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, 1999.
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
________________________________________________________________________________
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
CALEDONIAN HOUSE
JENNETT STREET
GEORGETOWN, GRAND CAYMAN
CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE
________________________________________________________________________________
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(345) 949-0050
______________________________________________________________________________
(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
AT MAY 12, 1999, 26,248,320 ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, WERE
ISSUED AND OUTSTANDING.
APEX SILVER MINES LIMITED
FORM 10-Q
QUARTER ENDED MARCH 31,1999
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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APEX SILVER MINES LIMITED
A Development Stage Company
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars)
March 31, December 31,
1999 1998
--------------- --------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 19,677,138 $ 26,217,241
Accrued interest receivable 88,433 126,332
Prepaid expenses and other assets 1,711,784 1,197,622
--------------- --------------
Total current assets 21,477,355 27,541,195
Mining properties and development costs 33,137,090 29,777,360
Plant, buildings and equipment (net) 2,446,218 2,229,584
Value Added Tax recoverable 3,045,098 2,725,803
Other non-current assets 58,944 73,092
--------------- --------------
Total assets $ 60,164,705 $ 62,347,034
=============== ==============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other accrued liabilities $ 1,991,899 $ 1,734,923
Current portion of long-term debt 248,773 248,773
--------------- --------------
Total current liabilities 2,240,672 1,983,696
Long-term debt 1,966,588 1,966,588
Shareholders' equity
Ordinary shares, $.01 par value, 75,000,000 shares
authorized; 26,248,320, and 26,250,761, shares
issued and outstanding for respective periods 262,483 262,507
Contributed surplus 97,946,704 97,946,434
Accumulated deficit (42,251,742) (39,812,191)
--------------- --------------
Total shareholders' equity 55,957,445 58,396,750
--------------- --------------
Total liabilities and shareholders' equity $ 60,164,705 $ 62,347,034
=============== ==============
<FN>
The accompanying notes form an integral part of these consolidated financial statements.
</FN>
APEX SILVER MINES LIMITED
A Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States dollars)
(Unaudited)
Three Months Ended
March 31,
---------------------------
1999 1998
---- ----
Income
Interest income $ 435,254 $ 732,382
------------ ------------
Total income 435,254 732,382
Expenses
Exploration 1,263,040 636,713
Administrative 1,203,293 297,743
Consulting 182,960 332,979
Professional fees 173,046 148,888
Amortization and depreciation 52,467 26,225
------------ ------------
Total expenses 2,874,806 1,442,548
------------ ------------
Net loss $(2,439,552) $ (710,166)
============ ============
Net loss per ordinary share - Basic
and diluted (1) $ (0.09) $ (0.03)
============ ============
Weighted average ordinary shares
outstanding 26,248,320 26,201,923
============ ============
<FN>
(1) Diluted earnings per share were antidilutive for all periods presented.
The accompanying notes form an integral part of these consolidated financial statements.
</FN>
APEX SILVER MINES LIMITED
A Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars)
(Unaudited)
Three Months Ended
March 31,
-----------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net cash provided by (used in) operating activities $(2,907,769) $ 902,891
Cash flows from investing activities:
Purchase of short-term investments - -
Mining properties and development costs (3,322,429) (6,769,483)
Purchases of plant, buildings and equipment (309,905) (1,317,840)
------------- -------------
Net cash used in investing activities (3,951,629) (8,619,593)
Cash flows from financing activities:
Net cash from financing activities - -
------------- -------------
Net decrease in cash and cash equivalents (6,540,103) (7,184,432)
Cash and cash equivalents beginning of period 26,217,241 57,033,193
------------- -------------
End of period $19,677,138 $49,848,761
============= =============
Supplemental non-cash transactions:
Capitalization of depreciation expense
related to San Cristobal Project $ 40,764 $ 52,591
<FN>
The accompanying notes form an integral part of these consolidated financial statements.
</FN>
APEX SILVER MINES LIMITED
A 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. Such rules and regulations allow the omission of certain
information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP (as defined below) so long as such omissions
do not render the financial statements misleading.
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. These
interim financial statements should be read in conjunction with the annual
financial statements of the Company included in its 1998 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"). This Statement is effective for the
Company's fiscal year beginning January 1, 2000 and establishes accounting and
reporting standards for derivative investments and hedging activities The
Company has not yet determined the future impact that the adoption of SFAS 133
will have on its earnings or financial position.
In June 1998, the American Institute of Certified Public Accountants issue
statement of Position ("SoP") 98-5, Reporting on the Costs of Start-Up
Activities. Sop 98-5 is effective for the Company's 1999 fiscal year and
requires that the costs of start-up activities, including organization costs, be
expensed as incurred. The effect of this statement on the Company's financial
statements was not material.
3. Value Added Tax Recoverable
The Company has recorded value added tax ("VAT") paid by ASC Bolivia LDC
("ASC Bolivia") and Minera de Cordilleras, S. de R.L. de C.V. ("Cordilleras
Mexico") as recoverable assets. The VAT paid by ASC Bolivia is expected to be
recovered through the sale of mine production. The VAT paid by Cordilleras
Mexico is related to exploration activities and is recoverable upon application
to the tax authorities. At March 31, 1999, the recoverable VAT recorded by ASC
Bolivia and Cordilleras Mexico was $2,804,059 and $241,039, respectively.
Because of the uncertainty of the recoverability of VAT paid by ASC Peru LDC
("ASC Peru"), all VAT costs incurred by ASC Peru are charged to expense as
incurred.
4. Plant, Buildings and Equipment
The components of plant, buildings and equipment were as follows:
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
Buildings $ 824,526 $ 828,077
Mining equipment 1,827,390 1,513,757
Other furniture and
equipment 229,258 229,475
---------- -----------
2,881,174 2,571,309
Less: Accumulated
depreciation (434,956) (341,725)
---------- -----------
$ 2,446,218 $ 2,229,584
---------- -----------
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,
1999 and 1998 and changes in its financial condition from December 31, 1998.
This discussion should be read in conjunction with the Management's Discussion
and Analysis included in the Company's 1998 Annual Report on Form 10-K.
The Company is a mining exploration and development company that holds a
portfolio of silver exploration and development properties in South America and
Central America. None of these properties are in production and, consequently,
the Company has no current operating income or cash flow. The sole 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 and does not conduct any
business that currently generates U.S. taxable income. There is currently no
corporate taxation imposed by the Cayman Islands. 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, 1999
Interest Income. Interest income for the first quarter of 1999 was $435,254 as
compared to $732,382 for the first quarter of 1998. The decrease in interest
income for 1999 compared to 1998 is the result of the reduced cash balances
available in 1999 compared to 1998.
Exploration. Exploration expense was $1,263,040 for the first quarter of
1999, compared to $636,713 for the first quarter of 1998. The increased
exploration expenses in 1999 as compared to 1998 are primarily due to increased
exploration activity in Bolivia near the San Cristobal Project and in Mexico on
the Platosa property.
Administrative. Administrative expenses were $1,203,293 for the first quarter
of 1999, compared to $297,743 for the first quarter of 1998. The increase in
1999 as compared to 1998 is primarily related to additional staff and expenses
associated with the financing of the San Cristobal Project.
Consulting. Consulting fees were $182,960 for the first quarter of 1999
compared to $332,979 for the first quarter of 1998. The decrease in 1999 as
compared to 1998 is primarily related to the reduction in the use of third party
consultants in the development of financing strategies pertaining to the San
Cristobal Project.
Professional Fees. Professional fees were $173,046 for the first quarter of
1999 compared to $148,888 for the first quarter of 1998. The slight increase in
professional fees during 1999 as compared to 1998 is the result of increased
accounting fees associated with the development of accounting policies and
procedures related to mine development, production and other activities.
Liquidity and Capital Resources
As of March 31, 1999, the Company had cash and cash equivalents of $19,677,138
compared to $26,217,241 at December 31, 1998. The decrease is the result of
$2,907,769 used in operations, including $1,263,040 spent on exploration,
$3,322,429 of development activity on the San Cristobal Project and $309,905
invested in plant, buildings and equipment.
Management believes that the Company's current cash balances are adequate to
fund operations for the next twelve months. However, the development program at
the San Cristobal project will require significant external financing. Sources
of financing may include bank borrowings and future additional debt or equity
financing. There can be no assurance that the required financing will be
obtainable on terms that are attractive to the Company, or at all.
Recent Developments
On April 13, 1999, the Company filed a shelf registration statement with the
Securities and Exchange Commission under which it may offer up to $200 million
in securities. The shelf registration allows Apex to raise money by selling any
combination of securities listed in the filing during a two-year period. The
Company registers the securities in advance and may sell them from time to time
as financing needs arise. Salomon Smith Barney and Merrill Lynch & Co. may act
either alone or as representatives for a group of underwriters or agents for the
future offerings, unless otherwise stated in a prospectus supplement, for any
offering pursuant to the shelf registration.
The registration statement is part of the Company's comprehensive financing
plan for San Cristobal which also includes project financing efforts spearheaded
by our lead arrangers, Barclays Bank PLC and Deutsche Bank Securities Inc.
Proceeds from the offering(s), if any, may be used to construct and develop San
Cristobal, continue exploring the Company's other properties, acquire additional
mining related assets and for general corporate purposes.
Year 2000 Date Conversion
The inability of certain computer programs to interpret "00" as the year 2000
does not appear to be a significant problem for the Company. As of March 31,
1999, the Company does not maintain a mainframe computer or central database,
and the accounting system is supported by personal computers and their related
software. The Company believes that its computer systems are year 2000
compliant. Notwithstanding this fact, the Company, for reasons independent of
year 2000 issues, is in the process of installing upgraded accounting software
at its major locations. Installation is expected to be completed by the third
quarter 1999. All such software is year 2000 compliant. To further mitigate
the risk of data loss or corruption, the Company performs regular tape backups
of all files, stays in contact with software manufacturers regarding updates to
their products and keeps informed of the latest developments concerning year
2000 issues. The Company's costs with respect to the year 2000 issue have been
minimal.
The Company is in a development stage and as such does not expect to have any
customers until after the year 2000. The Company has not evaluated whether its
suppliers and other service providers are year 2000 compliant. However, the
Company does not believe that the failure of its suppliers and service providers
to timely achieve year 2000 compliance would have a material adverse affect on
earnings. Accordingly the Company has not developed a contingency plan at this
time. The Company will continue to monitor the need for a contingency plan as
additional information is acquired.
Forward-Looking Statements
This filing contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements,
other than statements of historical facts, included in this filing which address
activities, events or developments that the Company expects, believes, intends
or anticipates will or may occur in the future, including such matters as future
investments in existing development projects and the acquisition of new mineral
properties (including the amount and nature thereof), business strategies, mine
development and construction plans, costs, grade production and recovery rates,
permitting, financing needs from external sources, the availability of financing
on acceptable terms, the timing of engineering studies and environmental
permitting, and the markets for silver, zinc and lead, are forward-looking
statements. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy, and some of
which might not even be anticipated. 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 such expectations will prove
to be correct. Future events and actual results, financial and otherwise, could
differ materially from those set forth in or contemplated by the forward-looking
statements herein.
Factors that could cause actual results to differ materially include, among
others: worldwide economic and political events affecting the supply of and
demand for silver, zinc, and lead; volatility in market prices of silver, zinc
and lead; financial market conditions, and availability of financing on terms
acceptable to the Company; uncertainties associated with the development of a
new mine, including potential cost overruns and the unreliability of estimates
in early stages of mine development; 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 of and timing of acceptable arrangements for power,
transportation, water and smelting; the availability of experienced employees;
and variations in smelting operations and capacity. Many such factors are beyond
the Company's ability to control or predict. The reader is cautioned not to put
undue reliance on forward looking statements. The Company disclaims any intent
or obligation to update publicly the forward looking statements, whether as a
result of new information, future events or otherwise.
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. Subsidiary cash balances in foreign currencies are held to minimum
balances and therefore have a minimum risk to currency fluctuations. As a result
of its operations 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.
To complete the financing necessary to develop its mineral properties,
including San Cristobal, the Company anticipates that it will be required to
hedge some portion of its planned production in advance. In addition, as its
mineral properties are brought into production and the Company begins to derive
revenue from the production, sale and exchange of metals, the Company may
utilize various price-hedging techniques to lock in forward delivery prices on a
portion of its production. Such price-hedging techniques would be balanced to
mitigate some of the risks associated with fluctuations in the prices of the
metals the Company produces while allowing the Company 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.
There can be no assurance that the use of hedging techniques will always benefit
the Company.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Pursuant to a Registration Statement on Form S-1 (Registration No. 333- 34685)
filed in connection with the initial public offering (the "Offering") and a
concurrent offering to a shareholder, which became effective on November 25,
1997, the Company sold a total 5,532,000 of its Ordinary Shares.
Since the date of the Offering, the Company estimates that of the $54.6
million net proceeds from the Offering, the following approximate amounts have
been used: (1) $1,855,000 for construction of plant, building and facilities;
(2) $1,300,000 for the acquisition of the business of Mintec; (3) $465,000 for
the repayment of indebtedness; (4) $7,771,000 for working capital; and (5)
$30,029,000 for exploration and development activities primarily related to the
San Cristobal project, including land acquisition and option payments. The
remaining net proceeds of the Offering were invested in cash equivalents and
investments with various maturity dates. The Company believes that the above
amounts are reasonable estimates of the amount of the net proceeds of the
Offering applied.
Other than compensation paid, and expenses reimbursed, to directors of the
Company and officers of subsidiaries of the Company, and certain payments made
in connection with the Company's acquisition of Mintec to then existing
shareholders of Mintec (who are currently employees of the Company), none of
the net proceeds of the Offering have been paid, directly or indirectly, to
directors, officers, general partners of the Company or their associates, to
persons owning 10 percent or more of any class of equity securities of the
Company or to affiliates of the Company.
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.
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 14, 1999 By: /s/ Thomas S. Kaplan
_______________ ____________________________
Thomas S. Kaplan
Chairman, Board of Directors