results and management discussion and analysis; overseeing the establishment of "whistle-blower" and related procedures. Each of the members of the Audit Committee is an independent director.
The Compensation Committee, comprised of R.E. Gordon Davis, William Meyer and John R. Brodie FCA, has the responsibility for determining executive and management direct remuneration and stock options. The President’s function in relation to the Compensation Committee is to make specific recommendations on remuneration with supporting commentary on individual performance and industry standards. Each of the members of the Compensation Committee is an independent director.
The Nominating Committee, comprised of R.E. Gordon Davis, William Meyer and John R. Brodie FCA, has the responsibility of, among other things, recommending to the board, on an annual basis, nominees for election as directors for the next annual meeting of shareholders and nominees for appointment to Committees of the board and analyzing the needs of the board when vacancies arise on the board and recommending nominees who meet such needs. Each of the members of the Nominating Committee is an independent director.
Currently, we do not have service contracts with any of our directors or those of our subsidiaries providing for benefits upon termination of employment, other than Mr. Quartermain’s employment agreement in respect of his engagement as our chief executive officer (see Item 6.B - “Compensation - Employment Agreements”).
At our corporate head office in Vancouver, we had 22 full and one part-time employees as at December 31, 2006, including the members of senior management, three of whom, two full-time and one part-time, were involved in shareholder and investor communications, eight of whom were responsible for project exploration and development, four of whom carried out our management and executive functions and eight of whom provided administrative support. Including members of senior management, we had 16 full and three part-time employees as at December 31, 2005 and 15 (12 full and three part-time) employees as at December 31, 2004.
The following table sets out, as of February 16, 2007, the number of our common shares beneficially owned by the Named Executive Officers, whom, to our knowledge, possess sole voting and investment power with respect to the shares shown.
Table No. 39
Named Executive Officers Share Ownership
Name of Beneficial Owner | Title of Class | Number of Securities of Class * | Percent of Class |
R.A. Quartermain | common | 796,500 | 1.28% |
R. Mitchell | common | 182,200 | 0.21% |
J. Ovsenek | common | 225,000 | 0.36% |
K. McNaughton | common | 147,500 | 0.23% |
M. Robb | common | 80,000 | 0.13% |
*includes options exercisable within 60 days.
As at February 16, 2007, our directors and officers held, as a group, directly or indirectly, an aggregate of 262,200 common shares.
The total number of exercisable and unexercisable stock options and the number of common shares subject to such stock options granted to the Named Executive Officers are set out below as of February 16, 2007. The exercise price of the stock options is stated in Canadian dollars.
Table No. 40
Named Executive Officers Stock Options
Name | Number of Options Outstanding | Exercise Price | Expiry Date |
R.A. Quartermain | 109,000 50,000 100,000 200,000 200,000 400,000 | $9.10 $12.85 $14.47 $16.73 $21.30 $35.34 | January 31, 2008 December 22, 2008 December 31, 2009 December 20, 2010 July 27, 2011 December 12, 2011 |
J. Ovsenek | 60,000 120,000 120,000 200,000 | $14.47 $16.73 $21.30 $35.34 | December 31, 2009 December 20, 2010 July 27, 2011 December 12, 2011 |
R.A. Mitchell | 20,000 20,000 40,000 50,000 50,000 20,000 | $9.10 $12.85 $14.47 $16.73 $21.30 $35.34 | January 31, 2008 December 22, 2008 December 31, 2009 December 20, 2010 July 27, 2011 December 12, 2011 |
K. McNaughton | 20,000 40,000 75,000 75,000 100,000 | $12.85 $14.47 $16.73 $21.30 $35.34 | December 22, 2008 December 31, 2009 December 20, 2010 July 27, 2011 December 12, 2011 |
M. Robb | 70,000 25,000 20,000 | $14.00 $21.30 $35.34 | May 12, 2010 July 27, 2011 December 12, 2011 |
A. | Major Shareholders |
To the best of our knowledge at the date of this Annual Report, no shareholder directly or indirectly owns more than 5% of our issued shares, other than Royce & Associates, LLC which reported owning 7,875,300 of our common shares (12.78% of our issued and outstanding shares) as at January 25, 2007. As at January 31, 2006, Royce & Associates, LLC reported owning 4,646,500 of our common shares for 9% of our issued and outstanding shares, and as at February 11, 2005, Royce & Associates, LLC reported owning 4,758,700 of our common shares for 9.28% of our issued and outstanding shares. Royce & Associates, LLC does not have voting rights that are different from the voting rights of the other holders of our common shares.
To the best of our knowledge at the date of this Annual Report, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly.
Our common stock is issued in registered form and the following information is taken from the records of Computershare Investor Services Inc. (located in Vancouver, British Columbia, Canada), the registrar and transfer agent for our common stock.
On December 31, 2006, the shareholders’ list for our common stock showed 2,358 registered shareholders and 61,646,120 shares outstanding. 923 of these registered shareholders were U.S. residents, owning 32,515,749 shares representing 52.75% of our issued and outstanding shares.
Since January 1, 2006, 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 Resources Inc., a publicly-traded company with one common director (Robert A. Quartermain). Under these arrangements, we are reimbursed for providing administrative and technical services, including the salaries and benefits of senior officers and staff.
In February 2007, we acquired 999,600 units of Esperanza (with each unit consisting of one common share of Esperanza and one-half of one common share purchase warrant; each whole common share purchase warrant exercisable for a period of two years at a price of $4.25 per share) at an aggregate cost of $3,648,540. Our Senior Vice President is a director of Esperanza.
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 |
A. | Consolidated Statements and Other Financial Information |
Our audited consolidated financial statements are stated in Canadian dollars and are prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”), which differ in certain respects from those principles that we would have followed had our audited consolidated financial statements been prepared in accordance with US GAAP. The major measurement differences between Canadian and US GAAP, as they affect us, are disclosed in note 20 to the audited consolidated financial statements.
Exhibited hereto are audited consolidated financial statements prepared by our management, audited by an independent auditor and accompanied by an audit report:
(a) | Auditors’ Report, dated March 1, 2007. |
(b) | Consolidated Balance Sheets as at December 31, 2006 and December 31, 2005 (in Canadian Dollars). |
(c) | Consolidated Statements of Earnings/Loss and Deficit for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 (in Canadian Dollars). |
(d) | Consolidated Statements of Cash Flows for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 (in Canadian Dollars). |
(e) | Notes to Consolidated Financial Statements for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 (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.
No significant changes have occurred since the date of our most recent audited financial statements, December 31, 2006.
Item 9 |
A. | Offer and Listing Details |
On November 4, 2004, our common stock commenced trading in Canada on the Toronto Stock Exchange (“TSE”) in Toronto, Ontario, Canada, under the trading symbol “SSO” and CUSIP #82823L-10-6. Prior to November 4, 2004, our shares were listed in Canada on the TSX Venture Exchange (“TSX-V”) (formerly known as the Canadian Venture Exchange Inc., the successor exchange resulting from the merger of the Vancouver Stock Exchange and Alberta Stock Exchange effective November 29, 1999) (together the TSE and TSX-V are referred to as the “TSX”). Our common stock commenced trading on the Vancouver Stock Exchange in 1947.
On October 12, 2004, our common stock commenced trading in the United States on the Nasdaq Global Market (“NGM”, formerly known as the Nasdaq National Market) with the symbol “SSRI”. Prior to October 12, 2004, our shares were traded in the United States on the Nasdaq SmallCap Market (“NSM”) (together the NGM and NSM are referred to as “Nasdaq”). Our common stock was first quoted on the Nasdaq SmallCap Market on August 1, 1996.
The following tables set out the reported high and low prices for (a) the five most recent fiscal years; (b) each quarterly period for the past two fiscal years; and (c) each month for the past six months.
Table No. 41
High and Low Price for the Five Most Recent Fiscal Years on the TSX (Cdn$’s)
Fiscal Year Ended | High | Low |
December 31, 2006 | $36.59 | $17.17 |
December 31, 2005 | $18.89 | $12.34 |
December 31, 2004 | $23.00 | $12.00 |
December 31, 2003 | $15.75 | $5.35 |
December 31, 2002 | $11.90 | $3.45 |
Table No. 42
High and Low Price for the Five Most Recent Fiscal Years on Nasdaq (US$’s)
Fiscal Year Ended | High | Low |
December 31, 2006 | $31.63 | $14.93 |
December 31, 2005 | $16.15 | $9.71 |
December 31, 2004 | $17.37 | $8.65 |
December 31, 2003 | $12.30 | $3.55 |
December 31, 2002 | $7.80 | $2.16 |
Table No. 43
High and Low Prices for each Quarterly Period for the Past Two Fiscal Years on the TSX (Cdn$’s)
Period Ended | High | Low |
December 31, 2006 | $36.59 | $21.30 |
September 30, 2006 | $29.80 | $19.95 |
June 30, 2006 | $26.62 | $17.53 |
March 31, 2006 | $25.50 | $17.17 |
December 31, 2005 | $18.89 | $14.23 |
September 30, 2005 | $17.00 | $13.10 |
June 30, 2005 | $15.81 | $12.34 |
March 31, 2005 | $18.00 | $13.29 |
Table No. 44
High and Low Prices for each Quarterly Period for the Past Two Fiscal Years on Nasdaq (US$’s)
Period Ended | High | Low |
December 31, 2006 | $31.63 | $18.82 |
September 30, 2006 | $26.79 | $17.43 |
June 30, 2006 | $24.12 | $15.71 |
March 31, 2006 | $21.95 | $14.93 |
December 31, 2005 | $16.15 | $12.42 |
September 30, 2005 | $14.48 | $11.05 |
June 30, 2005 | $12.85 | $9.71 |
March 31, 2005 | $14.56 | $10.80 |
Table No. 45
High and Low Prices for each Month for the Past Six Months on the TSX (Cdn$’s)
Month Ended | High | Low |
February 28, 2007 | $42.34 | $37.52 |
January 31, 2007 | $40.15 | $31.11 |
December 31, 2006 | $36.59 | $33.57 |
November 30, 2006 | $35.59 | $27.19 |
October 31, 2006 | $27.76 | $21.30 |
September 30, 2006 | $29.80 | $22.64 |
Table No. 46
High and Low Prices for each Month for the Past Six Months on Nasdaq (US$’s)
Month Ended | High | Low |
February 28, 2007 | $36.66 | $32.05 |
January 31, 2007 | $33.98 | $27.52 |
December 31, 2006 | $31.63 | $29.15 |
November 30, 2006 | $31.198 | $24.58 |
October 31, 2006 | $24.70 | $18.82 |
September 30, 2006 | $26.79 | $20.26 |
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. |
See the first paragraph of this Item 9.
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. |
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.
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 |
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.
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 of the directors are set out in our Articles, which were adopted by our shareholders on May 12, 2005. They provide:
(a) | a director is obligated to disclose his potential interest in a proposal, arrangement or contract being considered by us, and may not vote on any proposal, arrangement or contract proposed, but such director shall be counted in the quorum at the meeting of the directors at which the proposal, arrangement or contract is approved; |
(b) | the directors may, in the absence of an independent quorum, vote compensation to themselves; |
(c) | there are no limitations on the exercise by the directors of our borrowing powers; |
(d) | there are no provisions for the retirement or non-retirement of directors under an age limit; and |
(e) | there is no requirement for a director to hold any of our shares. |
Rights and Restrictions Attached to the Shares
As all of our authorized and issued shares are of one class there are no special rights or restrictions of any nature or kind attached to any of the shares. All authorized and issued shares rank equally in respect to the declaration and receipt of dividends, the rights to share in any profits or surplus on our liquidation, dissolution or winding. Each share has attached to it one non-cumulative vote.
Alteration of Share Rights
To alter the rights of holders of our issued shares such alteration must be approved by the majority vote of two-thirds 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 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 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 Articles requiring share ownership to be disclosed. The securities laws of the Province of British Columbia require disclosure of shareholdings by:
(a) | persons who are our directors or senior officers; and |
(b) | a person who has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control or direction over our securities carrying more than 10% of the voting rights attached to all of our outstanding voting securities. |
Differences from U.S. Law
The threshold of share ownership percentage requiring disclosure of ownership is higher in the home jurisdiction of British Columbia (a 10% threshold) than the United States where U.S. securities law prescribes a 5% threshold for ownership disclosure.
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. | Mineral prospect evaluation agreement dated March 22, 2005 with Esperanza Silver Corporation. See Item 4.B under the heading “San Luis Project” for a description of the agreement. |
2. | Joint venture agreement dated September 6, 2005 with Esperanza Silver Corporation. See Item 4.B under the heading “San Luis Project” for a description of the agreement. |
3. | Purchase agreement dated December 30, 2005 with Daniel W. Kappes, Michael W. Cassiday, Victor Raul Eyzaguirre. See Item 4.B under the heading “Berenguela Project” for a description of the purchase agreement. |
4. | Option agreement dated August 25, 2006 with Silver Standard Mexico S.A. de C.V., Geologix Explorations Inc. and Geologix Explorations Mexico, S.A. de C.V. See Item 4.B under the heading “San Agustin Property” for a description of the option agreement. |
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 $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 $50,000,000 or with assets of between $5,000,000 and $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 in our shares by or from a WTO investor will be reviewable only if it is an investment to acquire control of Silver Standard and the value of our assets is equal to or greater than a specified amount (the “WTO Review Threshold”). The WTO Review Threshold is adjusted annually by a formula relating to increases in the nominal gross domestic product of Canada. The 2007 WTO Review Threshold is $281,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control of Silver Standard by the acquisition of shares, but the transaction is not reviewable as described above, the non-Canadian is required to notify the Canadian government and to provide certain basic information relating to the investment. A non-Canadian, whether or not a WTO investor, is also required to provide a notice to the government on the establishment of a new Canadian business. If our business is then a prescribed type of business activity related to Canada’s cultural heritage or national identity, and if the Canadian government considers it to be in the public interest to do so, then the Canadian government may give notice in writing within 21 days requiring the investment to be reviewed.
For non-Canadians (other than WTO investors), an indirect acquisition of control, by the acquisition of voting interests of an entity that directly or indirectly controls Silver Standard, is reviewable if the value of our assets is then $50,000,000 or more. If the WTO investor rules apply, then this requirement does not apply to a WTO investor, or to a person acquiring the entity from a WTO investor. Special rules specified in the Act apply if the value of our assets is more than 50% of the value of the entity so acquired. By these special rules, if the non-Canadian (whether or not a WTO investor) is acquiring control of an entity that directly or indirectly controls Silver Standard, and the value of our assets and all other entities carrying on business in Canada, calculated in the manner provided in the Act and the regulations under the Act, is more than 50% of the value, calculated in the manner provided in the Act and the regulations under the Act, of the assets of all entities, the control of which is acquired, directly or indirectly, in the transition of which the acquisition of control of Silver Standard forms a part, then the thresholds for a direct acquisition of control as discussed above will apply, that is, a WTO Review Threshold of $265,000,000 (in 2006) for a WTO investor or a threshold of $5,000,000 for a non-Canadian other than a WTO investor. If the value exceeds that level, then the transaction must be reviewed in the same manner as a direct acquisition of control by the purchase of our shares.
If an investment is reviewable, an application for review in the form prescribed by the regulations is normally required to be filed with the Director appointed under the Act (the “Director”) prior to the investment taking place and the investment may not be consummated until the review has been completed. There are, however, certain exceptions. Applications concerning indirect acquisitions may be filed up to 30 days after the investment is consummated and applications concerning reviewable investments in culture-sensitive sectors are required upon receipt of a notice for review. In addition, the Minister (a person designated as such under the Act) may permit an investment to be consummated prior to completion of the review, if he is satisfied that delay would cause undue hardship to the acquirer or jeopardize the operations of the Canadian business that is being acquired. The Director will submit the application to the Minister, together with any other information or written undertakings given by the acquirer and any representation submitted to the Director by a province that is likely to be significantly affected by the investment.
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.
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. |
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 the Income Tax Act (Canada) (the “Canadian Tax Act”). This summary does not apply to a shareholder who carries on business in Canada through a “permanent establishment” situated in Canada or performs independent personal services in Canada through a fixed base in Canada if the shareholder’s holding in the Company is effectively connected with such permanent establishment or fixed base. This summary is based on the provisions of the Canadian Tax Act and the regulations thereunder and on an understanding of the administrative practices of the Canada Revenue Agency, and takes into account all specific proposals to amend the Canadian Tax Act or regulations made by the Minister of Finance of Canada as of the date hereof. It has been assumed that there will be no other relevant amendment of any governing law although no assurance can be given in this respect. The Company recommends security holders seek the advice of their own Canadian and U.S. tax advisors.
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% 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% if the shareholder is also a corporation that beneficially owns at least 10% of the voting stock of the payor corporation.
The amount of a stock dividend (for tax purposes) would generally be equal to the amount by which the paid up or stated capital of the Company had increased by reason of the payment of such dividend. The Company will furnish additional tax information to shareholders in the event of such a dividend. Interest paid or deemed to be paid on the Company’s debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty.
The Convention generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization constituted and operated exclusively to administer a pension, retirement or employee benefit fund or plan, if the organization is a resident of the United States and is exempt from income tax under the laws of the United States.
Dispositions of Common Shares
Under the Canadian Tax Act, a taxpayer’s capital gain or capital loss from a disposition of a share of common stock of the Company is the amount, if any, by which his or her proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of his or her adjusted cost base of the share and reasonable expenses of disposition. The capital gain or loss must be computed in Canadian currency using a weighted average adjusted cost base for identical properties. One-half of a capital gain (the “taxable capital gain”) is included in income, and one-half of a capital loss in a year (the “allowable capital loss”) is deductible from taxable capital gains realized in the same year. The amount by which a shareholder’s allowable capital loss exceeds the taxable capital gain in a year may be deducted from a taxable capital gain realized by the shareholder in the three previous years or any subsequent year, subject to certain restrictions in the case of a corporate shareholder and subject to adjustment when the capital gains inclusion rate in the year of disposition differs from the inclusion rate in the year the deduction is claimed.
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% or more of the issued shares of any class or series in the capital stock of the Company belonged to one or more persons in a group comprising the shareholder and persons with whom the shareholder did not deal at arm’s length and in certain other circumstances. Corporations disposing of taxable Canadian property must file a Canadian tax return to report the disposition.
The Convention relieves United States residents from liability for Canadian tax on capital gains derived on a disposition of shares unless:
(a) | the value of the shares is derived principally from “real property” in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production; |
(b) | the shareholder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he or she ceased to be resident in Canada; or |
(c) | the shares formed part of the business property of a “permanent establishment” that the holder has or had in Canada within the 12 months preceding the disposition. |
Certain U.S. Federal Income Tax Considerations
The following is a general summary of certain material anticipated U.S. federal income tax consequences to a U.S. Holder, as defined below, of the ownership or disposition of common stock in the Company (“Common Stock”). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated under the Code, administrative pronouncements or practices, judicial decisions, the Income Tax Convention between the United States and Canada (the “Tax Convention”), as well as certain representations made by the Company, all as of the date hereof. Future legislative, judicial, or administrative modifications, revocations, or interpretations, which may or may not be retroactive, or the failure of any factual representation to be true, correct, and complete in all material respects, may result in U.S. federal income tax consequences significantly different from those discussed herein. This discussion is not binding on the U.S. Internal Revenue Service (the “IRS”). No ruling has been or will be sought or obtained from the IRS with respect to any of the U.S. federal tax consequences discussed herein. There can be no assurance that the IRS will not challenge any of the conclusions described herein or that a U.S. court will not sustain such a challenge.
This discussion does not address any U.S. federal alternative minimum tax; U.S. federal estate, gift, or other non-income tax; or any state, local, or non-U.S. tax consequences of the ownership or disposition of Common Stock. In addition, this discussion does not address the U.S. federal income tax consequences to U.S. Holders subject to special rules, including U.S. Holders that (i) are banks, financial institutions, or insurance companies, (ii) are regulated investment companies or real estate investment trusts, (iii) are brokers, dealers, or traders in securities or currencies, (iv) are tax-exempt organizations, (v) hold Common Stock as part of hedges, straddles, constructive sales, conversion transactions, or other integrated investments, (vi) acquire Common Stock as compensation for services or through the exercise or cancellation of employee stock options or warrants, (vii) have a functional currency other than the U.S. dollar, or (viii) own or have owned directly, indirectly, or constructively 10% or more of all classes of stock in the Company entitled to vote.
As used herein, “U.S. Holder” means a holder of Common Stock that is for U.S. federal income tax purposes (i) a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal tax purposes) organized under the laws of the United States or any political subdivision thereof, including the States and the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust that (a) is subject to the primary jurisdiction of a court within the United States and for which one or more U.S. persons have authority to control all substantial decisions or (b) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. If a pass-through entity, including a partnership or other entity taxable as a partnership for U.S. federal tax purposes, holds Common Stock, the U.S. federal income tax treatment of an owner or partner generally will depend on the status of such owner or partner and on the activities of the pass-through entity. A U.S. person that is an owner or partner of a pass-through entity holding Common Stock is urged to consult its own tax advisor.
This discussion assumes that Common Stock is held as a capital asset, within the meaning of the Code, in the hands of a U.S. Holder at all relevant times.
U.S. HOLDERS AND ALL OTHER HOLDERS OF COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE NON-TAX CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF COMMON STOCK AND THE NON-U.S., U.S. FEDERAL, STATE, LOCAL, OR OTHER TAXING JURISDICTION CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF COMMON STOCK THAT ARE RELEVANT TO THEM AND THEIR PARTICULAR CIRCUMSTANCES.
Passive Foreign Investment Company Treatment
Special and generally unfavorable U.S. federal income tax rules may apply to a U.S. Holder if its holding period in its Common Stock includes any period in which the Company is a passive foreign investment company (a “PFIC”). 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 of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, generally measured by fair market value, of its assets that produce or are held for the production of “passive income” is 50% or more. For the purposes of the PFIC rules, passive income includes net gains from some commodities transactions. For a taxable year ending before January 1, 2005, net gains from commodities transactions generally may be excluded from passive income if “substantially all” of a producer’s, processor’s, merchant’s, or handler’s business is as an active producer, processor, merchant, or handler of such commodities. For a taxable year beginning after December 31, 2004, net gains from commodities transactions will not be included in passive income for the purpose of the PFIC rules if (i) they are active business gains or losses from the sale of commodities and (ii) substantially all of the corporation’s commodities are stock in trade or inventory of the corporation, property used in the trade or business of the corporation, or supplies used in the ordinary course of a trade or business of the corporation. In determining whether or not it is a PFIC, the Company is required to take into account its pro rata portion of the income and assets of each entity treated as a corporation for U.S. federal tax purposes in which it owns, directly or indirectly, at least a 25% interest (measured by value).
The Company believes that it was a PFIC in its 2006 taxable year and in each preceding taxable year since at least its 1996 taxable year. The Company may be a PFIC in its 2007 and subsequent taxable years, but the Company can provide no assurance of its PFIC classification in its 2007 and subsequent taxable years, because PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the taxable year in question, and is determined annually. The Company has not determined whether or not any direct or indirect subsidiary of the Company was a PFIC or is expected to be a PFIC in 2007 or subsequent taxable years.
In the absence of an election described below, if a U.S. Holder’s holding period in its Common Stock includes any period in which the Company was or is a PFIC, special and generally unfavorable U.S. federal income tax rules, described below in “—The ‘No Election’ Alternative”, generally apply to gain realized on a disposition of Common Stock and certain distributions received with respect to Common Stock. If certain requirements are met, a U.S. Holder may mitigate these consequences by timely making an election to treat the Company as a “qualified electing fund” (a “QEF”), described below in “—The QEF Election Alternative”, or to mark its Common Stock to market, described below in “—The Mark-to-Market Election Alternative”.
The QEF Election Alternative
A U.S. Holder who elects in a timely manner to treat the Company as a QEF (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which the Company qualifies as a PFIC on such U.S. Holder’s pro rata share of the Company’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder, and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for such U.S. Holder’s taxable year in which (or with which) the Company’s taxable year ends, regardless of whether such amounts are actually distributed.
An effective QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of such U.S. Holder’s Common Stock (or deemed to be realized on the pledge of such U.S. Holder’s Common Stock) as capital gain; (ii) treat such U.S. Holder’s share of the Company’s net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on such U.S. Holder’s share of the Company’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as “personal interest” that is not deductible.
The procedure a U.S. Holder must comply with in making an effective QEF election will depend on whether the year of the election is the first year in the U.S. Holder’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 may 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 its Common Stock includes the qualification date. By electing to recognize such gain or earnings and profits, the U.S. Holder will be deemed to have made a timely QEF election. If the QEF election is not deemed timely, then the U.S. Holder will also be subject to the rules discussed below under “The ‘No Election’ Alternative”. A U.S. Holder who made elections to recognize gain or earnings and profits after May 1, 1992 and before January 27, 1997 may, under certain circumstances, elect to change such U.S. Holder’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 or its direct and indirect interest in the stock of the Company. Therefore, if such U.S. Holder reacquires an interest in the Company, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which the Company qualifies as a PFIC.
A U.S. Holder cannot make and maintain a valid QEF election unless the Company provides certain U.S. tax basis information and meets certain other requirements. The Company has not yet determined whether it will provide such information or meet such requirements. Therefore, the Company can provide no assurance that a U.S. Holder will be able to make a valid QEF election.
The “No Election” Alternative
If a U.S. Holder does not make a timely mark-to-market election, as discussed below, or a timely QEF election (a “Non-Electing U.S. Holder”) and the Company is a PFIC, 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 reason of a pledge) of such U.S. Holder’s Common Stock 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, such 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 any of its Common Stock and all excess distributions on its Common Stock over such U.S. Holder’s entire holding period. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the first taxable year of the Company during such U.S. Holder’s holding period and beginning after January 1, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-Electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-Electing U.S. Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly nondeductible. The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.
For purposes of the PFIC rules, if the Company were a PFIC, a U.S. Holder would be deemed to own an interest in any PFIC owned directly or indirectly by the Company (a “Subsidiary”). Accordingly, if the Company and a Subsidiary both were PFICs, a U.S. Holder would be deemed to own an interest in such Subsidiary for purposes of the PFIC rules. If, as a result of this rule, a U.S. Holder is treated as owning stock of a Subsidiary, such U.S. Holder may be subject to the excess distribution rules on (i) a distribution with respect to the indirectly owned stock by a Subsidiary to the Company, (ii) a disposition of the indirectly owned Subsidiary stock by the Company, and (iii) a disposition of Common Stock by the U.S. Holder that reduces or terminates the U.S. Holder’s indirect ownership of Subsidiary stock.
If the Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds Common Stock, then the Company will continue to be treated as a PFIC with respect to such U.S. Holder’s Common Stock, even if it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules for a Non-Electing U.S. Holder) as if its Common Stock had been sold on the last day of the last taxable year for which the Company was a PFIC.
The Mark-to-Market Election Alternative
A U.S. Holder who holds, actually or constructively, marketable stock (as specifically defined in the Treasury Regulations) of a foreign corporation that qualifies as a PFIC may annually elect to mark such stock to the market (a “mark-to-market election”). 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 a U.S. Holder has not made a timely QEF election and makes a mark-to-market election after the beginning of its holding period in its Common Stock, then the Section 1291 rules will apply to certain dispositions of, distributions on, and other amounts taxable with respect to such U.S. Holder’s Common Stock. 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 its Common Stock as of the close of such tax year over such U.S. Holder’s adjusted basis in its Common Stock. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’s adjusted tax basis in its Common Stock over the fair market value of its Common Stock as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the Common Stock included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior tax year but for the Section 1291 interest on tax deferral rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for Common Stock that were allowed as deductions for prior tax years. A U.S. Holder’s adjusted tax basis in its Common Stock will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election. A mark-to-market election applies to marketable stock in a PFIC for the taxable year for which the election is made and to any subsequent taxable year unless Common Stock ceases to be marketable, as specifically defined, or the IRS consents to a revocation of such election. If the Company ceases to be a PFIC, a U.S. Holder that has marked its Common Stock to market will not include mark-to-market gain or loss with respect to its Common Stock for any taxable year that the Company is not a PFIC, and if the Company again becomes a PFIC in a taxable year after a year in which it is not treated as a PFIC, a U.S. Holder’s original mark-to-market election, unless revoked or terminated, continues to apply and such U.S. Holder must include any mark-to-market gain or loss in such year.
The mark-to-market rules do not appear to prevent the application of the excess distribution rules in respect of stock in a Subsidiary that also is a PFIC. If the Company and any Subsidiary were PFICs, a U.S. Holder would be deemed to own an interest in such Subsidiary for purposes of the PFIC rules. Accordingly, if the Company and any Subsidiary were PFICs and a U.S. Holder made a mark-to-market election with respect to the Company, such U.S. Holder may remain subject to the excess distribution rules described above with respect to its indirectly owned stock in such Subsidiary.
Additional Considerations
Under Section 1291(f) of the Code, the IRS has issued Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases the basis of the Common Stock in the hands of the transferee and the basis of any property received in the exchange for such Common Stock would be increased by the amount of gain recognized. Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the Common Stock is transferred.
Certain special, generally adverse, rules will apply with respect to Common Stock while the Company is a PFIC whether or not it is treated as a QEF. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such Common Stock.
Each U.S. Holder is urged to consult its own tax advisor regarding the classification of the Company as a PFIC and the availability and the consequences of the QEF and mark-to-market elections.
Distributions on Common Stock
To the extent that a distribution paid to a U.S. Holder on its Common Stock is not an excess distribution and is not a non-taxable distribution paid from earnings and profits previously included in income by a U.S. Holder that has made a QEF election, the gross amount of such distribution (i.e., including any amount deducted in respect of withholding taxes) will generally be subject to U.S. federal income tax as foreign source ordinary dividend income to the extent that such distribution is paid out of the Company’s remaining current or accumulated earnings and profits, as determined under U.S. federal income tax principles. The amount of any distribution of property other than cash will be its fair market value on its distribution date. To the extent that an amount received by a U.S. Holder exceeds such U.S. Holder’s allocable share of the Company’s current and accumulated earnings and profits, such excess will be applied, first, to reduce such U.S. Holder’s adjusted tax basis in its Common Stock, thereby increasing the amount of gain or decreasing the amount of loss recognized on a subsequent sale, exchange, or disposition of such U.S. Holder’s Common Stock, and, second, any balance in excess of such U.S. Holder’s adjusted tax basis in its Common Stock will be treated as capital gain.
A dividend received by a U.S. Holder will not be eligible for the dividends-received deduction generally allowed to corporations on the receipt of dividends distributed by U.S. corporations. A dividend paid on Common Stock to a non-corporate U.S. Holder before January 1, 2011 will not be “qualified dividend income”, and therefore will not be eligible for a maximum rate of U.S. federal income tax of 15%, to such U.S. Holder if the Company is a PFIC during either the taxable year in which the distribution occurs or the preceding taxable year.
Foreign Tax Credit
Any foreign income tax withheld with respect to dividends on Common Stock may, subject to a number of complex requirements and limitations (including special limitations to coordinate with the qualified dividend income rules described above), be claimed as a foreign tax credit against a U.S. Holder’s U.S. federal income tax liability or may be claimed as a deduction for U.S. federal income tax purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, for taxable years beginning after December 31, 2006, dividends will be “passive category income” or “general category income”. A U.S. Holder is urged to consult its own tax advisor regarding the availability of the foreign tax credit.
Foreign Exchange Gain or Loss
Distributions with respect to a U.S. Holder’s Common Stock paid in Canadian dollars or any other non-U.S. currency must be converted to U.S. dollars to calculate such U.S. Holder’s U.S. federal income tax liability. Generally, an amount paid in foreign currency will be converted to a U.S. dollar amount by reference to the spot exchange rate in effect on the date such amount is paid, regardless of whether such payment is in fact converted to U.S. dollars. If foreign currency is converted to U.S. dollars on the date of the payment, a U.S. Holder (although subject to tax on the U.S. dollar value of the payment) generally will not be required to recognize any foreign currency gain or loss with respect to the receipt of such foreign currency. If foreign currency is converted to U.S. dollars at a later date, any currency gain or loss resulting from the conversion generally will be treated as U.S. source ordinary income or loss.
Information Reporting and Backup Withholding
Under some circumstances, a U.S. Holder may be subject to U.S. information reporting and backup withholding tax on distributions paid on, and proceeds from the disposition of, Common Stock. Information reporting and backup withholding will not apply, however, to a U.S. Holder that is a corporation or is otherwise exempt from information reporting and backup withholding and, when required, demonstrates this fact. Backup withholding also will not apply to a U.S. Holder that furnishes a correct taxpayer identification number and certifies, under penalty of perjury, that it is not subject to backup withholding on a Form W-9 or successor form, and otherwise complies with applicable requirements of the backup withholding rules. A U.S. Holder that fails to provide the correct taxpayer identification number on Form W-9 or successor form may be subject to penalties imposed by the IRS. Backup withholding, currently at a 28% rate, is not an additional tax, and any amount withheld under these rules will be allowed as a refund or credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished to the IRS.
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.
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.
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.
This information is not required for reports filed in the United States.
As of December 31, 2006, we were not subject to any material interest rate risk, foreign currency exchange rate risk or commodity price risk.
Not applicable.
PART II
Not applicable.
Not applicable.
Item 15 |
As of December 31, 2006, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be included in our periodic reports to the Securities and Exchange Commission is recorded, processed, summarized and reported in a timely manner.
The following report is provided by management in respect of internal control over financial reporting (as defined in the rules of the Canadian Securities Administrators and the Securities and Exchange Commission):
(1) | Management is responsible for establishing and maintaining adequate internal control over financial reporting. All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. |
(2) | Our management has used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework to evaluate the effectiveness of our internal control over financial reporting. |
(3) | As at December 31, 2006, management assessed the effectiveness of our internal control over financial reporting and concluded that such internal control over financial reporting are effective and that there were no material weaknesses in our internal control over financial reporting. |
(4) | PricewaterhouseCoopers LLP, who has audited our consolidated financial statements for the year ended December 31, 2006, has also issued a report on the effectiveness of our internal controls over financial reporting as of December 31, 2006 under the standards of the Public Company Accounting Oversight Board (United States). See Item 19.A - “Financial Statements”. |
There have been no changes in our internal control over financial reporting during the year ended December 31, 2006, that have materially affected, or are reasonably likely to affect our internal control over financial reporting.
Item 16 |
A. | Audit committee financial expert. |
Our board of directors has determined that we have an audit committee financial expert, John R. Brodie, FCA. Mr. Brodie, FCA is the Chair of our audit committee and independent as that term is defined in the listing standards of the Nasdaq Global Market. For more information regarding Mr. Brodie’s experience, see Item 6.A - “Directors and Senior Management”.
We have adopted a Code of Business Conduct that applies to our Chief Executive Officer, Chief Financial Officer and other senior financial officers performing similar functions. Our Code of Business Conduct is available for viewing on our website at www.silverstandard.com.
The following is a summary of the aggregate fees billed for each of the last two fiscal years by our principal accountant.
Principal Accountant Fees and Services | Fiscal year ended December 31, 2006 | Fiscal year ended December 31, 2005 | ||
Audit Fees (1) | $280,500 | $75,700 | ||
Tax Fees (2) | - | $9,000 | ||
All Other Fees (3) | - | $4,832 | ||
Total | $280,500 | $89,532 |
(1) | Audit of consolidated financial statements including accounting consultations and tax services related to the audit; reviews of interim financial statements; fees in connection with regulatory financial filings |
(2) | Tax return compliance filing and corporate tax structure |
(3) | Canadian Public Accounting Board Fee and Section 404 of the Sarbanes-Oxley Act of 2002 training |
Pre-Approval Policies and Procedures
Our audit committee has established policies and procedures that are intended to control the services provided by our auditors and to monitor their continuing independence. Under these policies, no services may be undertaken by our auditors unless the engagement is specifically approved by our audit committee or the services are included within a category which has been pre-approved by our audit committee. The maximum charge for services is established by the audit committee when the specific engagement is approved or the category of services pre-approved. Management is required to notify the audit committee of the nature and value of pre-approved services undertaken.
Our audit committee will not approve engagements relating to, or pre-approve categories of, non-audit services to be provided by our auditors (i) if such services are of a type the performance of which would cause our auditors to cease to be independent within the meaning of applicable Securities and Exchange Commission or Nasdaq rules, and (ii) without consideration, among other things, of whether our auditors are best situated to provide the required services and whether the required services are consistent with their role as auditor.
All services provided by our principal accountant in 2006 were pre-approved by our audit committee.
Not applicable.
Not applicable.
PART III
Item 17 |
Not applicable.
Item 18 |
Our audited consolidated financial statements are stated in Canadian Dollars and are prepared in accordance with Canadian GAAP, which differs in certain respects from those principles that we would have followed had our audited consolidated financial statements been prepared in accordance with US GAAP. The major differences between Canadian and US GAAP, as they affect us, are disclosed in note 20 to the audited consolidated financial statements.
The financial statements and notes thereto as required under Item 18 are attached to this Annual Report, are individually listed under Item 19, and are found immediately following the text of this Annual Report. The audit report of PricewaterhouseCoopers LLP is included in this Annual Report immediately preceding the financial statements.
Item 19 |
All Financial Statements and Exhibits referred to in this Item 19 are incorporated by reference into this Annual Report.
Document | Page |
F-1 | |
F-3 | |
F-4 | |
F-5 | |
F-6 | |
F-7 |
B. |
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. |
1.2 | Notice of Articles and Articles filed under the Business Corporations Act (British Columbia) |
12.1 | |
12.2 | |
13.1 | |
13.2 | |
14.1 | |
14.2 | |
14.3 | |
14.4 | |
14.5 | |
14.6 |
(a development stage company)
Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(expressed in thousands of Canadian dollars)
F-1
Management’s Responsibility for the Financial Statements
The preparation and presentation of the accompanying consolidated financial statements, Management’s Discussion and Analysis (“MD&A”) and all financial information in the Annual Report are the responsibility of management and have been approved by the Board of Directors.
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Financial statements, by nature, are not precise since they include certain amounts based upon estimates and judgments. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances. The financial information presented elsewhere in the Annual Report is consistent with that in the consolidated financial statements.
Management, under the supervision of and the participation of the President and Vice President, Finance, have a process in place to evaluate disclosure controls and procedures and internal control over financial reporting as required by Canadian and U.S. securities regulations. We, as President and Vice President Finance, will certify our annual filings with the CSA and SEC as required in Canada by Multilateral Instrument 52-109 and in the United States as required by the Securities Exchange Act of 1934.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee which is independent from management.
The Audit Committee is appointed by the Board of Directors and reviews the consolidated financial statements and MD&A; considers the report of the external auditors’; assesses our adequacy of the internal controls, including management’s assessment described below; examines the fees and expenses for audit services; and recommends to the Board the independent auditors for appointment by the shareholders. The independent auditors have full and free access to the Audit Committee and meet with it to discuss their audit work, our internal control over financial reporting and financial reporting matters. The Audit Committee reports its findings to the Board for consideration when approving the consolidated financial statements for issuance to the shareholders and management’s assessment of the internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2006 using criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2006.
PricewaterhouseCoopers LLP, our auditors, has audited management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 as stated in their report which appears herein.
“R.A. Quartermain” | “R.A. Mitchell” | ||
Robert A. Quartermain President | Ross A. Mitchell Vice President, Finance |
March 1, 2007
F-2
To the Shareholders of Silver Standard Resources Inc.
We have completed an integrated audit of the consolidated financial statements and internal control over financial reporting of Silver Standard Resources Inc. as of December 31, 2006 and audits of the Company’s December 31, 2005 and December 31, 2004 consolidated financial statements. Our opinions, based on our audits, are presented below.
Consolidated financial statements
We have audited the accompanying consolidated balance sheets of Silver Standard Resources Inc. as at December 31, 2006 and December 31, 2005, and the related consolidated statements of earnings (loss) and deficit and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of the Company’s financial statements as at December 31, 2006 and 2005 and for the three years in the period ended December 31, 2006 in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and December 31, 2005 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 in accordance with Canadian generally accepted accounting principles.
Internal control over financial reporting
We have also audited management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as at December 31, 2006 is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the COSO. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control - Integrated Framework issued by the COSO.
"PricewaterhouseCoopers LLP"
Chartered Accountants
Vancouver, British Columbia, Canada
March 1, 2007
F-3
(a development stage company)
Consolidated Balance Sheets
As at December 31, 2006 and 2005
(expressed in thousands of Canadian dollars, except number of shares)
2006 $ | 2005 $ | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | 229,616 | 23,030 | |||||
Silver bullion (note 6) | 15,787 | 14,095 | |||||
Marketable securities (note 7) | 5,817 | 4,985 | |||||
Accounts receivable, net of allowance for doubtful accounts $nil (2005 - $nil) | 3,746 | 1,238 | |||||
Prepaid expenses and deposits | 630 | 496 | |||||
255,596 | 43,844 | ||||||
Restricted cash (note 10) | 2,104 | 190 | |||||
Restricted silver bullion (note 6) | - | 1,692 | |||||
Value added tax recoverable (note 8) | 1,327 | - | |||||
Mineral property costs and property, plant and equipment (note 9) | 211,986 | 173,562 | |||||
471,013 | 219,288 | ||||||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities | |||||||
Accounts payable | 3,074 | 1,990 | |||||
Accrued liabilities | 1,215 | 788 | |||||
Current portion of asset retirement obligations (note 10) | 1,073 | 722 | |||||
5,362 | 3,500 | ||||||
Asset retirement obligations (note 10) | 2,336 | 759 | |||||
Future income tax liability (note 15) | 26,745 | 21,839 | |||||
34,443 | 26,098 | ||||||
Shareholders’ Equity | |||||||
Share capital (note 11) | 442,265 | 219,971 | |||||
Common shares - unlimited shares authorized, no par value | |||||||
Issued and outstanding 61,646,120 common shares (2005 - 51,849,241) | |||||||
Value assigned to stock options (notes 11 and 12) | 20,798 | 9,778 | |||||
Value assigned to warrants (notes 11 and 13) | - | 6,965 | |||||
Contributed surplus | 649 | - | |||||
Deficit | (27,142 | ) | (43,524 | ) | |||
436,570 | 193,190 | ||||||
471,013 | 219,288 | ||||||
Commitments (note 18) | |||||||
Approved on behalf of the Board of Directors
“John R. Brodie” | “R.E. Gordon Davis” | ||
John R. Brodie, FCA Chairman of the Audit Committee | R.E. Gordon Davis Director |
The accompanying notes are an integral part of the consolidated financial statements
F-4
(a development stage company)
Consolidated Statements of Earnings (Loss) and Deficit
For the years ended December 31, 2006, 2005 and 2004
(expressed in thousands of Canadian dollars, except per share amounts)
2006 $ | 2005 $ | 2004 $ | ||||||||
Exploration and mineral property costs | ||||||||||
Property examination and exploration | 267 | 434 | 471 | |||||||
Mineral property costs written-off | 101 | 372 | - | |||||||
Reclamation and accretion (note 10) | 2,131 | 507 | 252 | |||||||
(2,499 | ) | (1,313 | ) | (723 | ) | |||||
Expenses | ||||||||||
Salaries and employee benefits | 2,160 | 1,031 | 692 | |||||||
Salaries and employee benefits - stock-based compensation (note 12) | 9,954 | 3,468 | 1,783 | |||||||
Depreciation | 142 | 74 | 57 | |||||||
Internal control over financial reporting | 363 | 226 | - | |||||||
Professional fees | 614 | 176 | 122 | |||||||
General and administration - other | 3,762 | 2,172 | 2,202 | |||||||
General and administration - stock-based compensation (note 12) | 2,981 | 567 | 668 | |||||||
Foreign exchange loss (gain) | 75 | 18 | (171 | ) | ||||||
(20,051 | ) | (7,732 | ) | (5,353 | ) | |||||
Other income (expenses) | ||||||||||
Investment income | 5,984 | 881 | 1,102 | |||||||
Gain (loss) on sale of marketable securities (note 5) | (2,667 | ) | 2,289 | 2,577 | ||||||
Write-up (down) of marketable securities | 52 | (15 | ) | (52 | ) | |||||
Gain on sale of mineral properties | 173 | 20 | 931 | |||||||
Gain on sale of joint venture interest (note 5) | 35,390 | - | - | |||||||
38,932 | 3,175 | 4,558 | ||||||||
Earnings (loss) for the year | 16,382 | (5,870 | ) | (1,518 | ) | |||||
Deficit - Beginning of year | (43,524 | ) | (37,654 | ) | (31,632 | ) | ||||
Adjustment for stock-based compensation (note 3) | - | - | (4,504 | ) | ||||||
Deficit - End of year | (27,142 | ) | (43,524 | ) | (37,654 | ) | ||||
Earnings (loss) per share (note 4) | ||||||||||
Basic and diluted earnings (loss) per share | 0.28 | (0.11 | ) | (0.03 | ) | |||||
The accompanying notes are an integral part of the consolidated financial statements
F-5
(a development stage company)
Consolidated Statements of Cash Flows
For the years ended December 31, 2006, 2005 and 2004
(expressed in thousands of Canadian dollars)
2006 $ | 2005 $ | 2004 $ | ||||||||
Operating activities | ||||||||||
Earnings (loss) for the year | 16,382 | (5,870 | ) | (1,518 | ) | |||||
Items not affecting cash | ||||||||||
Depreciation | 142 | 74 | 57 | |||||||
Mineral property costs written-off | 101 | 372 | - | |||||||
Gain on sale of mineral properties | (173 | ) | - | (902 | ) | |||||
Stock-based compensation | 12,935 | 4,035 | 2,451 | |||||||
Write-down (up) of marketable securities | (52 | ) | 15 | 52 | ||||||
Asset retirement obligations | 2,053 | 444 | (316 | ) | ||||||
(Gain) loss on sale of marketable securities | 2,667 | (2,289 | ) | (2,577 | ) | |||||
Foreign exchange gain | (1 | ) | (14 | ) | (7 | ) | ||||
Donation of shares | 230 | - | - | |||||||
Gain on sale of joint venture interest (note 5) | (35,390 | ) | - | - | ||||||
Loss on disposal of property, plant and equipment | 21 | - | - | |||||||
Changes in non-cash working capital items | ||||||||||
Accounts receivable | (2,590 | ) | (576 | ) | (303 | ) | ||||
Prepaid expenses and deposits | (134 | ) | (198 | ) | (353 | ) | ||||
Accounts payable | 1,155 | 621 | 545 | |||||||
Accrued liabilities | 427 | 675 | 53 | |||||||
Current portion of asset retirement obligations | (273 | ) | (240 | ) | 312 | |||||
Increase in foreign value added tax recovery (net) | (1,327 | ) | - | - | ||||||
Cash used in operating activities | (3,827 | ) | (2,951 | ) | (2,506 | ) | ||||
Financing activities | ||||||||||
Shares and warrants issued for cash | 214,863 | 1,795 | 60,334 | |||||||
Share issue cash costs | (11,596 | ) | - | (928 | ) | |||||
Cash generated by financing activities | 203,267 | 1,795 | 59,406 | |||||||
Investing activities | ||||||||||
Mineral property costs | (39,379 | ) | (20,933 | ) | (12,796 | ) | ||||
Construction in progress | (1,826 | ) | - | - | ||||||
Purchase of property, plant and equipment | (1,782 | ) | (1,202 | ) | (710 | ) | ||||
Purchase of silver bullion | - | - | (15,780 | ) | ||||||
Proceeds on sale of property, plant and equipment | 13 | - | 53 | |||||||
Cash acquired on business combination | - | - | 91 | |||||||
Reclamation deposit advance | - | - | (47 | ) | ||||||
Purchase of marketable securities | (378 | ) | (2,459 | ) | (2,755 | ) | ||||
Proceeds on sale of marketable securities | 52,410 | 3,077 | 4,319 | |||||||
Increase in investment of restricted cash | (1,912 | ) | - | - | ||||||
Cash provided by (used in) investing activities | 7,146 | (21,517 | ) | (27,625 | ) | |||||
Increase (decrease) in cash and cash equivalents | 206,586 | (22,673 | ) | 29,275 | ||||||
Cash and cash equivalents - Beginning of year | 23,030 | 45,703 | 16,428 | |||||||
Cash and cash equivalents - End of year | 229,616 | 23,030 | 45,703 | |||||||
Supplementary cash flow information (note 16) |
The accompanying notes are an integral part of the consolidated financial statements
F-6
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
1 | NATURE OF OPERATIONS |
We are in the business of acquiring, exploring, holding and developing silver mineral properties, with a portfolio of core properties in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States. We plan 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. In October 2006, we made a production decision for the Pirquitas property that is located in the province of Jujuy in northwest Argentina. The mine is estimated to require 21 to 24 months to construct at an estimated cost of U.S. $146 million.
Management has estimated that we will have adequate funds from existing working capital to meet our corporate, development, administrative and property obligations for the coming year, including the construction of the Pirquitas property. We will periodically need to obtain additional financing, and while we have been successful in the past, there can be no assurance that we 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, our ability 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 we have taken steps to verify title to mineral properties in which we have an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee our title. Property title may be subject to unregistered prior agreements or transfers and may be affected by undetected defects.
2 | SIGNIFICANT ACCOUNTING POLICIES |
Generally accepted accounting principles
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). The significant differences between these principles and those that would be applied under U.S. generally accepted accounting principles and requirements promulgated by the Securities and Exchange Commission (collectively U.S. GAAP), as they affect the company, are disclosed in note 20.
Basis of presentation
The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries, the most significant of which are presented in the following table:
F-7
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Subsidiary | Location | Ownership | Project |
Candelaria Mining Company | Delaware | 100% | Candelaria |
Mina Pirquitas, Inc. | Delaware | 100% | Pirquitas |
Maverick Silver Inc. | Nevada | 100% | Maverick Springs |
Rio Grande Mining Company | Nevada | 100% | Shafter |
Sociedad Minera Berenguela S.A. | Peru | 100% | Berenguela |
Minera Silver Standard Chile S.A. | Chile | 100% | Challacollo |
Pacific Rim Mining Corporation Argentina, S.A. | Argentina | 100% | Diablillos |
Silver Standard Australia Pty Limited | Australia | 100% | Bowdens |
777666 B.C. Ltd. | Canada | 100% | Snowfield/Sulphurets |
Silver Standard Durango S.A. de C.V. | Mexico | 100% | Pitarrilla |
Silver Standard Exploraciones S.A. de C.V. | Mexico | 100% | Veta Colorada |
All inter-company transactions and balances have been eliminated on consolidation.
We have entered into a number of joint venture agreements, the most significant of which relate to the Maverick Springs and San Luis properties. We have a 55% interest in each of these two joint ventures. We recognize our proportionate share of exploration costs of each joint venture.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. Significant areas where management’s judgment is applied are asset impairment, stock-based compensation, future income tax valuation reserves, ore reserve determinations and asset retirement obligations. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications have had no impact on previously reported total current assets, total assets, working capital position or results of operations, and does not affect previously reported cash flows from operating or financing activities.
Foreign currency translation
Our functional currency is considered to be the Canadian dollar.
Our subsidiaries are integrated foreign operations which are translated into Canadian dollars using the temporal method. Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the period. Translation gains and losses are reflected in the consolidated statements of earnings (loss) unless they relate to a specific mineral property in which case they are capitalized.
F-8
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Cash and cash equivalents
Cash and cash equivalents include cash, bank balances and short-term investments with original maturities of three months or less and are stated at cost, which approximates market value.
Silver bullion
Silver bullion is valued at the lower of original cost or net realizable value.
Marketable securities
Marketable securities are carried at the lower of original cost and quoted market value.
Mineral property costs and property, plant and equipment
Mineral property costs
We record our interests in mineral properties at cost. Costs include the costs of acquiring mineral properties and related exploration and development expenditures, interest expense allocable to the cost of developing mining properties and to construct new facilities, holding costs to maintain a property and related foreign exchange amounts are deferred. These costs are amortized using the units-of-production method against future production following commencement of commercial production or are written-off if the properties are sold, allowed to lapse or abandoned. General exploration is expensed in the period incurred.
Option payments received are treated as a reduction of the carrying value of the related mineral property and deferred costs until the payments are in excess of costs incurred, at which time they are then credited to income. Options payments are at the discretion of the optionee, and accordingly, are accounted for on a cash basis or when receipt is reasonably assured.
Our management regularly reviews the recoverability of the carrying value of each mineral property. Where information and conditions suggest impairment, estimated future cash flows are calculated using estimated future prices, proven and probable reserves, weighted probable outcomes and operating capital and reclamation costs on an undiscounted basis. If it is determined that the future cash flows are less than the carrying value, a write-down to the estimated fair value is expensed for the period. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if carrying values can be recovered. If the carrying values exceed estimated recoverable values, then the costs are written-down to fair values with the write-down expensed in the year.
Management’s estimates of future mineral prices, recoverable resources, initial and operating capital and reclamation costs are subject to certain risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur that could adversely affect management’s estimate of the net cash flows to be generated from its properties.
F-9
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and include plant and equipment related to mineral properties and property and equipment related to corporate offices. Depreciation is calculated over the useful life of the asset at rates ranging from 10% to 30% per annum once the asset is put in service. Leasehold improvements are amortized over the shorter of their economic lives and the lease term plus lease renewals, if any, only when such renewals are reasonably assured. Depreciation charges on assets that are directly related to mineral properties are allocated to that mineral property. We assess if an impairment loss exists when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. The amount of the loss is measured as the amount by which long-lived asset’s carrying value exceeds its fair value.
Asset retirement obligations
We recognize a liability for our legal obligations associated with the retirement of property, plant and equipment when the liability is incurred. A liability is recognized initially at fair value and the resulting amount is capitalized as part of the asset’s carrying value unless the asset has been previously written-off, in which case the amount is expensed. The liability is accreted over time through periodic charges to earnings where the assets have previously been written-off or to mineral property costs where the assets are in the pre-production stage. In subsequent periods, we adjust the carrying amounts of the asset and the liability for changes in estimates of the amount or timing of underlying future cash flows. The fair value of the legal obligation for asset retirement is assessed each reporting period.
It is reasonably possible that our estimates of our ultimate reclamation and site restoration liability could change as a result of changes in regulations or cost estimates. The effect of changes in estimated costs is recognized on a prospective basis.
Stock-based compensation
Compensation expense for stock options granted to employees or non-employees is measured at the fair value at the grant date using the Black-Scholes valuation model and is recognized over the vesting period of the options granted. In situations where stock options are granted in exchange for services related to specific mineral properties, the expense is capitalized against that mineral property. The value assigned to stock options shown on the balance sheet is subsequently reduced if the options are exercised and the amount so reduced is then credited to share capital. Any values assigned to stock options that have expired are credited to contributed surplus.
Income taxes
The liability method of income tax allocation is used and is based on differences between financial reporting and tax bases of assets and liabilities. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using the tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Future tax assets are recognized to the extent that they are considered more likely than not to be realized.
F-10
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Earnings (loss) per common share
Earnings (loss) per share is calculated based on the weighted average number of common shares issued and outstanding during the year. We follow the treasury stock method in the calculation of diluted earnings per share. Under this method, the weighted average number of shares includes the potential net issuances of common shares for “in-the-money” options and warrants assuming the proceeds are used to repurchase common shares at the average market price during the period, if dilutive. The effect of potential issuances of shares under options and warrants would be anti-dilutive if a loss is reported, and therefore basic and diluted losses per share are the same.
3 | CHANGES IN ACCOUNTING POLICIES |
Stock-based compensation
Effective January 1, 2004, the company adopted the Canadian Institute of Chartered Accountants (CICA) amendments to Section 3870, “Stock-Based Compensation and Other Stock-Based Payments”, which requires an expense to be recognized in the financial statements for all forms of employee stock-based compensation, including stock options, as well as for other stock-based payments made in exchange for goods and services. The adoption of the fair value method resulted in a cumulative increase of $4,504,000 to the opening deficit at January 1, 2004 and increases of $335,000 to share capital and $4,169,000 to value assigned to stock options, at January 1, 2004.
Recent Canadian accounting pronouncements
Financial Instruments
Effective January 1, 2007, we have adopted CICA Handbook Section 3855 Financial Instruments - Recognition and Measurement, CICA Handbook Section 3865 Hedges and CICA Handbook Section 1530 Comprehensive Income (the “Financial Instrument Standards”). As we have not previously undertaken hedging activities, adoption of Section 3865 will have no impact on us. Prior to January 1, 2007, the principal accounting policies affecting our financial instruments related to marketable securities that were valued at the lower of original cost and quoted market value.
The adoption of the Financial Instrument Standards will result in our classifying marketable securities and cash equivalents as available for sale investments and all derivative and other financial instruments as held for trading assets or liabilities measured at fair value. We have no derivative financial instruments or other financial instruments held for trading at December 31, 2006. Transitional adjustments in respect of these available for sale assets will be recorded to the opening investment balances and accumulated other comprehensive income on January 1, 2007.
As a consequence of adopting the Financial Instrument Standards on January 1, 2007, accumulated other comprehensive income will increase by approximately $29,800,000 with a corresponding increase of approximately $29,800,000 in investments. As a result of the adoption of this standard, the carrying value of this investment is increased by $29,800,000, with a corresponding increase, net of tax, to accumulated comprehensive income. This represents the net gain on measuring the fair value of available for sale investments, which has been not recognized on a fair value basis prior to January 1, 2007.
F-11
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Upon adoption of the financial instrument standards, all regular-way purchases of financial assets are accounted for at the settlement date. Transaction costs on financial assets and liabilities classified other than as held for trading will be treated as part of the investment cost.
Gains or losses associated with items designated as held for trading are recorded in the income statement, separate from any interest or dividends earned on these investments. Gains or losses associated with items classified as available for sale will be separately recorded as unrealized within our other comprehensive income until such time the investment is disposed of or incurs a decline in fair value that is on an other-than-temporary basis, at which time any gains or losses will then be realized and reclassified to the income statement. We have elected to designate cash equivalents (consisting of mainly commercial paper and banker’s acceptances) and marketable securities (all of which are investments in common shares), as available for sale.
4 | EARNINGS (LOSS) PER SHARE |
The computations of basic and diluted earnings (loss) per share are as follows:
2006 $ | 2005 $ | 2004 $ | ||||||||
Earnings (loss) for the year | 16,382 | (5,870 | ) | (1,518 | ) | |||||
Basic weighted-average common shares (000’s) | 58,652 | 51,683 | 48,311 | |||||||
Dilutive potential from stock options and warrants (000’s) | 252 | 1,876 | 928 | |||||||
Dilutive weighted-average common shares (000’s) | 58,904 | 53,559 | 49,239 | |||||||
Earnings (loss) per share: | ||||||||||
Basic earnings (loss) per share | 0.28 | (0.11 | ) | (0.03 | ) | |||||
Diluted earnings (loss) per share | 0.28 | (0.11 | ) | (0.03 | ) |
5 | SALE OF JOINT VENTURE INTEREST AND MARKETABLE SECURITIES |
On April 10, 2006, the agreement for the sale of our 50% interest in the Manantial Espejo property to our joint venture partner, Pan American Silver Corp., closed for a gain on sale of $35,390,000. The fair value of the 1,950,000 common shares of Pan American received at closing was $55,056,000. During the fourth quarter of 2006, all our shares in Pan American were sold for net proceeds of $51,995,000. A loss on sale of marketable securities of $3,101,000 has been recorded to give us a net gain of $32,289,000 from the sale of this interest. This loss on sale of marketable securities was offset by gains of $434,000 on the sale of other marketable securities in 2006.
F-12
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
6 | SILVER BULLION |
Balance sheet presentation - December 31, 2006
Ounces (thousands) | Total cost $ | Market value $ | Unrealized gain $ | ||||||||||
Silver bullion | 1,954 | 15,787 | 29,373 | 13,586 | |||||||||
Restricted silver bullion | - | - | - | - | |||||||||
1,954 | 15,787 | 29,373 | 13,586 |
Balance sheet presentation - December 31, 2005
Ounces (thousands) | Total cost $ | Market value $ | Unrealized gain $ | ||||||||||
Silver bullion | 1,745 | 14,095 | 17,939 | 3,844 | |||||||||
Restricted silver bullion | 209 | 1,692 | 2,154 | 462 | |||||||||
1,954 | 15,787 | 20,093 | 4,306 |
At December 31, 2005, we had lodged a US$1,679,000 bank letter of credit with the U.S. Department of the Interior, Bureau of Land Management relating to reclamation obligations on the Candelaria silver mine in Nevada (note 9(o)). Under the terms and conditions with its banker, we have the right to lodge collateral in Canadian dollars, US dollars or silver bullion. We had lodged silver bullion as collateral such that it had a coverage ratio value of 110% (US$1,847,000) of the letter of credit amount. As at December 31, 2005, 209,454 (2004 - 284,650) ounces of silver bullion were lodged as collateral. In 2006, the reclamation obligation was reduced to US $1,637,000 and we lodged this amount in U.S. dollars, thereby releasing our bullion collateral.
7 | MARKETABLE SECURITIES |
At December 31, we held shares and share purchase warrants as follows:
2006 | Number of shares / warrants (thousands) | 2005 | ||||
Number of shares (thousands) | Cost $ | Market Value $ | Cost $ | Market Value $ | ||
Esperanza Silver Corporation | 5,460 | 1,591 | 17,472 | 5,310 | 1,508 | 4,513 |
Minco Silver Corporation (i) | 4,845 | 3,126 | 13,567 | 4,960 | 3,200 | 9,424 |
Silvermex Resources Ltd. | 2,500 | 300 | 2,050 | 1,500 | 150 | 150 |
Vista Gold Corp. (ii) | 171 | 294 | 1,749 | 171 | - | 712 |
Other investments | 506 | 779 | 127 | 288 | ||
5,817 | 35,617 | 4,985 | 15,087 |
(i) | At December 31, 2006, 1,240,000 (2005 - 2,480,000) shares were subject to an escrow agreement. |
(ii) | In 2005, we held 171,000 share purchase warrants of Vista Gold Corp. which were exercised in 2006. We hold no share purchase warrants in any company as at December 31, 2006. |
F-13
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
8 | VALUE ADDED TAX RECOVERABLE |
We have recorded the value added tax (VAT) paid in Argentina and related to the Pirquitas property as a recoverable asset. Argentinean law states that VAT paid prior to production is recoverable once the company reaches the production stage. In October 2006, we made a production decision on this property and any VAT paid in Argentina related to Pirquitas is expected to be recoverable through production from the proven and probable reserves from this property. The amount recoverable at December 31, 2006 is estimated to be $1,327,000 (2005 - nil).
In countries where we have paid VAT and where there is uncertainty of the recoverability, the VAT payments have either been deferred with mineral property costs relating to the property or expensed if it relates to mineral exploration. If we ultimately recover amounts that have been deferred, the amount received will be applied to reduce mineral property costs.
9 | MINERAL PROPERTY COSTS AND PROPERTY, PLANT AND EQUIPMENT |
2006 $ | 2005 $ | ||||||
Mineral property costs | 207,887 | 171,525 | |||||
Construction in progress (c) | 1,829 | - | |||||
Mining equipment and machinery (c) | 1,298 | 1,336 | |||||
Other | 1,524 | 1,126 | |||||
212,538 | 173,987 | ||||||
Accumulated depreciation | (552 | ) | (425 | ) | |||
211,986 | 173,562 |
F-14
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
At December 31, mineral property costs are as follows:
Acquisition costs $ | Exploration costs $ | Future tax effects $ | Total 2006 $ | Total 2005 $ | ||||||||||||
Argentina | ||||||||||||||||
Diablillos | 5,376 | 1,916 | - | 7,292 | 6,885 | |||||||||||
Manantial Espejo | - | - | - | - | 20,955 | |||||||||||
Pirquitas | 56,308 | 11,020 | 13,859 | 81,187 | 74,927 | |||||||||||
Other | 23 | 150 | - | 173 | 180 | |||||||||||
Australia | ||||||||||||||||
Bowdens | 10,892 | 7,890 | 3,511 | 22,293 | 21,382 | |||||||||||
Other | - | 238 | - | 238 | 225 | |||||||||||
Canada | ||||||||||||||||
Silvertip | 1,818 | 254 | - | 2,072 | 2,066 | |||||||||||
Snowfield | 125 | 1,793 | - | 1,918 | - | |||||||||||
Sulphurets | 2,393 | 1,255 | - | 3,648 | 3,648 | |||||||||||
Sunrise Lake | 1,234 | 61 | - | 1,295 | 1,280 | |||||||||||
Chile | ||||||||||||||||
Challacollo | 2,595 | 3,007 | 354 | 5,956 | 5,513 | |||||||||||
Other | 50 | 178 | - | 228 | 227 | |||||||||||
Mexico | ||||||||||||||||
Pitarrilla | 12,980 | 18,523 | 1,249 | 32,752 | 11,194 | |||||||||||
San Marcial | 1,250 | 779 | 290 | 2,319 | 2,045 | |||||||||||
Veta Colorada | 3,976 | 839 | - | 4,815 | 584 | |||||||||||
Other | 741 | 1,394 | - | 2,135 | 1,629 | |||||||||||
Peru | ||||||||||||||||
Berenguela | 12,936 | 3,139 | 6,268 | 22,343 | 4,536 | |||||||||||
San Luis | - | 1,537 | 154 | 1,691 | 135 | |||||||||||
United States | ||||||||||||||||
Candelaria | 2,981 | 3,078 | 154 | 6,213 | 5,806 | |||||||||||
Maverick Springs | 637 | 1,926 | 36 | 2,599 | 2,189 | |||||||||||
Shafter | 2,610 | 3,240 | 870 | 6,720 | 6,119 | |||||||||||
118,925 | 62,217 | 26,745 | 207,887 | 171,525 |
F-15
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
The components of acquisition and exploration costs incurred during the year are as follows:
2006 $ | 2005 $ | ||||||
Balance - Beginning of year | 171,525 | 150,532 | |||||
Acquisition costs for the year | 27,638 | 1,845 | |||||
Exploration costs | |||||||
Assaying | 971 | 1,035 | |||||
Camp costs | 4,370 | 2,780 | |||||
Consulting | 2,113 | 1,020 | |||||
Drafting/engineering | 392 | 995 | |||||
Drilling | 6,283 | 4,743 | |||||
Environmental | 196 | 125 | |||||
Field costs | 1,073 | 2,903 | |||||
Geology | 958 | 1,292 | |||||
Labour costs | 4,044 | 2,229 | |||||
Legal | 160 | 323 | |||||
Maps and prints | 287 | 20 | |||||
Property holding costs | 1,481 | 635 | |||||
Value added tax | (84 | ) | 1,138 | ||||
Exploration costs for the year | 22,244 | 19,238 | |||||
Property costs associated with future income taxes | 7,718 | 282 | |||||
Mineral property costs written-off | (101 | ) | (372 | ) | |||
Disposal of mineral property relating to sale of joint venture interest | (21,137 | ) | - | ||||
Balance - End of year | 207,887 | 171,525 |
a) | Diablillos, Argentina |
We own a 100% interest in the mineral rights for the Diablillos silver-gold project located in the province of Salta in north-western Argentina.
b) | Manantial Espejo, Argentina |
We sold our 50% interest in the Manantial Espejo property located in Santa Cruz province in southern Argentina in 2006 for a net gain of $32,289,000 (note 5).
F-16
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
c) | Pirquitas, Argentina |
We own a 100% interest in the surface and mineral rights for the Pirquitas silver property in the province of Jujuy in northern Argentina. In October 2006, a production decision was made on this property. The mine is estimated to require 21 to 24 months to construct at a planned cost of US $146 million, plus value added tax. We spent $1,829,200 during the year on construction, including engineering and the purchase of pipes for the gas pipeline, with a further $1,298,000 spent on the purchase of mobile equipment.
d) | Bowdens, Australia |
We own a 100% interest in the Bowdens project in New South Wales, Australia. There is a commitment to pay the original vendor of the property AUS$1,500,000 on the commencement of production, and grant a 2% net smelter return royalty up to US$5,000,000 and 1% thereafter. These obligations are collateralized by certain properties in the Bowdens project.
e) | Silvertip, Canada |
We own a 100% interest in the Silvertip project located in northern British Columbia, Canada. There is a 5% net profits royalty on certain of the non-core claims on the property.
f) | Snowfield, Canada |
We own a 100% interest in the Snowfield project located in British Columbia, Canada. The project is contiguous with the silver-gold Sulphurets project.
g) | Sulphurets, Canada |
We own a 100% interest in the Sulphurets project located in British Columbia, Canada. There is a 1.2% net smelter returns royalty on production in excess of current resources of silver and gold already contained in the property.
h) | Sunrise Lake, Canada |
We own a 100% interest in the Sunrise Lake deposit in Canada’s Northwest Territories. The property is subject to a 5% net profits royalty interest.
i) | Challacollo, Chile |
We own 100% of the Challacollo silver project in northern Chile, which is subject to (i) a 2% production royalty capped at US$850,000 and; (ii) a 2% production royalty increasing to 3% once the production royalty in (i) is fully paid. The 3% production royalty can be acquired at any time for a total of US$1,500,000.
F-17
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
j) | Pitarrilla, Mexico |
The company owns a 100% interest in the Pitarrilla property located in the State of Durango, Mexico. The property is subject to a finder’s fee of the greater of (a) US$5,000 and (b) 2% of direct exploration, payable every six months. There is also a 0.25% net smelter returns royalty applicable to all gold and silver produced from the property. The maximum amount payable under the finder’s fee and net smelter royalty is US$500,000.
k) | San Marcial, Mexico |
We own a 100% interest in the San Marcial silver property in Sinola State, Mexico. The property is subject to a US$100,000 payment upon commencement of commercial production and a 3% net smelter returns royalty, provided that each 1% of the royalty can be acquired for US$600,000.
l) | Veta Colorada, Mexico |
In November 2005, we announced agreements to acquire a 100% interest in the Veta Colorada silver property located in the State of Chihuahua, Mexico. Under the agreements, we will pay the vendors a total of US$3,500,000, subject to a due diligence review. To December 31, 2005, we paid US$170,000 in non-refundable payments to the vendors and in 2006 we completed the acquisition with a cash payment of $3,300,000 plus US$495,000 of IVA, which is refundable. The property is subject to a 1% net smelter returns royalty.
m) | Berenguela, Peru |
In early 2006, we completed the acquisition of a 100% interest in the Berenguela property located in the province of Lampa in southern Peru. The consideration paid was US$2,000,000 in cash (of which US$600,000 was paid in 2005), 530,504 of our common shares with a fair value of $9,814,000 (US$8,000,000) and the grant of a 2% net smelter returns royalty on copper produced from the property to a maximum of US$3,000,000.
n) | San Luis, Peru |
In September 2005, we entered into a joint venture agreement with Esperanza Silver Corporation (Esperanza) for the exploration of the San Luis property located in the Ancash Department, Peru. Under the terms of the agreement, we currently hold a 55% interest in the property, having elected to increase our initial 50% interest to 55% by funding the first US$500,000 in exploration expenditures. We completed this initial funding in 2006. Under the terms of the agreement, we will incur with Esperanza the next US$1,500,000 of exploration expenditures in proportion to our respective interests. To the end of 2006, US$1,355,000 of the US$1,500,000 has been spent. Once US$1,500,000 has been expended, we can elect to increase our interest to 70% by paying all costs required to complete a feasibility study and our interest can be increased to 80% by paying all costs required to place the property into commercial production.
F-18
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
o) | Candelaria, U.S.A. |
We own a 100% interest in the Candelaria silver mine in Nevada and have lodged environmental bonding in the amount of US$1,637,000 (notes 6 and 10) relating to this property.
p) | Maverick Springs, U.S.A. |
In June 2003, we signed an exploration and development agreement with Vista Gold Corp. (Vista) in which we will have exposure to the silver resources hosted in the Maverick Springs gold-silver property in northern Nevada, U.S.A. Under the terms of the agreement, we were to contribute to Vista US$1,200,000 over a period of four years commencing from October 7, 2002, towards exploration programs, land holding costs and option payments to earn our interest. We and Vista would then enter into a joint venture agreement. At December 31, 2005, we had met our expenditure commitment to Vista and vested our interest in the property. We and Vista will now enter into a joint venture agreement governing their respective rights and obligations in respect of the property. Subsequent to October 7, 2006, Newmont Mining Corporation (Newmont) has a one time back-in right to acquire a 51% interest in the property on payment of 200% of exploration expenditures, incurred by Vista and us, and all costs to complete a feasibility study in excess of US$2,000,000. In addition, net smelter returns royalties are payable on production from the property to Newmont and the underlying property owner. Subsequent to the end of the year, Newmont’s back-in right expired unexercised.
q) | Shafter, U.S.A. |
We own a 100% interest in the Shafter silver mine located in Presidio County, Texas, U.S.A. All significant permits necessary to place the property in production are valid or in process of being renewed. There is a 6.25% royalty payable on metal production from a narrow strip of land that contains a minor amount of the mineral resource.
10 | ASSET RETIREMENT OBLIGATIONS |
During the year ended December 31, 2006, we expensed $2,131,000 (2005 - $507,000; 2004 - $252,000) in on-going, non-legally required environmental and reclamation costs, accretion of asset retirement obligations and changes in the provision for asset retirement obligations.
At December 31, 2006, $3,409,000 (2005 - $1,481,000) was recorded by us as a provision for future asset retirement obligation expenses for its various mineral properties, of which $1,073,000 (2005 - $722,000) is considered current.
Our asset retirement obligations relate to legal obligations associated with site restoration and clean-up costs of our various mineral properties. The three properties that comprise the majority of the obligations are the Duthie and Silver Standard Mine properties located in British Columbia, Canada and the Veta Colorada property located in Mexico.
F-19
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
A reconciliation of the provision for asset retirement obligations is as follows:
2006 $ | 2005 $ | ||||||
Balance - Beginning of year | 1,481 | 1,248 | |||||
Liabilities settled during the year | (273 | ) | (241 | ) | |||
Accretion expense | 273 | 74 | |||||
Revisions and new estimated cash flows | 1,928 | 400 | |||||
Balance - End of year | 3,409 | 1,481 |
2006 $ | 2005 $ | ||||||
Balance sheet presentation | |||||||
Current portion | 1,073 | 722 | |||||
Long-term portion | 2,336 | 759 | |||||
3,409 | 1,481 |
The provision for asset retirement obligations is based on the following key assumptions:
· | asset retirement obligation payments over the next five years are estimated as follows: 2007 - $1,073,000; 2008 - $681,000; 2009 - $565,000; 2010 - $375,000; 2011 - $186,000. |
· | total undiscounted cash flows of $4,905,000 (2005 - $2,183,000). |
· | expected timing of payments is over the years 2007 to 2017 (2005 - 2006 to 2016). |
· | a credit adjusted risk-free rate at which the estimated payments have been discounted at 10% (2005 - 10%). |
At December 31, 2006, we have lodged $2,104,000 (2005 - $1,882,000) in security deposits with various government agencies in relation to our reclamation obligations. Of the amount lodged, $196,000 (2005 - $190,000) is in the form of cash deposits and $1,908,000 (2005 - $1,692,000) is in the form of a letter of credit. In 2006, the letter of credit was collaterized by the lodging of U.S. dollars and in 2005 the letter of credit was collaterized by the lodging of silver bullion (note 6).
F-20
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
11 | SHARE CAPITAL |
Number of shares | Amount $ | ||||||
Authorized | |||||||
Unlimited common shares, no par value | |||||||
Issued | |||||||
Balance - December 31, 2003 | 42,604,832 | 113,537 | |||||
Issued during the year | |||||||
For cash | |||||||
Private placement (b) | 2,955,000 | 37,132 | |||||
Exercise of options (note 12) | 525,700 | 2,963 | |||||
Exercise of warrants (note 13) | 2,686,620 | 13,420 | |||||
Finder’s fees on private placement (b) | 31,250 | 393 | |||||
For mineral property | 2,680,500 | 50,089 | |||||
Value of options exercised (note 12) | - | 691 | |||||
Adjustment (note 3) | - | 335 | |||||
Share subscriptions | 92,900 | 455 | |||||
Share issue costs (b) | - | (1,513 | ) | ||||
Balance - December 31, 2004 | 51,576,802 | 217,502 | |||||
Issued during the year | |||||||
For cash | |||||||
Exercise of options (note 12) | 259,269 | 1,610 | |||||
Exercise of warrants (note 13) | 10,000 | 185 | |||||
For mineral property | 3,170 | 45 | |||||
Value of options exercised (note 12) | - | 583 | |||||
Value of warrants exercised | - | 46 | |||||
Balance - December 31, 2005 | 51,849,241 | 219,971 | |||||
Issued during the year | |||||||
For cash | |||||||
Public offering (a) | 7,200,000 | 182,663 | |||||
Exercise of options (note 12) | 668,750 | 6,548 | |||||
Exercise of warrants (note 13) | 1,386,625 | 25,652 | |||||
For mineral property | 530,504 | 9,814 | |||||
Value of options exercised (note 12) | - | 2,583 | |||||
Value of warrants exercised | - | 6,400 | |||||
Donations | 11,000 | 230 | |||||
Share issue costs | - | (11,596 | ) | ||||
Balance - December 31, 2006 | 61,646,120 | 442,265 |
a) | On May 16, 2006, we closed a public offering of 7.2 million common shares for gross proceeds of $182,663,000. The price received was $25.37 (US $23.00) per share. After deducting underwriting fees and offering expenses of $11,596,000, net proceeds were $171,067,000. |
F-21
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
b) | In January 2004, we issued 2,955,000 units at $14.80 per unit for gross proceeds of $43,951,000, which were assigned to the components of the units: $37,132,000 to shares and $6,819,000 to warrants. Each unit consisted of one common share and one-half of one common share purchase warrant. Each whole warrant is exercisable, upon payment of $18.50, into one common share until January 15, 2006. The company issued an additional 31,250 units valued at $465,000, which were assigned $393,000 to shares and $72,000 to warrants, issued 26,000 warrants valued at $120,000, and paid $928,000 in cash as finder’s fees and other costs relating to this placement for total share issue costs of $1,513,000. |
12 | STOCK OPTIONS |
The changes in values assigned to stock options are as follows:
2006 $ | 2005 $ | 2004 $ | ||||||||
Values at January 1 | 9,778 | 6,167 | 171 | |||||||
Adjustment for stock-based compensation (note 3) | - | - | 4,169 | |||||||
Values of options issued | 13,686 | 4,194 | 2,518 | |||||||
Values of options exercised | (2,583 | ) | (583 | ) | (691 | ) | ||||
Values of options forfeited or expired | (83 | ) | - | - | ||||||
Values at December 31 | 20,798 | 9,778 | 6,167 |
The company has a comprehensive stock option plan for its employees, directors, officers and self-employed consultants. The plan provides for the issuance of incentive options to acquire up to a total of 8% of the issued and outstanding common shares of the company. The exercise price of each option shall not be less than the closing market price of the company’s stock on the award date. The options can be granted for a maximum term of 5 years with vesting provisions determined by the company. Currently, the vesting periods range up to three years. New shares from treasury are issued on the exercise of stock options.
The changes in stock options issued are as follows:
F-22
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
2006 | 2005 | 2004 | |||||||||||||||||
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 | 2,613,200 | 12.85 | 1,889,969 | 10.26 | 1,845,669 | 7.37 | |||||||||||||
Granted | 2,551,500 | 29.30 | 982,500 | 16.52 | 570,000 | 15.36 | |||||||||||||
Exercised | (668,750 | ) | 9.79 | (259,269 | ) | 6.21 | (525,700 | ) | 5.64 | ||||||||||
Forfeited | (30,000 | ) | 16.73 | - | - | ||||||||||||||
Expired | (10,000 | ) | 20.50 | - | - | ||||||||||||||
Options outstanding at December 31 | 4,455,950 | 22.68 | 2,613,200 | 12.85 | 1,889,969 | 10.26 | |||||||||||||
Options exercisable at December 31 | 2,253,200 | 24.48 | 1,881,950 | 11.68 | 1,628,719 | 9.49 |
As of December 31, 2006, incentive stock options represent 7.2% (2005 - 5.0%) of issued and outstanding common capital. The aggregate intrinsic value of vested share options (the market value less the exercise value) at December 31, 2006 was $34,750,000.
During 2005, 95,000 stock options previously granted at exercise prices of $18.42 and $20.01 were re-priced at $14.47. A further 20,000 in stock options set to expire during the year were extended three years on the same terms as the original grant. The modifications of the terms of the awards have been treated as if it were an exchange of the original award for a new award. The incremental fair value of the re-priced award was $134,000 and the fair value of the extended award was $103,000. The following table summarizes information about stock options outstanding and exercisable at December 31, 2006:
Exercise price $ | Options outstanding | Options exercisable | Expiry date | Weighted average remaining contractual life (years) | ||||
4.25 | 15,400 | 15,400 | January 1, 2007 | 0.0 | ||||
8.00 | 170,400 | 170,400 | August 2, 2007 | 0.6 | ||||
9.10 | 252,650 | 252,650 | January 31, 2008 | 1.1 | ||||
18.12 | 10,000 | 10,000 | February 17, 2008 | 1.1 | ||||
12.85 | 180,000 | 180,000 | December 22, 2008 | 2.0 | ||||
14.47 | 25,000 | 25,000 | September 16, 2009 | 2.7 | ||||
14.47 | 32,500 | 32,500 | October 4, 2009 | 2.8 | ||||
14.47 | 387,500 | 387,500 | December 31, 2009 | 3.0 | ||||
14.00 | 70,000 | 70,000 | May 12, 2010 | 3.4 | ||||
16.73 | 791,000 | 337,250 | December 20, 2010 | 4.0 | ||||
18.73 | 40,000 | 10,000 | January 19, 2011 | 4.1 | ||||
21.30 | 926,500 | - | July 27, 2011 | 4.6 | ||||
24.31 | 50,000 | 25,000 | September 22, 2011 | 4.7 | ||||
27.78 | 90,000 | 30,000 | November 7, 2011 | 4.9 | ||||
35.34 | 1,415,000 | 707,500 | December 12, 2011 | 5.0 | ||||
22.68 | 4,455,950 | 2,253,200 | 3.9 |
F-23
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
During the year ended December 31, 2006, 2,551,500 (2005 - 982,500) options were granted to employees, directors and consultants at a weighted average strike price of $29.30 (2005 - $16.52) and average fair value of $11.39 (2005 - $5.91) per option based on the Black-Scholes option pricing model. We amortize the fair value of stock options on a straight-line basis over the respective vesting period of the stock options. The fair value of options that was charged to the statements of earnings (loss) and deficit was $12,935,000 in the current year (2005 - $4,035,000; 2004 - $2,451,000) with an additional $751,000 (2005 - $159,000; 2004 - $67,000) value deferred as mineral property costs. Of the amount charged to the statements of earnings (loss) and deficit in 2006, $2,981,000 (2005 - $567,000; 2004 - $668,000) was allocated to general and administration relating to consultants and directors and $9,954,000 (2005 - $3,468,000; 2004 - $1,783,000) was allocated to employee salaries and benefits. The assigned value of options exercised during the year that have been credited to share capital was $2,583,000 (2005 - $583,000; 2004 - $691,000). At December 31, 2006, the non-vested stock option expense not yet recognized was $17,861,000 and this expense is expected to be recognized over the next 2.5 years. The intrinsic value of options exercised (the market value less the exercise price value on the date of exercise) was $9,884,000 in 2006.
The fair value of stock options for all options issued, repriced or extended was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions:
2006 | 2005 | 2004 | ||||
Expected dividend yield (%) | Nil | Nil | Nil | |||
Average risk-free interest rate (%) | 4.0 | 3.7 | 3.2 | |||
Expected life (years) | 3.3 | 2.8 | 2.7 | |||
Expected volatility (%) | 47 | 51 | 74 |
Option pricing models require the input of highly subjective assumptions. The expected life of the options considered such factors as the average length of time similar option grants in the past have remained outstanding prior to exercise and the vesting period of the grants. Volatility was estimated based upon historical price observations over the expected term. Changes in the subjective input assumptions can materially affect the estimated fair value of the options.
13 | WARRANTS |
The changes in warrants outstanding are as follows:
2006 | 2005 | 2004 | ||||||||||
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 | 1,509,125 | 18.50 | 1,519,125 | 18.50 | 2,779,520 | 4.99 | ||||||
Granted | - | - | - | - | 1,519,125 | 18.50 | ||||||
Exercised | (1,386,625) | 18.50 | (10,000) | 18.50 | (2,779,520) | 4.99 | ||||||
Expired | (122,500) | 18.50 | - | - | - | - | ||||||
Warrants outstanding at December 31 | - | 1,509,125 | 18.50 | 1,519,125 | 18.50 |
F-24
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
14 | RELATED PARTY TRANSACTIONS |
During the year ended December 31, 2006, we recorded administrative, technical services and expense reimbursements of $363,000 (2005 - $277,000; 2004 - $235,600) from companies related by common directors or officers. At December 31, 2006, accounts receivable include $49,000 (2005 - $77,000) from these related parties. Any amounts due from related parties are non-interest bearing and without specific terms of repayment. Any transactions for expense reimbursement with related parties are at normal business terms.
15 | INCOME TAXES |
a) | The income taxes shown on the consolidated statements of earnings (loss) and deficit differ from the amounts obtained by applying statutory rates due to the following: |
2006 | 2005 | 2004 | ||||
Statutory tax rate | 34.1% | 34.9% | 35.6% | |||
$ | $ | $ | ||||
Earnings (loss) for the year before taxes | 16,382 | (5,870) | (1,518) | |||
Provision for income taxes based on statutory rates | 5,590 | (2,047) | (540) | |||
Differences in foreign tax rates | (10) | (104) | (4) | |||
Tax benefits not recognized and other | (5,580) | 2,151 | 544 | |||
- | - | - |
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 our future tax assets and liabilities as of December 31 are as follows: |
F-25
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
2006 $ | 2005 $ | ||||||
Long-term future tax assets | |||||||
Property, plant and equipment and resource properties | 23,320 | 20,210 | |||||
Capital and non-capital loss carry-forwards | 16,986 | 16,450 | |||||
Foreign resource pools | 7,446 | 6,544 | |||||
Share issuance costs | 3,133 | 247 | |||||
Marketable securities | 1,082 | - | |||||
Other | 205 | - | |||||
Total future tax assets | 52,172 | 43,451 | |||||
Long-term future tax liabilities | |||||||
Future income tax liability for resource properties | (58,305 | ) | (46,097 | ) | |||
Valuation allowance for future tax assets (i) | (20,612 | ) | (19,193 | ) | |||
Future income tax liability | (26,745 | ) | (21,839 | ) |
(i) | Future tax assets have been recognized to the extent the future taxable amounts related to taxable temporary differences for which a future tax liability is recognized can be offset. We believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2006. |
c) | At December 31, the company has the following estimated operating losses: |
2006 $ | 2005 $ | ||||||
Argentina | 9,400 | 9,200 | |||||
Australia | 9,500 | 8,200 | |||||
Canada | 2,600 | 8,900 | |||||
Chile | 64 | 67 | |||||
Mexico | 21,000 | 11,000 | |||||
Peru | 479 | 210 | |||||
U.S.A. | 10,000 | 8,700 |
The operating losses expire between 2007 to 2026, with the exception of those for Chile and Australia which are available indefinitely to reduce future taxable income.
The company has capital losses in Canada of $3,473,000 (2005 - $3,473,000), which are available indefinitely, but can only be utilized against future taxable capital gains.
F-26
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
16 | SUPPLEMENTARY CASH FLOW INFORMATION |
During the years ended December 31, 2006, 2005 and 2004, we conducted non-cash financing and investing activities as set out below. Non-cash operating activities are not presented.
2006 $ | 2005 $ | 2004 $ | ||||||||
Non-cash financing activities | ||||||||||
Shares issued for mineral properties | 9,814 | 45 | 50,089 | |||||||
Shares acquired for mineral property | (250 | ) | - | (911 | ) | |||||
Shares issued for donations | 230 | - | - | |||||||
Non-cash investing activities | ||||||||||
Mineral properties acquired through issuance of shares | (9,814 | ) | (45 | ) | (50,089 | ) | ||||
Shares acquired for mineral properties | 250 | - | 911 |
No income taxes or interest was paid in 2006, 2005 or 2004.
17 | SEGMENTED FINANCIAL INFORMATION |
We have one operating segment, which is the exploration and development of mineral properties. Mineral property expenditures by property are detailed in note 9. Substantially all of our earnings or losses for the years ended December 31, 2006, 2005 and 2004 were incurred in Canada. Segmented assets by geographic location are as follows:
2006 | |||||||||||||||||||||||||
Argentina $ | Australia $ | Canada $ | Chile $ | Mexico $ | Peru $ | United States $ | Total $ | ||||||||||||||||||
Mineral property costs and property, plant and equipment | 91,777 | 22,532 | 9,828 | 6,183 | 42,098 | 24,036 | 15,532 | 211,986 |
2005 | |||||||||||||||||||||||||
Argentina $ | Australia $ | Canada $ | Chile $ | Mexico $ | Peru $ | United States $ | Total $ | ||||||||||||||||||
Mineral property costs and property, plant and equipment | 104,283 | 21,608 | 7,581 | 5,740 | 15,565 | 4,671 | 14,114 | 173,562 |
F-27
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
18 | COMMITMENTS |
We have committed to payments under operating leases for the rental of our corporate head office space in Vancouver. The future minimum payments are $274,000 in 2007 and $67,000 in 2008.
19 | FINANCIAL INSTRUMENTS |
a) | Fair value |
The estimated fair values of cash and cash equivalents, accounts receivable, restricted cash, value added tax recoverable, and accounts payable and accrued liabilities represent their fair value unless otherwise disclosed. The fair value of marketable securities is disclosed in note 7 and the fair value of silver bullion is disclosed in note 6.
b) | Foreign exchange risk |
Foreign exchange risk arises from changes in foreign currency fluctuations. We do not use any derivative instruments to reduce our exposure to fluctuations in foreign currency exchange rates.
c) | Credit risk |
Financial instruments that potentially subject the company to credit risk consist of cash and cash equivalents and accounts receivable. We deposit cash and cash equivalents in high credit quality financial instruments. We have no security or collateral for funds held in these financial instruments.
20 | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) |
a) | We prepare our consolidated financial statements in accordance with accounting principles generally accepted in Canada (Canadian GAAP), which differ in certain respects from those principles that we would have followed had our consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States and requirements promulgated by the Securities and Exchange Commission (SEC) (collectively U.S. GAAP). The major 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 exploration and development expenditures are deferred. SEC staff have interpreted U.S. GAAP to require that mineral property exploration and land use costs must be expensed as incurred, until commercially mineable deposits are determined to exist within a particular property, as cash flows cannot be reasonably estimated prior to such determination. Accordingly, for U.S. GAAP purposes, for all periods presented, we have expensed all land use costs for mineral properties and deferred exploration costs that have been incurred by us, for which commercially mineable revenues do not exist. When proven and probable reserves are determined for a property and a final feasibility study prepared, any subsequent exploration and development costs of the property would be capitalized. Once in production, any subsequent development costs would be treated as production costs charged to production. In early April 2006, a Feasibility Study Update for our Pirquitas property was completed. This study defined proven and probable reserves and, as a consequence, exploration and development costs relating to this property from March 31, 2006 have been deferred under U.S. GAAP. |
F-28
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
For Canadian GAAP, cash flows relating to mineral property exploration and land use costs are reported as investing activities. For U.S. GAAP, these costs would be characterized as operating activities.
ii) | Under U.S. GAAP, securities that are available-for-sale are recorded at fair value and unrealized gains or losses are included as part of comprehensive income. An impairment on available-for-sale securities is recorded in income if such loss is determined to be other than temporary. Under Canadian GAAP, marketable securities are valued at the lower of cost and market with any write-down recorded as a charge to earnings. |
iii) | Under Canadian GAAP, before the introduction of Canadian Institute of Chartered Accountants (CICA) 1581, “Business Combinations”, the fair value of shares issued by an acquirer to effect a business combination was based on the quoted market price of shares at the date of acquisition. Under U.S. GAAP, the fair value of shares issued is based on the market price surrounding the date the business combination agreement is agreed to and announced. |
iv) | 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. |
v) | For U.S. GAAP purposes, we previously accounted for employee stock-based compensation arrangements using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, since stock options are granted at exercise prices that are at or above the quoted market value of our common shares at the date of grant, there is no compensation cost recognized by the company for options granted to employees. We adopted the fair value based method of accounting for employee stock-based compensation under U.S. GAAP effective January 1, 2005 using the modified prospective transition method. Under this method, we recognized employee stock-based compensation beginning January 1, 2005 as if the fair value method had been used to account for all employee awards granted, modified, or settled in fiscal years beginning after December 15, 1994. Results of prior years have not been restated. |
For Canadian GAAP purposes, we adopted, as of January 1, 2004, the CICA’s amendments to Section 3870, “Stock-Based Compensation and other Stock-Based Payments”, which required the fair value method to be applied to employee stock-based compensation.
F-29
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Effective January 1, 2006, we adopted Statement of Financial Accounting Standard (SFAS) No. 123R, “Share Based Payment” for all employee stock-based awards granted, modified or settled after the effective date using the fair value measurement method. Compensation cost is recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period. For unvested awards outstanding as of the effective date, compensation will be recognized based upon the grant-date fair value determined under SFAS No. 123 “Accounting for Stock-Based Compensation”. Upon adoption of SFAS 123R using the modified prospective method, there was no cumulative affect adjustment required and no differences exist between the accounting for employee stock-based compensation expense in 2006 between Canadian and U.S. GAAP.
b) Consolidated summarized balance sheets:
2006 | 2005 | ||||||||||||||||||||||||||||
Canadian GAAP $ | Adjustments $ | U.S. GAAP $ | Canadian GAAP $ | Adjustments $ | U.S. GAAP $ | ||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Current assets (a)ii) | 255,596 | 29,800 | 285,396 | 43,844 | 10,102 | 53,946 | |||||||||||||||||||||||
Mineral property costs (a)i) | 207,887 | (203,858 | ) | 4,029 | 171,525 | (171,525 | ) | - | |||||||||||||||||||||
Other assets | 7,530 | - | 7,530 | 3,919 | - | 3,919 | |||||||||||||||||||||||
471,013 | (174,058 | ) | 296,955 | 219,288 | (161,423 | ) | 57,865 | ||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Current liabilities | 5,362 | - | 5,362 | 3,500 | - | 3,500 | |||||||||||||||||||||||
Other liabilities | 29,081 | (26,745 | ) | 2,336 | 22,598 | (21,839 | ) | 759 | |||||||||||||||||||||
34,443 | (26,745 | ) | 7,698 | 26,098 | (21,839 | ) | 4,259 | ||||||||||||||||||||||
Shareholders’ Equity | |||||||||||||||||||||||||||||
Share capital (a)iii) | 442,265 | (1,198 | ) | 441,067 | 219,971 | (1,198 | ) | 218,773 | |||||||||||||||||||||
Stock options (a)v) | 20,798 | (5,459 | ) | 15,339 | 9,778 | (5,459 | ) | 4,319 | |||||||||||||||||||||
Warrants | - | - | - | 6,965 | - | 6,965 | |||||||||||||||||||||||
Contributed surplus | 649 | - | 649 | - | - | - | |||||||||||||||||||||||
Accumulated other comprehensive income (a)ii) | - | 29,800 | 29,800 | - | 10,102 | 10,102 | |||||||||||||||||||||||
Deficit (a)i) and (a)iii) | (27,142 | ) | (170,456 | ) | (197,598 | ) | (43,524 | ) | (143,029 | ) | (186,553 | ) | |||||||||||||||||
436,570 | (147,313 | ) | 289,257 | 193,190 | (139,584 | ) | 53,606 | ||||||||||||||||||||||
471,013 | (174,058 | ) | 296,955 | 219,288 | (161,423 | ) | 57,865 |
F-30
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
c) | Consolidated summarized statements of loss: |
2006 $ | 2005 $ | 2004 $ | ||||||||
Earnings (loss) in accordance with Canadian GAAP | 16,382 | (5,870 | ) | (1,518 | ) | |||||
Mineral property costs for the year (a)i) | (45,671 | ) | (21,083 | ) | (62,560 | ) | ||||
Mineral property costs written-off during the year (a)i) | 101 | 372 | - | |||||||
Stock-based compensation (a)v) | - | - | 2,398 | |||||||
Gain on sale of joint venture interest | 18,143 | - | - | |||||||
Loss in accordance with U.S. GAAP | (11,045 | ) | (26,581 | ) | (61,680 | ) | ||||
Other comprehensive income (a)ii) | ||||||||||
Unrealized gain (loss) on available-for-sale securities (a)ii) | 17,083 | 9,583 | (2,955 | ) | ||||||
Reclassification adjustments for realized (gain) loss on available-for-sale securities | 2,615 | (2,274 | ) | (2,525 | ) | |||||
Total comprehensive earnings (loss) in accordance with U.S. GAAP | 8,653 | (19,272 | ) | (67,160 | ) | |||||
Basic and diluted loss per share in accordance with U.S. GAAP | (0.19 | ) | (0.51 | ) | (1.28 | ) |
Basic and diluted weighted-average common shares (000’s) | 58,652 | 51,683 | 48,311 |
d) | Consolidated summarized statements of cash flows: |
2006 $ | 2005 $ | 2004 $ | ||||||||
Cash flows from operating activities | ||||||||||
Pursuant to Canadian GAAP | (3,827 | ) | (2,951 | ) | (2,506 | ) | ||||
Mineral property costs (a)i) | (35,980 | ) | (20,933 | ) | (12,796 | ) | ||||
Pursuant to U.S. GAAP | (39,807 | ) | (23,884 | ) | (15,302 | ) | ||||
Cash flows from investing activities | ||||||||||
Pursuant to Canadian GAAP | 7,146 | (21,517 | ) | (27,625 | ) | |||||
Mineral property costs (a)i) | 35,980 | 20,933 | 12,796 | |||||||
Pursuant to U.S. GAAP | 43,126 | (584 | ) | (14,829 | ) |
F-31
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
e) | Other disclosures |
The following additional information would be presented if these consolidated financial statements were presented in accordance with U.S. GAAP:
i) Accounts receivable
2006 $ | 2005 $ | |
Value added tax | 2,233 | 786 |
Other receivables | 1,513 | 452 |
3,746 | 1,238 |
ii) Pro-forma stock-based compensation disclosures
We adopted the fair value method of valuing stock options granted to employees on January 1, 2005. Had we recognized employee stock-based compensation expense under the fair value method based on the fair value of awards at the grant date consistent with the provisions of Statement of Financial Accounting Standards No. 123, the company’s loss and loss per share under U.S. GAAP would have been as follows:
2006 $ | 2005 $ | 2004 $ | ||||||||
Loss in accordance with U.S. GAAP | (11,045 | ) | (26,581 | ) | (61,680 | ) | ||||
Add: Employee stock-based compensation expense included in reported earnings (loss) | 12,534 | 3,838 | - | |||||||
Deduct: Employee stock-based compensation expense determined under the fair value method | (12,534 | ) | (3,838 | ) | (2,330 | ) | ||||
Pro-forma loss under U.S. GAAP | (11,045 | ) | (26,581 | ) | (64,010 | ) | ||||
Pro forma basic and diluted loss per share in accordance with U.S. GAAP | (0.19 | ) | (0.51 | ) | (1.32 | ) |
The fair value of each option granted to employees was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
2006 | 2005 | 2004 | ||||
Expected dividend yield (%) | Nil | Nil | Nil | |||
Average risk-free interest rate (%) | 4.1 | 3.8 | 3.2 | |||
Expected life (years) | 3.4 | 2.9 | 2.7 | |||
Expected volatility (%) | 49.4 | 50.4 | 74.0 |
F-32
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
The weighted average fair value of options granted to employees for the year ended December 31, 2006 was $11.55 (2005 - $5.89; 2004 - $7.41).
iii) Development stage enterprise
We meet the definition of a development stage enterprise under Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises. The following additional disclosures are required under U.S. GAAP:
Consolidated summarized statements of loss and deficit and cash flows since October 1, 1993, the date we made a strategic decision to concentrate on the acquisition and exploration of bulk silver mineral properties in North, Central and South America.
Consolidated loss and deficit:
Period from October 1, 1993 (inception) to December 31, 2006 $ | |
Mineral property exploration and reclamation | 223,460 |
General and administration, salaries, professional fees | 44,532 |
Other income | (69,418) |
Net loss for the period from October 1, 1993 to December 31, 2006, being the deficit accumulated during the development stage | 198,574 |
Opening retained earnings, October 1, 1993 | (976) |
Ending deficit, December 31, 2006 | 197,598 |
Consolidated cash flows:
Period from October 1, 1993 (inception) to December 31, 2006 $ | |
Operating activities | (150,438) |
Investing activities | 22,231 |
Financing activities | 356,692 |
Increase in cash and cash and cash equivalents | 228,485 |
Cash and cash equivalents - October 1, 1993 | 1,131 |
Cash and cash equivalents - December 31, 2006 | 229,616 |
F-33
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
iv) Additional shareholders’ equity disclosure required under FAS No. 7.
Common Shares | Values | Values | Other Compre- hensive | Retained | Total | ||||||||||||||||||||
Issue Price | Number of shares | Amount | assigned to options | assigned to warrants | income (loss) | earnings (deficit) | shareholders’ equity | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Balance - October 1, 1993 | 3,409,791 | 2,272 | - | - | - | 976 | 3,248 | ||||||||||||||||||
Issued for cash | 0.75 | 2,810,000 | 2,108 | - | - | - | - | 2,108 | |||||||||||||||||
For mineral properties | 0.72 | 25,000 | 18 | - | - | - | - | 18 | |||||||||||||||||
Assigned value to options issued | - | 312 | - | - | - | - | 312 | ||||||||||||||||||
Gain (loss) for year | - | - | - | - | 2,102 | 155 | 2,257 | ||||||||||||||||||
Balance - September 30, 1994 | 6,244,791 | 4,710 | - | - | 2,102 | 1,131 | 7,943 | ||||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Private placement | 1.01 | 2,570,000 | 2,590 | - | - | - | - | 2,590 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 4.13 | 15,000 | 62 | - | - | - | - | 62 | |||||||||||||||||
- Allotted shares issued | 4.08 | 75,000 | 306 | - | - | - | - | 306 | |||||||||||||||||
- Assigned values to options issued | - | 18 | - | - | - | - | 18 | ||||||||||||||||||
Gain (loss) for year | - | - | - | - | (1,046 | ) | (2,459 | ) | (3,505 | ) | |||||||||||||||
Balance - September 30, 1995 | 8,904,791 | 7,686 | - | - | 1,056 | (1,328 | ) | 7,414 | |||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Private placement | 4.27 | 2,550,000 | 10,890 | - | - | - | - | 10,890 | |||||||||||||||||
- Special warrants | 4.00 | 2,000,000 | 8,000 | - | - | - | - | 8,000 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 5.21 | 85,000 | 443 | - | - | - | - | 443 | |||||||||||||||||
- Finder’s fees | - | (554 | ) | - | - | - | - | (554 | ) | ||||||||||||||||
- Assigned values to options issued | - | 17 | - | - | - | - | 17 | ||||||||||||||||||
Gain (loss) for year | - | - | - | - | (58 | ) | (8,874 | ) | (8,932 | ) | |||||||||||||||
Balance December 31, 1996 | 13,539,791 | 26,482 | - | - | 998 | (10,202 | ) | 17,278 | |||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Private placement | 5.00 | 680,000 | 3,400 | - | - | - | - | 3,400 | |||||||||||||||||
- Exercise of options | 5.72 | 25,000 | 143 | - | - | - | - | 143 | |||||||||||||||||
- For special warrants | 4.30 | 745,000 | 3,203 | - | - | - | - | 3,203 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 4.95 | 311,006 | 1,541 | - | - | - | - | 1,541 | |||||||||||||||||
- Finder’s fees | 5.00 | 20,000 | 100 | - | - | - | - | 100 | |||||||||||||||||
- Assigned values to options issued | - | 810 | - | - | - | - | 810 | ||||||||||||||||||
- Share issue costs | - | (317 | ) | - | - | - | - | (317 | ) | ||||||||||||||||
Gain (loss) for year | - | - | - | - | (537 | ) | (18,557 | ) | (19,094 | ) | |||||||||||||||
Balance December 31, 1997 | 15,320,797 | 35,362 | - | - | 461 | (28,759 | ) | 7,064 | |||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Exercise of options | 5.70 | 10,000 | 57 | - | - | - | - | 57 | |||||||||||||||||
- For special warrants | 5.50 | 630,000 | 3,465 | - | - | - | - | 3,465 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 3.84 | 85,000 | 326 | - | - | - | - | 326 | |||||||||||||||||
- Assigned values to options issued | - | 155 | - | - | - | - | 155 | ||||||||||||||||||
- Share issue costs | - | (285 | ) | - | - | - | - | (285 | ) | ||||||||||||||||
Gain (loss) for year | - | - | - | - | (454 | ) | (6,386 | ) | (6,840 | ) | |||||||||||||||
Balance December 31, 1998 | 16,045,797 | 39,080 | - | - | 7 | (35,145 | ) | 3,942 |
F-34
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Common Shares | Values | Values | Compre- hensive | Retained | Total | ||||||||||||||||||||
Issue Price | Number of shares | Amount | assigned to options | assigned to warrants | income (loss) | earnings (deficit) | shareholders’ equity | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Private placement | 1.40 | 1,388,144 | 1,944 | - | - | - | - | 1,944 | |||||||||||||||||
- Exercise of options | 1.75 | 100,700 | 176 | - | - | - | - | 176 | |||||||||||||||||
- Exercise of warrants | 1.93 | 567,955 | 1,096 | - | - | - | - | 1,096 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 2.20 | 50,000 | (1,033 | ) | - | - | - | (1,033 | ) | ||||||||||||||||
- On business combination | 1.75 | 2,285,451 | 5,142 | - | - | - | - | 5,142 | |||||||||||||||||
- Share issue costs | - | (116 | ) | - | - | - | - | (116 | ) | ||||||||||||||||
Gain (loss) for year | - | - | - | - | 8 | (8,672 | ) | (8,664 | ) | ||||||||||||||||
Balance - December 31, 1999 | 20,438,047 | 46,289 | - | - | 15 | (43,817 | ) | 2,487 | |||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Private placement | 1.50 | 1,633,334 | 2,450 | - | - | - | - | 2,450 | |||||||||||||||||
- Exercise of options | 1.75 | 807,100 | 1,413 | - | - | - | - | 1,413 | |||||||||||||||||
- Exercise of warrants | 1.60 | 1,273,859 | 2,038 | - | - | - | - | 2,038 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 2.22 | 27,500 | 61 | - | - | - | - | 61 | |||||||||||||||||
- Finder’s fees | 1.50 | 86,666 | 130 | - | - | - | - | 130 | |||||||||||||||||
- Fractional shares repurchased | (48 | ) | - | - | - | - | - | - | |||||||||||||||||
- Share issue costs | - | (134 | ) | - | - | - | - | (134 | ) | ||||||||||||||||
Gain (loss) for year | - | - | - | - | (13 | ) | (5,777 | ) | (5,790 | ) | |||||||||||||||
Balance - December 31, 2000 | 24,266,458 | 52,247 | - | - | 2 | (49,594 | ) | 2,655 | |||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Private placement | 2.35 | 1,914,000 | 4,495 | - | - | - | - | 4,495 | |||||||||||||||||
- Exercise of options | 2.05 | 1,941,225 | 3,976 | - | - | - | - | 3,976 | |||||||||||||||||
- Exercise of warrants | 1.56 | 1,733,000 | 2,703 | - | - | - | - | 2,703 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 2.88 | 1,000,000 | 2,882 | - | - | - | - | 2,882 | |||||||||||||||||
- Finder’s fees | 2.35 | 59,270 | 139 | - | - | - | - | 139 | |||||||||||||||||
- Assigned value to warrants issued | - | - | - | 326 | - | - | 326 | ||||||||||||||||||
- Share issue costs | - | (165 | ) | - | - | - | - | (165 | ) | ||||||||||||||||
Gain (loss) for year | - | - | - | - | - | (15,317 | ) | (15,317 | ) | ||||||||||||||||
Balance - December 31, 2001 | 30,913,953 | 66,277 | - | 326 | 2 | (64,911 | ) | 1,694 | |||||||||||||||||
Issued for cash | |||||||||||||||||||||||||
- Private placement | 4.21 | 4,750,000 | 19,979 | - | - | - | - | 19,979 | |||||||||||||||||
- Exercise of options | 2.63 | 695,734 | 1,827 | - | - | - | - | 1,827 | |||||||||||||||||
- Exercise of warrants | 3.10 | 1,584,301 | 4,919 | - | - | - | - | 4,919 | |||||||||||||||||
Non-cash | |||||||||||||||||||||||||
- Mineral properties | 6.33 | 198,706 | 1,258 | - | - | - | - | 1,258 | |||||||||||||||||
- Finder’s fees | 4.01 | 80,640 | 323 | - | - | - | - | 323 | |||||||||||||||||
- On conversion of conv. debenture | 4.80 | 360,636 | 2,092 | - | - | - | - | 2,092 | |||||||||||||||||
- For mineral properties payable | 5.49 | 596,917 | 3,280 | - | - | - | - | 3,280 | |||||||||||||||||
- Assigned values to options issued | - | - | 161 | - | - | - | 161 | ||||||||||||||||||
- Assigned value of exercised options/warrants | - | 339 | (13 | ) | (326 | ) | - | - | - | ||||||||||||||||
- Donations | 4.10 | 10,000 | 41 | - | - | - | - | 41 | |||||||||||||||||
- Share issue costs | - | (656 | ) | - | - | - | - | (656 | ) | ||||||||||||||||
Gain (loss) for year | - | - | - | - | 1,045 | (19,282 | ) | (18,237 | ) | ||||||||||||||||
Balance - December 31, 2002 | 39,190,887 | 99,679 | 148 | - | 1,047 | (84,193 | ) | 16,681 |
F-35
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
Common Shares | Values | Values | Compre- hensive | Retained | Total | |||||||||||||||||||||||
Issue Price | Number of shares | Amount | assigned to options | assigned to warrants | Contributed Surplus | income (loss) | earnings (deficit) | shareholders’ equity | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Issued for cash | ||||||||||||||||||||||||||||
- Exercise of options | 3.99 | 536,372 | 2,140 | - | - | - | - | - | 2,140 | |||||||||||||||||||
- Exercise of warrants | 3.99 | 2,779,589 | 11,089 | - | - | - | - | - | 11,089 | |||||||||||||||||||
- Subscriptions received on warrants | - | 455 | - | - | - | - | - | 455 | ||||||||||||||||||||
Non-cash | ||||||||||||||||||||||||||||
- Mineral properties | 6.95 | 88,004 | 612 | - | - | - | - | - | 612 | |||||||||||||||||||
- On settlement of interest | 7.52 | 9,980 | 75 | - | - | - | - | - | 75 | |||||||||||||||||||
- Assigned values to options issued | - | - | 187 | - | - | - | - | 187 | ||||||||||||||||||||
- Assigned value of exercised options | - | 165 | (165 | ) | - | - | - | - | - | |||||||||||||||||||
- Share issue costs | - | (54 | ) | - | - | - | - | - | (54 | ) | ||||||||||||||||||
Gain (loss) for year | - | - | - | - | - | 7,226 | (14,099 | ) | (6,873 | ) | ||||||||||||||||||
Balance - December 31, 2003 | 42,604,832 | 114,161 | 170 | - | - | 8,273 | (98,292 | ) | 24,312 | |||||||||||||||||||
Issued for cash | ||||||||||||||||||||||||||||
- Private placement | 12.57 | 2,955,000 | 37,132 | - | 6,819 | - | - | - | 43,951 | |||||||||||||||||||
- Exercise of options | 5.64 | 525,700 | 2,963 | - | - | - | - | - | 2,963 | |||||||||||||||||||
- Exercise of warrants | 5.00 | 2,686,620 | 13,420 | - | - | - | - | - | 13,420 | |||||||||||||||||||
Non-cash | ||||||||||||||||||||||||||||
- Mineral properties | 18.71 | 2,680,500 | 50,165 | - | - | - | - | - | 50,165 | |||||||||||||||||||
- Finder’s fees | 12.58 | 31,250 | 393 | - | 192 | - | - | - | 585 | |||||||||||||||||||
- Assigned values to options issued | - | - | 53 | - | - | - | - | 53 | ||||||||||||||||||||
- Assigned value of exercised options | - | 154 | (86 | ) | - | - | - | - | 68 | |||||||||||||||||||
- shares issued on warrant subscriptions | 4.90 | 92,900 | - | - | - | - | - | - | - | |||||||||||||||||||
- Share issue costs | - | (1,513 | ) | - | - | - | - | - | (1,513 | ) | ||||||||||||||||||
Gain (loss) for year | - | - | - | - | - | - | (61,680 | ) | (61,680 | ) | ||||||||||||||||||
Adjustment for stock-based comp. | - | - | - | - | - | (5,480 | ) | (5,480 | ) | |||||||||||||||||||
Balance - December 31, 2004 | 51,576,802 | 216,875 | 137 | 7,011 | - | 2,793 | (159,972 | ) | 66,844 | |||||||||||||||||||
Issued for cash | ||||||||||||||||||||||||||||
- Exercise of options | 6.21 | 259,269 | 1,610 | - | - | - | - | - | 1,610 | |||||||||||||||||||
- Exercise of warrants | 18.50 | 10,000 | 185 | - | - | - | - | - | 185 | |||||||||||||||||||
Non-cash | ||||||||||||||||||||||||||||
- Mineral properties | 14.20 | 3,170 | 45 | - | - | - | - | - | 45 | |||||||||||||||||||
- Assigned values to options issued | - | - | 4,194 | - | - | - | - | 4,194 | ||||||||||||||||||||
- Assigned value of exercised options | - | 12 | (12 | ) | - | - | - | - | - | |||||||||||||||||||
- Assigned value of exercised warrants | - | 46 | - | (46 | ) | - | - | - | - | |||||||||||||||||||
Gain (loss) for year | - | - | - | - | - | 7,309 | (26,581 | ) | (19,272 | ) | ||||||||||||||||||
Balance - December 31, 2005 | 51,849,241 | 218,773 | 4,319 | 6,965 | - | 10,102 | (186,553 | ) | 53,606 | |||||||||||||||||||
Issued for cash | ||||||||||||||||||||||||||||
- Public offering | 25.37 | 7,200,000 | 182,663 | - | - | - | - | - | 182,663 | |||||||||||||||||||
- Exercise of options | 9.79 | 668,750 | 6,548 | - | - | - | - | - | 6,548 | |||||||||||||||||||
- Exercise of warrants | 18.50 | 1,386,625 | 25,652 | - | - | - | - | - | 25,652 | |||||||||||||||||||
Non-cash | ||||||||||||||||||||||||||||
- Mineral properties | 18.50 | 530,504 | 9,814 | - | - | - | - | - | 9,814 | |||||||||||||||||||
- Assigned values to options issued | - | - | 13,686 | - | - | - | - | 13,686 | ||||||||||||||||||||
- Assigned value of exercised options | - | 2,583 | (2,583 | ) | - | - | - | - | - | |||||||||||||||||||
- Assigned value of exercised warrants | - | 6,400 | - | (6,400 | ) | - | - | - | - | |||||||||||||||||||
- Donations | 20.91 | 11,000 | 230 | - | - | - | - | - | 230 | |||||||||||||||||||
- Share issue costs | - | (11,596 | ) | - | - | - | - | - | (11,596 | ) | ||||||||||||||||||
- Options expired/forfeited | - | - | (83 | ) | - | 83 | - | - | - | |||||||||||||||||||
- Warrants expired | - | - | - | (566 | ) | 566 | - | - | - | |||||||||||||||||||
Gain (loss) for year | - | - | - | - | - | 19,698 | (11,045 | ) | 8,653 | |||||||||||||||||||
Balance - December 31, 2006 | 61,646,120 | 441,067 | 15,339 | - | 649 | 29,800 | (197,598 | ) | 289,257 |
F-36
Silver Standard Resources Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(tabular amounts expressed in thousands of Canadian dollars unless otherwise stated)
v) | Rental Expense The total rent expense charged to the statement of earnings (loss) in 2006 was $266,000 (2005 - $244,000; 2004 - $141,000). |
f) | Impact of recently issued accounting standards |
i) | Emerging Issues Task Force issued EITF 04-06, “Accounting for Stripping Costs in the Mining Industry”. The consensus concluded that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs are incurred. This consensus is effective in 2006 and had no effect on our results of operations or financial position. |
ii) | In June 2006 FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of SFAS Statement No. 109”. This interpretation provides guidance on recognition and measurement of uncertainties in income taxes and is effective for our 2007 fiscal year end. We do not expect the adoption of this Interpretation to have a significant effect on our results of operations or financial position. |
iii) | In September 2006 FASB issued SFAS No. 157, “Fair Value Measurement” to define fair value, establish a framework for measuring fair value and to expand disclosures about fair value measurements. The statement only applies to fair value measurements that are already required or permitted under current accounting standards and is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of this Interpretation to have a significant effect on the company’s results of operations or financial position. |
F-37
SILVER STANDARD RESOURCES INC.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis of Financial Position and Operating Results
We are a company focused on the acquisition, exploration and development of silver-dominant projects, with a portfolio of core properties in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States. Our strategy is to acquire, hold and advance high quality geopolitically diverse silver projects with defined resources in anticipation of higher silver prices. In October 2006, we announced the production decision on our Pirquitas property in Argentina. Our common stock is quoted on the Nasdaq Global Market under the trading symbol SSRI and on the Toronto Stock Exchange under the symbol SSO.
This management discussion and analysis (MD&A) of the financial position and operating results of the company for the twelve months ended December 31, 2006 and 2005 is prepared as of March 1, 2007 and should be read in conjunction with the audited consolidated financial statements and the related notes thereto, which have been prepared in accordance with Canadian generally accepted accounting principles. All dollar amounts referred to in this discussion and analysis are expressed in Canadian dollars except where indicated otherwise. Additional information relating to us, including our annual information form, is available free of charge on our website at www.silverstandard.com, on the Canadian Securities Administrators’ (CSA) website at www.sedar.com, and on the EDGAR section of the United States Securities and Exchange Commission’s (SEC) website at www.sec.gov.
FINANCIAL HIGHLIGHTS FOR 2006
· | In April we closed the sale of our 50% interest in the Manantial Espejo property in Argentina for a gain of $35.4 million. |
· | In May we closed a public offering of 7.2 million common shares for net proceeds of $171.1 million. |
· | We completed a feasibility study update on our Pirquitas property in Argentina and in October we announced the production decision for this property. |
· | We completed the acquisition of the Berenguela property in Peru and the Veta Colorada property in Mexico. |
· | We had record earnings of $16.4 million or $0.28 per share and ended the year with a record $250.2 million in working capital, including $229.6 million of cash with no debt. |
· | We had record cash exploration investment of $39.4 million on our various mineral properties with significant results reported at our San Luis joint venture property in Peru, our Pitarrilla property in Mexico and our Snowfield property in Canada. |
PIRQUITAS PRODUCTION DECISION
In October 2006, we made a production decision on our Pirquitas property. This property is located in the province of Jujuy in northwest Argentina and is expected to produce in excess of nine million ounces of silver per year over a nine- year mine life. The mine is also estimated to produce in excess of 2,500 tonnes of tin and 6,600 tonnes of zinc annually. The mine is estimated to require 21-24 months to construct at an estimated cost of US$146 million, plus value added tax that is recoverable. In the fourth quarter of 2006, engineering commenced and equipment purchases were made including the purchase of the ball mill.
FINANCIAL REVIEW
We had net earnings for the year ended December 31, 2006 of $16,382,000, or $0.28 per share, compared to a net loss of $5,870,000 or $0.11 per share in 2005.
F-38
The net earnings in 2006 included a $35,390,000 gain on disposal of our joint venture interest in the Manantial Espejo property. Offsetting some of the impact of this gain were higher expenses and higher non-cash stock-based compensation expenses.
Financial Results from Operations
The following is a summary and discussion on the various components of the expenses and income items recorded during the year compared to the prior year:
Year ended December 31 | ||
Exploration and mineral property costs | 2006 $ | 2005 $ |
Property examination and exploration | 267,000 | 434,000 |
Mineral property costs written-off | 101,000 | 372,000 |
Reclamation and accretion | 2,131,000 | 507,000 |
2,499,000 | 1,313,000 |
We incurred $267,000 in property examination and exploration expenditures in 2006 compared to $434,000 in 2005. As our focus turned to the advancement and development of our existing properties, less emphasis was placed on grass roots exploration during 2006. In 2006, $136,000 of the amount spent on exploration was in Peru and $90,000 in Mexico. In 2006, we wrote-off $101,000 in mineral property costs compared to write-offs of $372,000 in 2005. One property in Mexico and one property in Argentina were written off in 2006.
Reclamation and accretion expense in 2006 amounted to $2,131,000 compared to $507,000 in 2005. The various components of the expense were: $243,000 of accretion in 2006 compared to $44,000 of accretion in 2005, $77,000 of cash site restoration and clean-up costs in 2006 compared to $63,000 of cash site restoration and clean-up costs in 2005 and $1,811,000 of changes in estimates of the amount or timing of underlying future cash flows in 2006 compared to $400,000 of changes in estimates of the amount or timing of underlying future cash flows in 2005. The increase in expense in 2006 relates to a revised provision at the Silver Standard Mine property in northern British Columbia. During the second quarter of 2006, we submitted to the regulatory authorities a report from our environmental consultants outlining conceptual plans for reclamation of this site. From this report we had sufficient information to re-estimate and record the value of the liability associated with this property.
Year ended December 31 | ||
Expenses | 2006 $ | 2005 $ |
Salaries and employee benefits | 2,160,000 | 1,031,000 |
Salaries and employee benefits - stock-based compensation | 9,954,000 | 3,468,000 |
Depreciation | 142,000 | 74,000 |
Internal control over financial reporting | 363,000 | 226,000 |
Professional fees | 614,000 | 176,000 |
General and administration - other | 3,762,000 | 2,172,000 |
General and administration - stock-based compensation | 2,981,000 | 567,000 |
Foreign exchange loss | 75,000 | 18,000 |
20,051,000 | 7,732,000 |
Salaries and employee benefits for 2006 were $2,160,000 compared to $1,031,000 in 2005. The $1,129,000 increase in salaries and benefits over 2005 is the result of a number of factors including the impact of salary adjustments that were effective at the beginning of 2006 and higher bonus payments. In May 2006, we made a non-recurring $500,000 bonus payment to certain employees following the successful closing of our public offering where net proceeds of $171 million were raised. In December 2006, the bonus payments were $286,000 higher than the payments made in 2005.
Depreciation expense during 2006 was $142,000 compared to $74,000 recorded in 2005. The increase is mainly due to the depreciation and amortization of equipment and leasehold improvements in our Vancouver corporate office.
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We incurred $363,000 in internal control over financial reporting costs during 2006 compared to $226,000 in 2005. We established this cost category in 2005 to record both internal and external costs associated with compliance with Section 404 of the Sarbanes-Oxley Act in the United States and Multilateral Instruments 52-109 and 52-111 in Canada. Our costs to date are broken down into $137,000 compared to $89,000 in 2005 for allocations of our staff time and expenses and $226,000 for services of external consultants and auditors compared to $137,000 in 2005.
Professional fees include fees for the annual audit, accounting, tax and legal services. Total costs for 2006 were $614,000 compared to $176,000 in 2005. The $438,000 increase in expenses in 2006 over the prior year relates to higher accounting, tax and legal fees. These higher costs are expected to continue as we grow and develop our properties into producing mines.
General and administrative expenses for 2006 were $3,762,000 compared to $2,172,000 in 2005. The large $1,590,000 increase over 2005 relates to several areas, a number of which are non-recurring. During the year we commenced discussions with lenders relating to project financing of the Pirquitas property. We have maintained in the discussions that we wanted a nominal amount of silver hedging in order to maximize our exposure to the price of silver. Late in 2006, we terminated our project financing discussions with one lender and wrote off $498,000 in lender fees and due diligence costs. We are continuing financing discussions with various lenders but these discussions will not affect our construction timetable for the Pirquitas property as we have sufficient liquidity already in place. In 2006, we made $351,000 in donations compared to $23,000 in 2005. In 2006, we made donations totaling $230,000 to the University of New Brunswick and the University of British Columbia to further mineral exploration and mining education. As a company with a long history in the advancement of mineral projects, we understand the need for exploration and engineering excellence in the mining industry. These donations will help ensure our prominence in the minds of the best and brightest. Consulting fees in 2006 have increased in the areas of public relations and in the hiring costs of new technical staff as we move towards production. During 2006, we used a placement agency for the search of a Senior Vice President, Operations and a Manager of Environmental and Community Relations. We continue our search for a Senior Vice President, Operations and expect to announce a hiring by the second quarter of 2007. Other areas where we experienced higher general and administrative costs were in the areas of insurance, listing and filing fees, travel, director expenses and an event in recognition of our 60th anniversary celebration. Expenditures in these areas, other than the 60th anniversary, are expected to continue to increase as we grow.
Stock-based compensation expense for 2006 was $12,935,000 compared to $4,035,000 in 2005. Due to the intense competition for skilled employees currently existing in the mining business and, in order to ensure we remain competitive within our peer group, in 2006 we employed a compensation consultant to assist us in our remuneration policies. Their report resulted in a greater number of options being granted in 2006 compared to 2005. Of the current year’s expense, $2,981,000, compared to $567,000 in 2005, related to general and administration for directors and consultants and $9,954,000, compared to $3,468,000 in 2005, related to employee salaries and benefits. We value stock options granted to employees, directors and consultants using the Black-Scholes pricing model. An additional $751,000 in stock-based compensation was assigned to mineral property costs in 2006 compared to $159,000 in 2005.
Year ended December 31 | ||
Other income (expenses) | 2006 $ | 2005 $ |
Investment income | 5,984,000 | 881,000 |
Gain (loss) on sale of marketable securities | (2,667,000) | 2,289,000 |
Write-up (down) of marketable securities | 52,000 | (15,000) |
Gain on sale of mineral properties | 173,000 | 20,000 |
Gain on sale of joint venture interest | 35,390,000 | - |
38,932,000 | 3,175,000 |
Investment income was $5,984,000 for 2006 compared to $881,000 in 2005. The large increase in investment income results from interest earned on the larger cash balances from the closing of the $171,067,000 public offering in May and the sale of marketable securities in the last quarter of 2006.
In April 2006, we closed the sale of our 50% interest in the Manantial Espejo property to our joint venture partner, Pan American Silver Corp. We received 1,950,000 common shares of Pan American valued at $55,056,000 recording a gain on sale of $35,390,000. During the last quarter of 2006, we sold all our Pan American shares for proceeds of $51,955,000. A $3,101,000 loss on sale of marketable securities was recorded with the result that the net gain relating to our joint venture interest sale was $32,289,000. Gains of $434,000 were recorded on the sale of other marketable securities and this compares to gains of $2,289,000 recorded in 2005.
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In 2006, we sold a number of mineral properties for a gain of $173,000 compared to gains of $20,000 in 2005.
Selected Financial Data
The following table sets forth selected financial data from our audited consolidated financial statements and should be read in conjunction with these statements:
Year ended December 31 | |||
2006 $ | 2005 $ | 2004 $ | |
Total revenues | nil | nil | nil |
Earnings (loss) for year | 16,382,000 | (5,870,000) | (1,518,000) |
Basic and diluted earnings (loss) per share | 0.28 | (0.11) | (0.03) |
Total assets | 471,013,000 | 219,288,000 | 217,457,000 |
Long term debt | nil | nil | nil |
Working capital | 250,234,000 | 40,344,000 | 61,582,000 |
Cash dividends declared | nil | nil | nil |
Summary of Quarterly Results
The following table sets forth selected quarterly financial information for each of our last eight quarters:
Quarter ending (unaudited) | Total Revenues $ | Earnings (Loss) $ | Earnings (Loss) Per Share $ |
December 31, 2006 | nil | (1) (1,701,000) | (0.02) |
September 30, 2006 | nil | (2) 2,695,000 | 0.04 |
June 30, 2006 | nil | (3) 16,469,000 | 0.28 |
March 31, 2006 | nil | (1,081,000) | (0.02) |
December 31, 2005 | nil | (4) (3,908,000) | (0.07) |
September 30, 2005 | nil | (5) 21,000 | 0.00 |
June 30, 2005 | nil | (1,040,000) | (0.02) |
March 31, 2005 | nil | (943,000) | (0.02) |
Explanatory notes:
(1) | Includes $12,935,000 in non-cash expenses relating to values assigned to stock options and $9,722,000 in gains on sale and write-ups of marketable investments. |
(2) | Includes a $3,090,000 write-up of investments and $2,138,000 of interest income. |
(3) | Includes a $35,390,000 gain on sale of joint venture interest and a $15,860,000 write-down of investments. |
(4) | Includes $2,986,000 in non-cash expenses relating to values assigned to stock options. |
(5) | Includes $1,323,000 in gains on sale of marketable securities. |
FINANCIAL POSITION AND LIQUIDITY
Operating Activities
Cash flow from operations was a usage of $3,827,000 in 2006, compared to a usage of $2,951,000 in 2005. This increase is due to increases in salaries, professional fees, general and administrative costs and charges to non-cash working capital items offset partially by higher investment income.
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Financing Activities
During 2006, a net total of $203,267,000 was raised by issuing new equity compared to $1,795,000 in 2005. The following table shows how the funds were raised:
Year ended December 31 | ||
2006 $ | 2005 $ | |
Public offering | 182,663,000 | - |
Exercise of stock options | 6,548,000 | 1,610,000 |
Exercise of warrants | 25,652,000 | 185,000 |
Share issue costs | (11,596,000) | - |
203,267,000 | 1,795,000 |
On May 16, 2006, we closed a public offering of 7.2 million common shares for gross proceeds of $182,663,000. The price received was $25.37 (US$23.00) per share. After deducting underwriting fees and offering expenses of $11,596,000, net proceeds were $171,067,000. There were no public or private share offerings in 2005.
A total of 668,750 shares were issued on the exercise of stock options for total proceeds received of $6,548,000 in 2006 compared to 259,269 shares issued on the exercise of stock options for total proceeds received of $1,610,000 in 2005. The weighted average price received on the exercise of options was $9.79 per share in 2006 compared to $6.21 in 2005. A further 1,386,625 shares were issued in 2006 for proceeds of $25,652,000 on the exercise of share purchase warrants, with a weighted average price received of $18.50 per share, compared to 10,000 shares issued in 2005 for proceeds of $185,000 on the exercise of share purchase warrants, with a weighted average price received of $18.50 per share.
Investing Activities
Mineral Properties
Total cash invested in mineral properties in 2006 compared to 2005 is as follows:
Year ended December 31 | ||
2006 $ | 2005 $ | |
Berenguela | 2,079,000 | 2,947,000 |
Bowdens | 579,000 | 308,000 |
Candelaria | 401,000 | 375,000 |
Challacollo | 407,000 | 695,000 |
Diablillos | 407,000 | 534,000 |
Manantial Espejo | 182,000 | 3,691,000 |
Maverick Springs | 404,000 | 341,000 |
Pirquitas | 5,046,000 | 4,271,000 |
Pitarrilla | 21,083,000 | 5,789,000 |
San Luis | 1,402,000 | 135,000 |
Shafter | 499,000 | 365,000 |
Snowfield | 1,911,000 | - |
Veta Colorada | 4,103,000 | 569,000 |
Other | 876,000 | 913,000 |
39,379,000 | 20,933,000 |
We spent a record $39,379,000 on our various mineral properties compared to our previous year record of $20,933,000. The preceding table shows the allocation of cash expenditures by our main properties. In 2006, by far the most active property was the Pitarrilla property in Mexico. A total of $21,083,000 or a little over half of our total mineral property expenditures was spent on this property and of this amount, $9,473,000 was on exploration with the remainder on land acquisitions. This compares to $5,789,000 spent in 2005. We continued our exploration of this property in 2006 with the completion of over 40,000 meters of diamond drilling in 118 holes. We also continued our acquisition of land underlying to our mineral rights. The second most active property was at our Pirquitas property, where $5,046,000 was spent in 2006 compared to $4,271,000 in 2005. We completed the update of the feasibility study in the first quarter of 2006 and work continued advancing the property leading to the production decision in October 2006. Also in 2006, we completed our acquisition of both the Berenguela property in Peru and the Veta Colorada property in Mexico. A further $1,911,000 was spent at our Snowfield property in British Columbia and $1,402,000 was spent at the San Luis property. We funded the initial US$500,000 of exploration expenditures on the San Luis property, thereby earning a 55% interest. Our agreement with Esperanza Silver Corporation calls for the next US$1,500,000 of exploration expenditures in our respective interests. To the end of 2006, US$1,355,000 of this amount had been spent. Once we reach the US$1,500,000, we may elect to increase our interest to 70% by paying all cost required to complete a feasibility study and this interest can be increased to 80% by paying all costs required to place the property into commercial production. We expect to make our election to earn 70% interest in the first half of 2007. We also have a significant equity interest in Esperanza.
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Construction in Progress
We spent $1,826,000 during the year relating to the construction of the Pirquitas property. The main expenditures include engineering and the purchase of pipe for the gas pipeline that will be used to produce the power at the mine site.
Property, Plant and Equipment
We spent $1,782,000 on property, plant and equipment in 2006 and this compares to $1,202,000 spent in 2005. Of the amount spent in 2006, $1,298,000 relates to the ball mill and mobile equipment for the Pirquitas property and the balance relates to furniture, equipment and leasehold improvements relating to an expansion of our corporate head office in Vancouver.
Proceeds on Sale of Marketable Securities
We received $52,410,000 in proceeds on the sale of marketable securities in 2006 compared with $3,077,000 in 2005. Of the amount received in 2006, $51,955,000 related to the sale of Pan American Silver Corp. shares and $455,000 related to sales of various other marketable securities.
Liquidity
With our cash position and market value of our silver bullion and marketable securities, we have slightly under $295 million of liquidity at December 31, 2006 and no debt. This strong position will provide us with sufficient funds to meet all our corporate, development, administrative and mineral property obligations for 2007. We will continue to have discussions with project lenders for a portion of the construction costs of the Pirquitas mine but funds are in place now to complete this construction over the next two years.
Cash
At December 31, 2006, we had a cash balance of $229,616,000 and no debt. This compares to a cash balance of $23,030,000 at December 31, 2005, also with no debt.
Silver Bullion
We hold 1,953,985 ounces of silver valued at $15,787,000 at the end of the year. The average cost of our silver bullion is $8.08 (US$5.85) per ounce. Our silver bullion is carried on the balance sheet at the lower of cost or net realizable value. The market value of our silver bullion was $29,373,000 for an unrealized gain of $13,586,000 at December 31, 2006 compared to a market value of $20,093,000 for an unrealized gain of $4,306,000 at December 31, 2005. The purchase of silver bullion was made, in part, to recognize that silver is an investment alternative for our cash reserves and to provide maximum exposure to silver. Our silver bullion is a highly liquid asset.
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Marketable Securities
Our marketable securities at December 31, 2006 have a carried cost of $5,817,000 and a market value of $35,617,000 for an unrealized gain of $29,800,000 compared to a carried cost of $4,985,000 and a market value of $15,087,000 for an unrealized gain of $10,102,000 at December 31, 2005. These investments were made in various mineral exploration companies and are considered to be liquid.
Long-term Contractual Obligations
The following table discloses our contractual obligations for office rent of our Vancouver office:
Payments due by Period | |||||
Total $ | Less Than 1 Year $ | 1-3 Years $ | 4-5 Years $ | After 5 Years $ | |
Lease obligations | 341,000 | 274,000 | 67,000 | - | - |
ADDITIONAL DISCLOSURES
Controls and Procedures
Disclosure Control and Procedures
Our management, with the participation of the President and Vice President, Finance, have evaluated the effectiveness of our disclosure controls and procedures (as defined in the rules of the CSA and the SEC) as at December 31, 2006, and have concluded that such disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control Over Financial Reporting
The following report is provided by management in respect of internal control over financial reporting (as defined in the rules of the CSA and the SEC):
(1) | Management is responsible for establishing and maintaining adequate internal control over financial reporting. All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. |
(2) | Our management has used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework to evaluate the effectiveness of our internal control over financial reporting. |
(3) | As at December 31, 2006, management assessed the effectiveness of our internal control over financial reporting and concluded that such internal control over financial reporting is effective and that there are no material weaknesses in our internal control over financial reporting. |
(4) | PricewaterhouseCoopers LLP, who has audited our consolidated financial statements for the year ended December 31, 2006, has also issued a report on our financial statements and internal controls under the standards of the Public Company Accounting Oversight Board (United States). |
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the year ended December 31, 2006, that have materially affected, or are reasonably likely to affect our internal control over financial reporting.
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Related Party Transactions
During the year ended December 31, 2006, we recorded expense reimbursements of $363,000, compared to $277,000 in 2005, from companies related by common directors or officers. At December 31, 2006, accounts receivable include $49,000, compared to $77,000 in 2005 from these related parties. Any amounts due to/from related parties are non-interest bearing and without specific terms of repayment. Any transactions for expense reimbursement with related parties are at normal business terms.
Critical Accounting Estimates
The preparation of our consolidated financial statements requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities, as well as revenues and expenses. Our accounting policies are set out in full in note 2 of the annual financial statements.
Mineral Property Costs
We regularly review the net carrying value of each mineral property for conditions that suggest impairment. This review requires significant judgment where we do not have any proven and probable reserves that would enable us to estimate future cash flows to be compared to the carrying values. Factors considered in the assessment of asset impairment include, but are not limited to, whether there has been a significant decrease in the market price of the property; whether there has been a significant adverse change in the legal, regulatory, accessibility, title, environmental or political factors that could affect the property’s value; whether there has been an accumulation of costs significantly in excess of the amounts originally expected for the property’s acquisition, development or cost of holding; whether exploration activities produced results that are not promising such that no more work is being planned in the foreseeable future and whether the company has significant funds to be able to maintain its interest in the mineral property.
Where we do have proven and probable reserves, as is now the case at our Pirquitas property, the expected undiscounted future cash flows from an asset are compared to its carrying value. These future cash flows are developed into models using assumptions that reflect the long-term operating plans for an asset given our best estimate of the most probable set of economic conditions. Commodity prices used reflect market conditions at the time the models are developed. These models are updated from time to time, and lower prices are used should market conditions deteriorate. Inherent in these assumptions are significant risks and uncertainties.
In 2006, two properties were written-off and a $101,000 expense was recorded. Changes in market conditions, reserve estimates and other assumptions used in these estimates may result in future writedowns.
Stock-based compensation
We provide compensation benefits to its employees, directors, officers and consultants through a share option plan. The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model. Expected volatility is based on historical volatility of the company’s stock. The company utilizes historical data to estimate option exercises and termination behaviour with the valuation model. The risk-free rate for the expected term of the option is based on the Government of Canada yield curve in effect at the time of the grant. Actual results may differ materially from those estimates based on these assumptions.
Asset Retirement Obligations
The amounts recorded for asset retirement costs are based on estimates included in closure and remediation plans. These estimates are based on engineering studies of the work that is required by environmental laws or public statements by management which results in an obligation. These estimates include an assumption on the rate at which costs may inflate in future periods. Actual costs and the timing of expenditures could differ from these estimates.
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Income and Resource Taxes
The determination of our future tax liabilities and assets involves significant management estimation and judgment involving a number of assumptions. In determining these amounts we interpret tax legislation in a variety of jurisdictions and make estimates of the expected timing of the reversal of future tax assets and liabilities. We also make estimates of the future earnings which affect the extent to which potential future tax benefits may be used. We are subject to assessment by various taxation authorities, which may interpret tax legislation in a manner different from our view. These differences may affect the final amount or the timing of the payment of taxes. When such differences arise we make provision for such items based on our best estimate of the final outcome of these matters.
Changes in Accounting Policies
Recent Canadian accounting pronouncements
Financial Instruments
Effective January 1, 2007, we have adopted CICA Handbook Section 3855 Financial Instruments - Recognition and Measurement, CICA Handbook Section 3865 Hedges and CICA Handbook Section 1530 Comprehensive Income (the “Financial Instrument Standards”). As we have not previously undertaken hedging activities, adoption of Section 3865 will have no impact on us. Prior to January 1, 2007, the principal accounting policies affecting our financial instruments related to marketable securities that were valued at the lower of original cost and quoted market value.
The adoption of the Financial Instrument Standards will result in our classifying marketable securities and cash equivalents as available for sale investments and all derivative and other financial instruments as held for trading assets or liabilities measured at fair value. We have no derivative financial instruments or other financial instruments held for trading at December 31, 2006. Transitional adjustments in respect of these available for sale assets will be recorded to the opening investment balances and accumulated other comprehensive income on January 1, 2007.
As a consequence of adopting the Financial Instrument Standards on January 1, 2007, accumulated other comprehensive income will increase by approximately $29,800,000 with a corresponding increase of approximately $29,800,000 in investments. As a result of the adoption of this standard, the carrying value of this investment is increased by $29,800,000, with a corresponding increase, net of tax, to accumulated comprehensive income. This represents the net gain on measuring the fair value of available for sale investments, which has been not recognized on a fair value basis prior to January 1, 2007.
Upon adoption of the financial instrument standards, all regular-way purchases of financial assets are accounted for at the settlement date. Transaction costs on financial assets and liabilities classified other than as held for trading will be treated as part of the investment cost.
Gains or losses associated with items designated as held for trading are recorded in the income statement, separate from any interest or dividends earned on these investments. Gains or losses associated with items classified as available for sale will be separately recorded as unrealized within our other comprehensive income until such time the investment is disposed of or incurs a decline in fair value that is on an other-than-temporary basis, at which time any gains or losses will then be realized and reclassified to the income statement. We have elected to designate cash equivalents (consisting of mainly commercial paper and banker’s acceptances) and marketable securities (all of which are investments in common shares), as available for sale.
Financial Instruments and Other Instruments
Our financial instruments consist of cash and cash equivalents, silver bullion, marketable securities, accounts receivable and accounts payable. It is management’s opinion that we are not exposed to significant interest, currency or credit risks arising from our cash and cash equivalents, accounts receivable and accounts payable.
Marketable securities and silver bullion are, by their nature, subject to market price and exchange rate fluctuations. We value our marketable securities and silver bullion at the lower of cost and market. There were unrealized gains of $29,800,000 relating to marketable securities and $13,586,000 relating to silver bullion at December 31, 2006 compared to unrealized gains of $10,102,000 relating to marketable securities and $4,306,000 relating to silver bullion at December 31, 2005.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Outstanding Share Data
The authorized capital consists of unlimited common shares without par value. As at March 1, 2007, the following common shares, options and share purchase warrants were outstanding:
Number of Shares | Exercise Price $ | Remaining Life (years) | |
Capital stock | 61,871,570 | - | - |
Stock options | 4,230,500 | 8.00 - 35.34 | 0.3 - 4.8 |
Fully diluted | 66,102,070 | - | - |
RISKS AND UNCERTAINTIES
The Pirquitas property is our only mineral property under development and we may not be able to successfully establish mining operations.
The Pirquitas property is our only mineral property currently under development. The development of our Pirquitas property and the future development of any other properties found to be economically feasible and approved by the board will require the construction and operation of mines, processing plants and related infrastructure. As a result, we are and will be subject to all of the risks associated with establishing new mining operations including:
· | the timing and cost, which can be considerable, of the construction of mining and processing facilities; |
· | the availability and cost of skilled labor and mining equipment; |
· | the availability and cost of appropriate smelting and refining arrangements; |
· | the need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits; |
· | the availability of funds to finance construction and development activities; |
· | potential opposition from non-governmental organizations, environmental groups or local groups which may delay or prevent development activities; and |
· | potential increases in construction and operating costs due to changes in the cost of fuel, power materials and supplies. |
The costs, timing and complexities of mine construction and development for our Pirquitas property and our other projects may be greater than we anticipate because the majority of our property interests are not located in developed areas and as a result may not be served by appropriate road access, water and power supply, and other support infrastructure, and cost estimates may increase as more detailed engineering work is completed on a project. It is common in new mining operations to experience unexpected costs, problems and delays during construction, development and mine start-up. In addition, delays in the commencement of mineral production often occur. Accordingly, we cannot assure you that our activities will result in profitable mining operations at the Pirquitas property or any of our other mineral properties.
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We have no revenue from operations and no ongoing mining operations of any kind.
We are a mineral exploration and development company and have no revenue from operations and no ongoing mining operations of any kind. Our properties are in the exploration stage, and we have not defined or delineated any proven or probable reserves on any of our properties, other than the Pirquitas property. 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. If our current exploration programs do not result in the discovery of commercial ore, we may need to write-off part or all of our investment in our existing properties and we will be required to acquire additional properties.
The determination of whether any mineral deposits on our properties are economic is affected by numerous factors beyond our control. These factors include:
· | the metallurgy of the mineralization forming the mineral deposit; |
· | market fluctuations for metal prices; |
· | the proximity and capacity of natural resource markets and processing equipment; and |
· | government regulations governing prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. |
We may not have sufficient funds to develop our mineral properties or to complete further exploration programs.
We have limited financial resources (cash and cash equivalents of $229,616,000, silver bullion of $15,787,000 and marketable securities of $5,817,000 as of December 31, 2006), do not generate operating revenue, and must finance our exploration activity and the development of our mineral properties by other means. We intend to fund our immediate plan of operations and the development of our Pirquitas property from our working capital. In the future, our ability to continue our exploration and development activities, if any, will depend on our ability to develop the Pirquitas property and generate operating revenue or obtain additional external financing.
The sources of external financing that we may use for these purposes include public or private offerings of equity and debt. In addition, we may enter into one or more strategic alliances or joint ventures, or may decide to sell certain property interests, and may utilize one or a combination of all of these alternatives. The financing alternative chosen by us may not be available to us on acceptable terms, or at all. If additional financing is not available, we may have to postpone the development of, or sell, properties.
We have a history of losses and expect to incur losses for the foreseeable future.
We recorded a profit of $16,382,000 for the year ended December 31, 2006, but have incurred losses during each of the following periods:
· | $5,870,000 for the year ended December 31, 2005; and |
· | $1,518,000 for the year ended December 31, 2004. |
We expect to continue to incur losses unless and until such time as the Pirquitas property enters into commercial production and generates sufficient revenues to fund continuing operations. The development of the Pirquitas property and any other mineral property will require the commitment of substantial financial resources.
The amount and timing of expenditures will depend on a number of factors, including the progress of ongoing exploration and development, the results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, the execution of any joint venture agreements with strategic partners, and our acquisition of additional property interests, some of which are beyond our control. We cannot assure you that we will ever achieve profitability.
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There are differences in U.S. and Canadian practices for reporting mineral resources.
Our resource estimates are not directly comparable to those made in filings subject to SEC reporting and disclosure requirements, as we generally report resources in accordance with Canadian practices. These practices are different from the practices used to report resource estimates in reports and other materials filed with the SEC in that the Canadian practice is to report measured, indicated and inferred resources. In the United States, mineralization may not be classified as a ‘‘reserve’’ unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. United States investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into reserves. Further, ‘‘inferred resources’’ have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Disclosure of ‘‘contained ounces’’ is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report ‘‘resources’’ as in place tonnage and grade without reference to unit measures. Accordingly, information concerning descriptions of mineralization and resources contained in this prospectus, or in the documents incorporated herein by reference, may not be comparable to information made public by United States companies subject to the reporting and disclosure requirements of the SEC.
Our reserve and resource estimates are based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.
In making determinations about whether to advance any of our projects to development, we must rely upon estimated calculations as to the mineral reserves and grades of mineralization on our properties. Until ore is actually mined and processed, mineral reserves and grades of mineralization must be considered as estimates only. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling which may prove to be unreliable. We cannot assure you that:
· | reserve, resource or other mineralization estimates will be accurate; or |
· | mineralization can be mined or processed profitably. |
Any material changes in mineral reserve estimates and grades of mineralization will affect the economic viability of placing a property into production and a property’s return on capital. Our reserve and resource estimates have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for silver, gold, tin and zinc may render portions of our mineralization uneconomic and result in reduced reported mineral reserves.
Any material reductions in estimates of mineralization, or of our ability to extract this mineralization, could have a material adverse effect on our results of operations or financial condition. We cannot assure you that mineral recovery rates achieved in small scale tests will be duplicated in large scale tests under on-site conditions or in production scale.
Mining is inherently dangerous and subject to conditions or events beyond our control.
The development and operation of a mine or mine property is inherently dangerous and involves many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include:
· unusual or unexpected geological formations;
· metallurgical and other processing problems;
· metal losses;
· environmental hazards;
· power outages;
· labor disruptions;
· industrial accidents;
· periodic interruptions due to inclement or hazardous weather conditions;
· flooding, explosions, fire, rockbursts, cave-ins and landslides; and
· the inability to obtain suitable or adequate machinery, equipment or labor.
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These risks could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums, or at all. Insurance against certain environmental risks, including potential liability for pollution and other hazards as a result of the disposal of waste products occurring from production, is not generally available to companies within the mining industry. We may suffer a material adverse effect on our business if we incur losses related to any significant events that are not covered by our insurance policies.
Changes in the market price of silver and other metals, which in the past have fluctuated widely, will affect our operations.
Our profitability and long-term viability will depend, in large part, on the market price of silver, gold, tin, zinc, lead and copper. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including:
· global or regional consumption patterns;
· the supply of, and demand for, these metals;
· speculative activities;
· the availability and costs of metal substitutes;
· expectations for inflation; and
· political and economic conditions, including interest rates and currency values.
We cannot predict the effect of these factors on metal prices. A decrease in the market price of silver and other metals would affect the profitability of the Pirquitas property and could affect our ability to finance the exploration and development of any of our other mineral properties. The market price of silver and other metals may not remain at current levels. In particular, an increase in worldwide supply, and consequent downward pressure on prices, may result over the longer term from increased silver production from mines developed or expanded as a result of current metal price levels.
We are subject to significant governmental regulations.
Our exploration activities are, and the development of the Pirquitas property is, subject to extensive federal, state, provincial, territorial and local laws and regulations governing various matters, including:
· environmental protection;
· the management and use of toxic substances and explosives;
· the management of natural resources;
· the exploration of mineral properties;
· exports;
· price controls;
· taxation and mining royalties;
· labor standards and occupational health and safety, including mine safety; and
· historic and cultural preservation.
Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, or the imposition of additional local or foreign parties as joint venture partners, any of which could result in significant expenditures. We may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of our activities and delays in the exploration and development of our properties.
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We require further permits in order to conduct our current and anticipated future operations, and delays or a failure to obtain such permits, or a failure to comply with the terms of any such permits that we have obtained, would adversely affect our business.
Our current and anticipated future operations, including further exploration, development activities and commencement of production on our mineral properties, require permits from various governmental authorities.
We cannot assure you that all permits that we require for our operations, including any construction of mining facilities or conduct of mining, will be obtainable or renewable on reasonable terms, or at all. Delays or a failure to obtain such required permits, or the expiry, revocation or failure by us to comply with the terms of any such permits that we have obtained, would adversely affect our business.
Our activities are subject to environmental laws and regulations that may increase our costs and restrict our operations.
All of our exploration and potential development and production activities in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States are subject to regulation by governmental agencies under various environmental laws. To the extent that we conduct exploration activities or undertake new mining activities in other countries, we will also be subject to environmental laws and regulations in those jurisdictions. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Environmental legislation in many countries is evolving and the trend has been towards stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and increasing responsibility for companies and their officers, directors and employees. Compliance with environmental laws and regulations may require significant capital outlays on our behalf and may cause material changes or delays in our intended activities. Future changes in these laws or regulations could have a significant adverse impact on some portion of our business, causing us to re-evaluate those activities at that time.
Land reclamation requirements for our exploration properties may be burdensome.
Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance. Reclamation may include requirements to:
· control dispersion of potentially deleterious effluents; and
· reasonably re-establish pre-disturbance land forms and vegetation.
In order to carry out reclamation obligations imposed on us in connection with our exploration and potential development activities, we must allocate financial resources that might otherwise be spent on further exploration and development programs. Certain of our projects have been subject to historic mining operations and certain of the properties that were historically mined by us are subject to remediation obligations. We have set up a provision for our reclamation bonds but this provision may not be adequate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected.
Our properties may be subject to uncertain title.
We own, lease or have under option, unpatented and patented mining claims, mineral claims or concessions which constitute our property holdings. The ownership and validity, or title, of unpatented mining claims and concessions are often uncertain and may be contested. We also may not have, or may not be able to obtain, all necessary surface rights to develop a property. We have not conducted surveys of all of the claims in which we hold direct or indirect interests. A successful claim contesting our title to a property will cause us to lose our rights to explore and, if warranted, develop that property. This could result in our not being compensated for our prior expenditures relating to the property.
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Political or economic instability or unexpected regulatory change in the countries where our properties are located could adversely affect our business.
Certain of our properties are located in countries, provinces and states more likely to be subject to political and economic instability, or unexpected legislative change, than is usually the case in certain other countries, provinces and states. Our mineral exploration or potential development activities could be adversely affected by:
· political instability and violence;
· war and civil disturbance;
· labor unrest;
· expropriation or nationalization;
· changing fiscal regimes and uncertain regulatory environments;
· fluctuations in currency exchange rates;
· high rates of inflation;
· changes to royalty and tax regimes;
· underdeveloped industrial and economic infrastructure; and
· the unenforceability of contractual rights and judgments.
There can be no assurance that we will successfully acquire additional commercially mineable mineral rights.
Most exploration projects do not result in the discovery of commercially mineable ore deposits and no assurance can be given that any anticipated level of recovery of ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be legally and economically exploited. Estimates of reserves, resources, mineral deposits and production costs can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions.
Material changes in ore reserves, grades, stripping ratios or recovery rates may affect the economic viability of any project. Our future growth and productivity will depend, in part, on our ability to identify and acquire additional commercially mineable mineral rights, and on the costs and results of continued exploration and potential development programs. Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:
· establish ore reserves through drilling and metallurgical and other testing techniques;
· determine metal content and metallurgical recovery processes to extract metal from the ore; and
· construct, renovate or expand mining and processing facilities.
In addition, if we discover ore, it would take several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of production may change. As a result of these uncertainties, there can be no assurance that we will successfully acquire additional commercially mineable (or viable) mineral rights.
We may be adversely affected by fluctuations in foreign exchange rates.
We maintain our bank accounts primarily in Canadian and U.S. dollars. We expect that our revenue, if any, will be in U.S. dollars while certain of our costs are incurred in other currencies. In particular, any appreciation in the currencies of Argentina, Australia, Chile, Mexico or other countries where we carry out exploration or development activities against the Canadian or U.S. dollar will increase our costs of carrying on operations in such countries. With the development of our Pirquitas property, our costs denominated in the currency of Argentina have increased significantly over past levels and we have significantly greater exposure to Argentinean currency fluctuations. 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.
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We face industry competition in the acquisition of exploration properties and the recruitment and retention of qualified personnel.
We compete with other exploration companies, many of which have greater financial resources than us or are further advanced in their development, for the acquisition of mineral claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees and other personnel. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs and supplies. In particular, we face competition for qualified personnel and equipment for our Pirquitas property, which may increase our estimated costs of developing the project or result in delays. We expect that a significant number of expatriate employees will be required in the early stages of the development of the Pirquitas property to hire and train the local workforce. If we require and are unsuccessful in acquiring additional mineral properties or qualified personnel, we will not be able to grow at the rate we desire or at all.
Some of our directors and officers have conflicts of interest as a result of their involvement with other natural resource companies.
Some our directors and officers are directors or officers of other natural resource or mining-related companies such as, at present, our President, Robert Quartermain, who serves as a director and officer of Radiant Resources Inc. and as a director of Canplats Resources Corporation, Vista Gold Corporation, and Minco Silver Corporation (with which we have a strategic alliance to jointly pursue silver opportunities in China). In addition, our Senior Vice President, Joseph J. Ovsenek, is a director of Esperanza Silver Corporation (with which we have an agreement for the exploration of silver projects in Peru). These associations may give rise to conflicts of interest from time to time. As a result of these conflicts of interest, we may miss the opportunity to participate in certain transactions, which may have a material adverse effect on our financial position.
We may experience difficulty attracting and retaining qualified management to grow our business, which could have a material adverse effect on our business and financial condition.
We are dependent on the services of key executives, including Mr. Quartermain, and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for the development of the Pirquitas property and our other activities may have a material adverse effect on our business and financial condition.
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, other than our Vice President, Project Development. In addition, a substantial part of our assets are located outside the United States and Canada. As a result, it may be difficult or impossible for an investor to (i) 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 (ii) bring in courts outside the United States an original action against us and our directors and officers to enforce liabilities based upon such United States securities laws.
Under U.S. federal tax rules, we may be classified as a passive foreign investment company (a PFIC), which may result in special and generally unfavorable U.S. federal tax consequences to our U.S. shareholders.
As a non-U.S. corporation, we may be a PFIC depending on the percentage of our gross income which is “passive”, within the meaning of the U.S. Internal Revenue Code of 1986, as amended, or the percentage of our assets that produce or are held to produce passive income. We were a PFIC in our 2006 taxable year, and we may be a PFIC in subsequent taxable years. If we are a PFIC for any taxable year during a U.S. shareholder’s holding period in our common stock, such U.S. shareholder may be subject to increased U.S. federal income tax liability on the sale of common shares or on the receipt of dividends. The PFIC rules are complex and may be unfamiliar to U.S. shareholders. Accordingly, U.S. shareholders are urged to consult their own tax advisors concerning the application of the PFIC rules to their investment in our common shares.
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CAUTION ON FORWARD-LOOKING STATEMENTS
The MD&A contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws concerning the anticipated developments in our operations in future periods, our planned exploration activities, the adequacy of our financial resources and other events or conditions that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Statements concerning mineral reserve and resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as ‘‘expects’’, ‘‘anticipates’’, ‘‘plans’’, ‘‘projects’’, ‘‘estimates’’, ‘‘assumes’’, ‘‘intends’’, ‘‘strategy’’, ‘‘goals’’, ‘‘objectives’’, ‘‘potential’’ or variations thereof, or stating that certain actions, events or results ‘‘may’’, ‘‘could’’, ‘‘would’’, ‘‘might’’ or ‘‘will’’ be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be ‘‘forward-looking statements’’. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation: uncertainty of production at our mineral exploration properties; risks and uncertainties associated with new mining operations; risks related to our ability to obtain adequate financing for our planned development activities and to complete further exploration programs; our history of losses and expectation of future losses; differences in U.S. and Canadian practices for reporting resources; risks and uncertainties relating to the interpretation of drill results and the geology, grade and continuity of our mineral deposits; unpredictable risks and hazards related to the development and operation of a mine or mine property; commodity price fluctuations; risks related to governmental regulations, including environmental regulations; risks related to delay or failure to obtain required permits, or non-compliance; increased costs and restrictions on operations due to compliance with environmental laws and regulations; risks related to reclamation activities on our properties; uncertainties related to title to our mineral properties; risks related to political instability and unexpected regulatory change; our ability to successfully acquire additional commercially mineable mineral rights; currency fluctuations; increased competition in the mining industry for properties and qualified personnel; risks related to some of our directors’ and officers’ involvement with other natural resource companies; and our ability to attract and retain qualified personnel and management.
This list is not exhaustive of the factors that may affect any of our forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and our actual achievements or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in this MD&A under the heading ‘‘Risks and Uncertainties”. Our forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and we do not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change. For the reasons set forth above, you should not place undue reliance on forward-looking statements.
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- END OF FINANCIAL STATEMENTS -
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Silver Standard Resources Inc. (Company) | |
By: /s/ Robert A. Quartermain Robert A. Quartermain, President & Director | |
Date: March 15, 2007 |
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Quartermain, certify that:
1. | I have reviewed this annual report on Form 20-F of Silver Standard Resources Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’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 registrant 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 registrant, 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 registrant’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 registrant’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 registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting. |
Date: March 15, 2007
/s/ Robert A. Quartermain
____________________________
Robert A. Quartermain
President
____________________________
Robert A. Quartermain
President
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ross A. Mitchell, certify that:
1. | I have reviewed this annual report on Form 20-F of Silver Standard Resources Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’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 registrant 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 registrant, 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 registrant’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 registrant’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 registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting. |
Date: March 15, 2007
/s/ Ross A. Mitchell
____________________________
Ross A. Mitchell
Vice President, Finance
____________________________
Ross A. Mitchell
Vice President, Finance
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Silver Standard Resources Inc. for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “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 Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: March 15, 2007
/s/ Robert A. Quartermain
____________________________
Robert A. Quartermain
President
____________________________
Robert A. Quartermain
President
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Silver Standard Resources Inc. for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “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 Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: March 15, 2007
/s/ Ross A. Mitchell
____________________________
Ross A. Mitchell
Vice President, Finance
____________________________
Ross A. Mitchell
Vice President, Finance
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