UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER 1-13627
APEX SILVER MINES LIMITED
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
CALEDONIAN HOUSE
69 JENNETTE STREET
GEORGETOWN, GRAND CAYMAN
CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(345) 949-0050
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO ____
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AT MAY 12, 2000, 34,471,268 ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, WERE
ISSUED AND OUTSTANDING.
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APEX SILVER MINES LIMITED
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK AND HEDGING ACTIVITIES........................... 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................ 10
ITEM 2. CHANGES IN SECURITIES........................................ 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 10
ITEM 5. OTHER INFORMATION............................................ 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 10
SIGNATURES.............................................................. 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars)
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 89,686,054 $ 96,296,577
Prepaid expenses and other assets 697,800 362,604
------------ ------------
Total current assets 90,383,854 96,659,181
Mining properties and development costs 51,873,560 48,056,283
Plant, buildings and equipment (net) 2,524,979 2,505,483
Value added tax recoverable 3,980,331 3,810,460
Other non-current assets 141,662 45,997
------------ ------------
Total assets $148,904,386 $151,077,404
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other accrued liabilities $ 756,304 $ 2,210,585
Current portion of notes payable 921,328 901,459
------------ ------------
Total current liabilities 1,677,632 3,112,044
Notes payable 3,019,826 3,137,368
Shareholders' equity
Ordinary shares, $.01 par value, 75,000,000 shares
authorized; 34,471,268 and 34,466,168, shares
issued and outstanding for respective periods 344,713 344,662
Contributed surplus 192,376,716 192,274,553
Accumulated deficit (48,514,501) (47,791,223)
------------ ------------
Total shareholders' equity 144,206,928 144,827,992
------------ ------------
Total liabilities and shareholders' equity $148,904,386 $151,077,404
============ ============
The accompanying notes form an integral part of these consolidated financial
statements.
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APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States dollars)
(Unaudited)
For the Period
December 22,
1994 (inception)
Three Months Ended through
March 31, March 31, 2000
--------------------------- ----------------
2000 1999
Income
Interest and other income $ 1,734,862 $ 255,239 $ 7,306,549
--------------------------- ----------------
Total income 1,734,862 255,239 7,306,549
--------------------------- ----------------
Expenses
Exploration 1,042,338 1,693,512 49,209,047
Administrative 1,362,597 948,812 10,452,169
Amortization and depreciation 53,223 52,467 718,738
--------------------------- ----------------
Total expenses 2,458,158 2,694,791 60,379,954
--------------------------- ----------------
Net loss before minority interest (723,296) (2,439,552) (53,073,405)
Minority interest in loss of consolidated
subsidiary - - 4,558,886
--------------------------- ----------------
Net loss for the period $ (723,296) $(2,439,552) $ (48,514,519)
--------------------------- ----------------
Net loss per ordinary share -
basic and diluted(1) $ (0.02) $ (0.09) $ (2.17)
=========================== ================
Weighted average ordinary
shares outstanding 34,471,268 26,248,320 22,391,667
=========================== ================
(1) Diluted earnings per share were antidilutive for all periods presented.
The accompanying notes form an integral part of these consolidated financial
statements.
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APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars)
(Unaudited)
For the Period
December 22,
1994 (inception)
Three Months Ended through
March 31, March 31, 2000
-------------------------------- ----------------
2000 1999
---- ----
Cash flows from operating activities:
Net cash used in operating activities $ (2,597,650) $ (2,907,769) $ (56,250,488)
------------- ------------- ----------------
Cash flows from investing activities:
Mining properties and development costs (3,754,369) (3,322,429) (41,651,546)
Purchases of plant, buildings and equipment (160,831) (309,905) (3,513,059)
-------------- ------------- ----------------
Net cash used in investing activities (3,915,200) (3,632,334) (45,164,605)
Cash flows used in financing activities:
Payments of notes payable (97,673) - (798,846)
Net proceeds from issuance of Ordinary Shares - - 191,761,070
Proceeds from exercise of stock options - - 421,879
Deferred Organization costs - - (282,956)
------------- ------------- ----------------
Net cash from (used in) financing activities (97,673) - 191,101,147
------------- ------------- ----------------
Net decrease in cash and cash equivalents (6,610,523) (6,540,103) 89,686,054
Cash and cash equivalents - beginning of period 96,296,577 26,217,241 -
------------- ------------- ----------------
Cash and cash equivalents - end of period $ 89,686,054 $ 19,677,138 $ 89,686,054
============= ============= ================
Supplemental disclosure of non-cash transactions:
Capitalization of depreciation expense
related to San Cristobal Project $ 62,908 $ 40,764
Stock issued as compensation $ 55,463 $ -
The accompanying notes form an integral part of these consolidated financial
statements.
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APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
1. Basis of Preparation of Financial Statements
These unaudited interim consolidated financial statements of Apex Silver
Mines Limited (the "Company") and its subsidiaries have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC"). Such rules and regulations allow the omission of certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principals, so long as
such omissions do not render the financial statements misleading. Certain prior
year balances have been reclassified to conform to the classifications being
presented at March 31, 2000.
In the opinion of management, these financial statements reflect all
adjustments that are necessary for a fair statement of the results for the
periods presented. All adjustments were of a normal recurring nature. Certain
amounts in the accompanying financial statements have been reclassified. These
interim financial statements should be read in conjunction with the annual
financial statements of the Company included in its 1999 Annual Report on Form
10-K.
2. New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
and Hedging Activities ("SFAS 133"). FAS 133, as amended by FAS 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 (January 1, 2001 for the Company), and establishes accounting and reporting
standards for derivative investments and hedging activities. The Company is in
the process of determining the future impact that the adoption of FAS 133 will
have on its earnings or financial position.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. The objective of this SAB is to provide further guidance on revenue
recognition issues in the absence of authoritative literature addressing a
specific arrangement or a specific industry. In March 2000, the SEC released SAB
No. 101A, which delays the implementation date of SAB 101 for registrants with
fiscal years that begin between December 16, 1999 and March 15, 2000 until the
second fiscal quarter of the first fiscal year beginning after December 15,
1999. The Company does not believe adoption of SAB 101 will have a material
effect on its financial position or results of operations.
3. Value Added Tax Recoverable
The Company has recorded value added tax ("VAT") paid by its wholly owned
subsidiaries, ASC Bolivia and Cordilleras Mexico, as recoverable assets. The VAT
paid by ASC Bolivia is expected to be recovered through the sales of its
production from the proven and probable reserves at the San Cristobal Project
that the Company has begun to develop. Bolivian law states that VAT paid prior
to production may be recovered as a credit against Bolivian taxes arising from
production, including income tax. The VAT paid by Cordilleras Mexico is related
to exploration activities and is recoverable upon application to the tax
authorities. Cordilleras Mexico has received VAT refunds relating to VAT paid
through 1996 and in April 2000 received refunds for the remaining VAT paid
through 1998. Applications for refund of the remaining VAT paid through the
first quarter of 2000 have been filed and the remaining refund is expected in
due course. At March 31, 2000, the recoverable VAT recorded by ASC Bolivia and
Cordilleras Mexico is $3,639,521 and $340,810 respectively.
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4. Plant, Buildings and Equipment
The components of plant, buildings and equipment were as follows:
March 31, December 31,
2000 1999
---------- ------------
(Unaudited)
Buildings..................................... $1,149,471 $1,137,173
Mining equipment.............................. 1,242,689 1,267,679
Other furniture and equipment................. 888,356 765,241
---------- ----------
3,280,516 3,170,093
Less: accumulated depreciation................ (755,537) (664,610)
---------- ----------
$2,524,979 $2,505,483
========== ==========
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis summarizes the results of operations
of Apex Silver Mines Limited (the "Company") for the three months ended March
31, 2000 and 1999 and changes in its financial condition from December 31, 1999.
This discussion should be read in conjunction with the Management's Discussion
and Analysis included in the Company's 1999 Annual Report on Form 10-K.
The Company is a mining exploration and development company that holds a
portfolio of silver and base metal exploration and development properties in
South America, Mexico and Central America. None of these properties are in
production and, consequently, the Company has no current operating income or
cash flow. The primary source of income for the Company since inception has been
interest income. The Company's policy is to invest all excess cash in liquid,
high credit quality, short-term financial instruments.
The Company is incorporated in the Cayman Islands where there is currently
no corporate taxation imposed. If any form of taxation were to be enacted in the
Cayman Islands, the Company has been granted exemption until January 16, 2015.
Apex Silver Mines Corporation ("Apex Corporation"), the Company's U.S.
management services company, is subject to U.S. federal, state and local income
taxes. Other than the management services company, the Company does not pay
income tax in the U.S.
Results of Operations - Three Months Ended March 31, 2000
Interest and other income. Interest and other income for the first quarter
of 2000 was $1,734,862 as compared to $255,239 for the first quarter of 1999.
The increase in interest and other income for 2000 is primarily the result of
the higher cash balances available in the first quarter of 2000 compared to the
same period in 1999.
Exploration. Exploration expense was $1,042,338 for the first quarter of
2000, compared to $1,693,512 for the first quarter of 1999. The decreased
exploration expense for 2000 is due to reduced exploration activity worldwide
and a temporary delay in some Mexican activities, as the Company has shifted its
attention to the development of its San Cristobal Project in Bolivia.
Administrative. Administrative expenses were $1,362,597 for the first
quarter of 2000, compared to $948,812 for the first quarter of 1999. The 2000
administrative expenses are higher primarily as the result of increased
corporate activities.
Liquidity and Capital Resources
As of March 31, 2000, the Company had cash and cash equivalents of
$89,686,054 compared to $96,296,577 at December 31, 1999. The decrease is the
result of $2,597,650 used in operations, including $1,042,338 spent on
exploration, $3,754,369 invested in development of the San Cristobal Project,
$160,831 invested in plant, buildings and equipment, and a $97,673 reduction of
debt.
-7-
Based on the September 1999 feasibility study for the San Cristobal Project
which assumes contract mining, the Company expects capital costs for
construction to total approximately $413 million, net of approximately $60
million in expected tax credits. Approximately $40 million of the tax credits
are expected to be recovered during the construction phase of the Project while
the remaining $20 million in tax credits are expected to be recovered against
the Company's future Bolivian income taxes. In addition, the Company expects
that the Project will require approximately $15 million of working capital. The
continuing engineering and commercial discussion with government officials has
provided additional information for scheduling and planning. Chilean port
permitting requirements are expected to be completed during the first quarter of
2001. This in turn results in a modification of the 2000 expenditures, which are
now estimated to be less than $100 million. The remaining capital costs will be
incurred in the following two years. We expect to fund these expenditures from a
combination of our existing cash balances and financing raised from outside
sources.
The Company will need significant additional financing from outside sources
to complete San Cristobal development. The Company expects that outside sources
of financing for San Cristobal will include bank borrowings and future
additional debt or equity financing. There can be no assurance that the Company
will be able to obtain the required financing on terms that it finds attractive,
or at all.
Recent Developments
On March 30, 2000, the Company filed a registration statement with the
Securities and Exchange Commission. The filing was made as a part of the
Company's comprehensive financing plan for San Cristobal. It is anticipated that
debt and project financing will constitute the substantial majority of the
overall financing for the project and the current registration statement will be
amended or re-filed to include debt securities as the Company approaches the
conclusion of the financing program. Proceeds from the offering(s), if any, may
be used to construct and develop San Cristobal, continue exploring the Company's
other properties, maintain control or ownership of our properties, acquire
additional mining related properties or businesses and for general corporate
purposes.
On May 10, 2000 the Company announced that two multilateral funding
agencies, the International Finance Corporation ("IFC"), part of the World Bank,
and the Corporacion Andina de Fomento ("CAF"), a five country financial
institution which supports development in the Andean region, are evaluating
financing options for the Company's San Cristobal Project. IFC and CAF will work
with Barclays Bank PLC and Deutsche Bank Securities Inc., the Company's Co-Lead
Arrangers for project financing, to develop multilateral financing options for
San Cristobal as part of a total financing package that may incorporate support
from other official agencies as well as debt financing from banks and capital
markets.
Forward-Looking Statements
Some information contained in or incorporated by reference into this report
may contain forward-looking statements. These statements include comments
regarding mine development and construction plans, costs, grade, production and
recovery rates, permitting, financing needs, the availability of financing on
acceptable terms, the timing of engineering studies and environmental
permitting, and the markets for silver, zinc and lead. The use of any of the
words "anticipate", "continue," "estimate," "expect," "may," "will," "project,"
"should," "believe" and similar expressions are intended to identify
uncertainties. The Company believes the expectations reflected in those forward-
looking statements are reasonable. However, the Company cannot assure that these
expectations will prove to be correct. Actual results could differ materially
from those anticipated in these forward-looking statements as a result of the
risk factors set forth below and other factors set forth in, or incorporated by
reference into, this report:
. worldwide economic and political events affecting the supply of and demand
for silver, zinc and lead;
. volatility in market prices for silver, zinc and lead;
. financial market conditions, and the availability of financing on terms
acceptable to our company;
. uncertainties associated with developing a new mine, including potential
cost overruns and the unreliability of estimates in early stages of mine
development;
-8-
. variations in ore grade and other characteristics affecting mining, crushing,
milling and smelting operations and mineral recoveries;
. geological, technical, permitting, mining and processing problems;
. the availability and timing of acceptable arrangements for power,
transportation, water and smelting;
. uncertainties regarding future changes in tax legislation or implementation
of existing tax legislation;
. variations in smelting operations and capacity;
. the availability of experienced employees; and
. the factors discussed under "Risk Factors" in the Company's Form 10-K dated
December 31, 1999.
Many of those factors are beyond our ability to control or predict. You
should not unduly rely on these forward-looking statements. These statements
speak only as of the date of this report on Form 10Q. Except as required by law,
we are not obligated to publicly release any revisions to these forward-looking
statements to reflect future events or developments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk and Hedging
Activities
Currently, the Company's major principal cash balances are held in U.S.
dollars. The Company maintains minimum cash balances in foreign currencies and
therefore has a relative low exposure to currency fluctuations. Because the
Company conducts its activities largely in several foreign countries, the
Company may in the future engage in hedging activities to minimize the risk of
exposure to currency and interest rate fluctuations.
The Company expects that it will be required to hedge some portion of its
planned production in advance in order to complete the financing necessary to
develop San Cristobal. In addition, as the Company brings San Cristobal into
production and begins to derive revenue from the production, sale and exchange
of metals, it may utilize various price-hedging techniques to lock in forward
delivery prices on a portion of its production. The Company would expect to
balance the use of price-hedging techniques to mitigate some of the risks
associated with fluctuations in the prices of the metals it produces while
allowing it to take advantage of rising metal prices should they occur.
The Company is currently developing policies, procedures and guidelines for
the hedging of metal prices, interest rates and foreign currency exposure. The
Company has engaged in limited metals trading activities utilizing puts and
calls in a manner similar to anticipated lender requirements, for the purpose of
testing procedures and controls surrounding the trading function. At March 31,
2000, the Company recorded a modest profit from these activities, which did not
have a material effect on its results of operations or financial position. There
can be no assurance that the Company will always benefit from the use of these
techniques.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. (a) Reports on Form 8-K
None.
(b) Exhibits
27 Financial Data Schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
APEX SILVER MINES LIMITED
(Registrant)
Date: May 12, 2000 By: /s/ Thomas S. Kaplan
---------------------
Thomas S. Kaplan
Chairman, Board of Directors
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