-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WuKwDAgEbVrQUe9NFIZG/aZFC2F6xKGJbCn2TxtuqNcxS62lNWyIebAVHqqH2noO Vq1welufBKV0VS8+XMXxtg== 0000938347-99-000009.txt : 19991018 0000938347-99-000009.hdr.sgml : 19991018 ACCESSION NUMBER: 0000938347-99-000009 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19991005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APEX SILVER MINES LTD CENTRAL INDEX KEY: 0001011509 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-13627 FILM NUMBER: 99723304 BUSINESS ADDRESS: STREET 1: CALEDONIAN HOUSE GROUND FL GEORGETOWN CITY: GRAND CAYMAN CAYMAN STATE: E9 BUSINESS PHONE: 3499490050 MAIL ADDRESS: STREET 1: CALEDONIAN HOUSE MARY STREET STREET 2: GEORGE TOWN GRAND CAYMAN ISLAND BWI 10-K405/A 1 FORM 10-K405/A2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K/A2 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 [_] 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 of Incorporation or (I.R.S. Employer Organization) Identification No.) Caledonian House Not Applicable Jennett Street (Zip Code) George Town, Grand Cayman Cayman Islands, British West Indies (Address of principal executive office) (345) 949-0050 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which Ordinary Shares, $0.01 par value registered American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $249,359,040 as of March 23, 1999. The number of Ordinary Shares outstanding as of March 23, 1999 was 26,248,320. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements of the Company and the Selected Financial Data and related notes thereto included elsewhere in this Form 10-K. Apex Silver Mines Limited (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. Background In mid-1993, Apex Silver Mines Ltd. ("Apex Bermuda") was established to acquire and develop silver exploration properties throughout the world. On December 22, 1994, Apex Bermuda contributed substantially all of its assets to Apex Silver Mines LDC ("Apex LDC"), a limited duration company formed under the laws of the Cayman Islands. In March of 1996, Apex Silver Mines Limited ("Apex Limited"), a limited liability company formed under the laws of the Cayman Islands, was incorporated in order to facilitate the 1996 Private Placement. In connection with the 1996 Private Placement, Apex Limited issued Ordinary Shares to certain of the non-U.S. investors in Apex LDC in exchange for their interests in Apex LDC. These transactions and the 1996 Private Placement were completed effective August 6, 1996. In addition, certain minority shareholders of Apex LDC were entitled to exchange their shares of Apex LDC for Ordinary Shares of Apex Limited on a one for one basis. During 1998, Apex Limited exchanged 7,079,006 of its Ordinary Shares for an equal number of Apex LDC shares. Such shares are included in the 26,250,761 Apex Limited Ordinary Shares outstanding at December 31, 1998. At December 31, 1998, Apex Limited owned 100 percent of Apex LDC. The Initial Public Offering On December 1, 1997, the Company closed its initial public offering (the "Offering") of Ordinary Shares. The Company sold 5,000,000 Ordinary Shares at a price of $11 per share on the American Stock Exchange under the symbol "SIL". 3,720,000 Ordinary Shares were offered initially in the United States and Canada by the U.S. Underwriters, 450,000 Ordinary Shares were offered initially outside the United States by the International Underwriters and 830,000 Ordinary Shares were offered in a concurrent offering by the Company directly to a shareholder. In addition, on December 23, 1997, the underwriters exercised their option to purchase an additional 523,372 Ordinary Shares at the initial price of $11 per share. Net proceeds raised in the Offering were approximately $54.8 million. The San Cristobal Project From 1994 to 1998, the properties comprising the San Cristobal project were acquired in a series of transactions. In 1996 the Company began exploring these properties, and discovered the presence of a significant silver, zinc and lead deposit with the potential to be developed as a large-scale open-pit mining project. In the fall of 1996, an in-fill drilling program using reverse circulation and diamond core drilling was continued in order to delineate the deposit and to provide information to be used in a reserve determination. In addition, an expanded exploration effort at the San Cristobal project resulted in the discovery of additional silver and base metal anomalies. On August 15, 1997, the Company acquired the 2.5 percent minority interest in ASC Bolivia for 268,496 Ordinary Shares of the Company valued at $11 per share. The primary asset of ASC Bolivia is the San Cristobal project. Accordingly, the total consideration of $2,953,456 was capitalized as mining properties. 24 Drilling on the San Cristobal property during 1998 more than doubled the proven and probable reserves. Based on the results of a pre-feasibility study on the San Cristobal project and drill results through 1998, the proven and probable reserves at San Cristobal contain 509 million ounces of silver, 4.1 million tonnes of zinc and 1.4 million tonnes of lead. Since the 1998 drilling program indicated that the San Cristobal deposit is still open in many directions, including at depth, the Company conducted a drilling program during early 1999 to demonstrate the lateral continuation of mineralization. The Company is targeting the completion of a bankable feasibility study of the San Cristobal project by mid-year 1999 with a goal of securing committed financing by the end of 1999. As part of this study, proposals for power supply, transportation, and smelting and refining of metal concentrates are being evaluated. Construction is expected to begin soon thereafter and commercial production should commence in 2002. The San Cristobal project is expected to consist of a large scale, open pit mining operations using conventional mining and processing technologies capable of producing and processing an aggregate 40,000 tonnes per day ("tpd") of ore. During January 1999, the Company completed an engagement letter appointing Barclays Capital ("Barclays") and Deutsche Bank Securities Inc. ("Deutsche Bank") as Co-Lead Arrangers to provide exclusive financial arranging services in regard to development of the San Cristobal project. Under the terms of the engagement letter, Barclays and Deutsche Bank will help develop an optimal capital structure for San Cristobal by reviewing debt financing options through banks and debt capital markets as well as support from development agencies. In addition, Barclays and Deutsche Bank will provide independent technical and legal reviews of the project as well as providing advice in the areas of insurance coverage and risk management stratagies. Barclays' and Deutsche Bank are under no obligation to provide financing for the San Cristobal project. Other Projects The Company is also evaluating the economic viability of the Cobrizos property in Bolivia and the Platosa property in Mexico. The Cobrizos property is located approximately 12 kilometers north of the San Cristobal project. Recent drilling by the Company suggests the presence of approximately 10.8 million tonnes of mineralized material containing 3.4 ounces of silver per tonne. This mineralized material estimate has been calculated by Mine Reserves Associates, Inc., an independent mine geology consulting firm. The mineralized body is amenable to open pit mining and is being considered as a satellite mining operation to the San Cristobal project. The Platosa property is located in the Durango State in northern Mexico. A first stage drill program intersected high grade massive sulfides in one of five drill holes. A geophysical program is being conducted to assist in the design of a follow-up drilling program. This property is in a mining district with well-established massive sulfide deposits that have been profitably mined. Results of Operations Interest Income. The Company does not yet produce silver or any other mineral products and has no revenues from product sales. The only source of revenue is interest income. The Company's policy is to invest all excess cash in liquid, high credit quality, short-term financial instruments. Interest income for the year ended December 31, 1998 was $2,444,357 compared to $961,810 and $574,470 for the years ended December 31, 1997 and 1996, respectively. The increase in interest income for the comparative periods was due to the additional cash raised in the 1996 Private Placement and the 1997 Offering. Exploration. Mineral exploration expenditures are expensed as incurred prior to the determination of the feasibility of mining operations. Once it has been determined that a mineral property has proven and probable ore reserves, subsequent development costs are capitalized. Through December 31, 1998, all acquisition and exploration costs have been expensed as incurred, except those pertaining to the San Cristobal project. As of September 1, 1997, the Company has capitalized development costs associated with the San Cristobal project and will continue to do so in the future. 25 Exploration expenses were $5,147,935 for the year ended December 31, 1998 compared to $9,754,231 and $9,590,632 for the years ended December 31, 1997 and 1996, respectively. The decrease in exploration expenses for 1998 compared to 1997 is primarily the result of the capitalization of exploration costs associated with the San Cristobal project beginning September 1, 1997. Administrative. Administrative expenses were $5,066,652 for the year ended December 31, 1998, compared to $4,129,623 and $1,923,165 for the years ended December 31, 1997 and 1996, respectively. The increase in administrative expenses for 1998 compared to 1997 is primarily the result of increased salaries and benefits, insurance costs, and rents related to the increased activity and personnel associated with the development and financing of the San Cristobal project. The increase in 1997 as compared to 1996 is primarily the result of increased expenditures related to the hiring of key management personnel, the opening of the Apex Silver Mines Corporation ("Apex Corporation") Denver office and employee and director stock option compensation expense incurred in 1997. Consulting. Consulting fees were $2,257,647 for the year ended December 31, 1998 compared to $1,523,116 and $2,506,250 for the years ended December 31, 1997 and 1996, respectively. The increase in consulting fees for 1998 compared to 1997 is the result of increased fees associated with the financing arrangements for San Cristobal. The decrease in consulting fees for 1997 versus 1996 is primarily due to the capitalization of technical consulting fees associated with the San Cristobal project beginning September 1, 1997. Professional Fees. Professional fees were $832,577 for the year ended December 31, 1998, compared to $390,369 and $1,096,271 for the years ended December 31, 1997 and 1996, respectively. The increase in 1998 professional fees compared to 1997 was primarily due to higher legal and accounting fees associated with being a public company. The decrease from 1996 to 1997 was primarily due to the capitalization of costs associated with the Offering. Income Taxes. Apex Corporation, the Company's U.S. management services company, is subject to U.S. income taxes. Otherwise the Company pays no income tax in the U.S. since the Company is incorporated in the Cayman Islands and conducts no 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. Employee Benefits The Company does not provide any post-retirement or post-employment benefits to its employees and therefore does not accrue for such expenses. In 1997, Apex Corporation instituted a 401(k) Plan for its U.S. employees. Apex Corporation makes monthly contributions to this 401(k) Plan, and currently matches 50 percent of each employee's contribution up to an employee contribution of six percent of base salary. Employees vest in the Company's contribution at 50 percent after one year of service and 100 percent after two years of service. Under the Company's approved Bonus Plan, bonuses in the amount of $253,400 were awarded to employees during 1998 for services performed during the year. The awards were paid in the form of cash of $67,775 and 21,838 Ordinary Shares of restricted stock valued at $185,625 using an award date market value of $8.50. Such shares are restricted for two years from the date of issuance and may not be traded or pledged during that period. Should the employee terminate during the restricted period the shares are forfeited to the Company. These shares are included in the outstanding shares at December 31, 1998. Liquidity and Capital Resources As of December 31, 1998, the Company had cash and cash equivalents of $26,217,241 compared to $57,033,193 at December 31, 1997. The December 31, 1997, cash and cash equivalents balance was primarily the proceeds from the December 1997 Offering. The decrease in cash and cash equivalents during 1998 is the result of the Company's investment of $18,486,098 in the development of the San Cristobal project, $1,421,467 to purchase plant, buildings and equipment and expenditures related to operations of $10,641,471. In addition the Company paid down $464,639 of its long-term debt. 26 The Company is subject to a series of obligations with respect to its mineral properties; the failure to meet any of these commitments could result in the loss or forfeiture of one or more of the Company's properties. These obligations consist of government mineral patent fees and commissions, work commitments, lease payments and advance royalties. Also, a number of the Company's property interests derive from contractual purchase options. In order to acquire such properties, the Company will be obliged to make certain payments to the registered concession holders and others who have interests in the properties. In addition, it is anticipated that significant expenditures will be made for other continuing exploration, property acquisition, property evaluation and general corporate expenses. All such obligations and anticipated expenditures will be funded from existing cash balances for the next twelve months. The Company does not currently have a line of credit with any financial institution. The Company's future revenues and earnings will be influenced by world market prices for silver, zinc, lead, copper and gold, and by currency exchange and interest rates that fluctuate and over which the Company has no control. The Company may from time to time choose to hedge its metal, interest rate and/or currency exposure in order to decrease fluctuations in earnings and revenues. The Company is currently developing policies, procedures and guidelines for the hedging of metal prices, interest rates and foreign currency exposure. The Company does not know of any trends, demands, commitments, events or incidents that may result in the Company's liquidity either materially increasing or decreasing at present or in the foreseeable future. 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. In January 1999, the Company completed an engagement letter appointing Barclays and Deutsche Bank as Co-Lead Arrangers for the project financing of the San Cristobal project. There can be no assurance that the required financing will be obtainable on terms that are attractive to the Company, or at all. As of the date hereof, the Company does not plan to declare or pay a dividend. Environmental Compliance The Company's current and future mining and processing operations and exploration activities will be subject to various federal, state and local laws and regulations in the countries in which it conducts its activities, which govern the protection of the environment, prospecting, development, production, taxes, labor standards, occupational health, mine safety, toxic substances and other matters. Management does not believe that compliance with such laws and regulations will have a material adverse effect on its competitive position. The Company intends to obtain all licenses and permits required by all applicable regulatory agencies in connection with its mining operations and exploration activities. The Company intends to maintain standards of environmental compliance consistent with best contemporary industry practice. The Company's preliminary analysis of the mining activities conducted by the previous owners and operators of the Toldos mine at the San Cristobal project indicates that some low level effluents from the site may be draining into a seasonal stream which flows into the Rio Grande, which flows into the Salar de Uyuni, a salt lake to the north of the San Cristobal project. Pursuant to the recently enacted Bolivian Mining Code, mining companies are not liable for identified pre-existing conditions Nonetheless, during construction and operations the Company expects to improve the environmental situation which may currently exist at the Toldos property. The Company does not expect any such efforts to have a material adverse effect on the Company's proposed construction or operations at the San Cristobal project. 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 December 31, 1998, the Company does not maintain a mainframe 27 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, expects to complete installation of upgraded accounting software at its major locations by mid 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 7A: Quantitative and Qualitative Disclosures About Market Risk 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. 28 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. 29 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and supplementary information filed as part of this Item 8 are listed under Part IV, Item 14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K" and contained in this Form 10-K at page F-1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
Page ---- Report of Management...................................................... F-2 Report of Independent Accountants......................................... F-2 Consolidated Balance Sheet at December 31, 1998 and 1997.................. F-3 Consolidated Statement of Operations for the years ended December 31, 1998, 1997, and 1996 and for the period from December 22, 1994 (inception) through December 31, 1998.................................... F-4 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997, and 1996 and for the period from December 22, 1994 (inception) through December 31, 1998........................... F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1998, 1997, and 1996 and for the period from December 22, 1994 (inception) through December 31, 1998.................................... F-6 Notes to the Consolidated Financial Statements............................ F-7
F-1 REPORT OF MANAGEMENT Management is responsible for the preparation of the accompanying financial statements and for other financial and operating information appearing in the annual report. It believes that its accounting systems and internal accounting controls, together with other controls, provide assurance that all accounts and records are maintained by qualified personnel in requisite detail, and accurately and fairly reflect transactions of Apex Silver Mines Limited and its subsidiaries in accordance with established policies and procedures. The Board of Directors has an Audit Committee, all of whose members are neither officers nor employees of the Company or its affiliates. The Audit Committee recommends independent public accountants to act as auditors for the Company for consideration by the Board of Directors; reviews the Company's financial statements; confers with the independent accountants with respect to the scope and results of their audit of the Company's financial statements and their reports thereon; reviews the Company's accounting policies, tax matters and internal controls; and oversees compliance by the Company with the requirements of federal regulatory agencies. Access to the Audit Committee is given to the Company's financial and accounting officers and independent accountants. /s/ Thomas S. Kaplan /s/ Mark A. Lettes Thomas S. Kaplan Mark A. Lettes Chairman Vice President and Chief Financial Officer Apex Silver Mines Limited Apex Silver Mines Corporation
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Apex Silver Mines Limited In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Apex Silver Mines Limited (successor to Apex Silver Mines LDC) and its subsidiaries at December 31, 1998 and 1997 and the results of their operations and their cash flows for the years ended December 31, 1998, 1997 and 1996 and the period from December 22, 1994 (inception) through December 31, 1998, in conformity with generally accepted accounting principles. 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 these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Denver, Colorado March 24, 1999 F-2 APEX SILVER MINES LIMITED An Exploration and Development Stage Company CONSOLIDATED BALANCE SHEET (Expressed in United States dollars)
December 31, December 31, 1998 1997 ------------ ------------ ASSETS Current assets Cash and cash equivalents........................ $ 26,217,241 $ 57,033,193 Accrued interest receivable...................... 126,332 102,412 Amounts due from affiliates...................... -- 722,717 Prepaid expenses and other assets................ 1,197,622 968,050 ------------ ------------ Current assets................................ 27,541,195 58,826,372 Mining properties and development costs.......... 29,777,360 11,888,258 Plant, buildings and equipment (net)............. 2,229,584 1,149,842 Value added tax recoverable...................... 2,725,803 1,351,004 Deferred organizational costs (net).............. 56,592 113,183 Other............................................ 16,500 -- ------------ ------------ Total assets.................................. $ 62,347,034 $ 73,328,659 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accrued salaries, wages and benefits............. $ 154,800 $ 40,736 Accounts payable and other accrued liabilities... 1,580,123 553,130 Current portion of long-term debt................ 248,773 412,408 ------------ ------------ Current liabilities............................ 1,983,696 1,006,274 Long-term debt..................................... 1,966,588 3,093,788 Commitments and contingencies (Note 12)............ -- -- Shareholders' equity Ordinary Shares, $.01 par value, 75,000,000 shares authorized; 26,250,761 and 19,124,916, shares issued and outstanding, respectively (See Note 1e)................................... 262,507 191,249 Contributed surplus.............................. 97,946,434 97,819,969 Accumulated deficit.............................. (39,812,191) (28,782,621) ------------ ------------ Total shareholders' equity..................... 58,396,750 69,228,597 ------------ ------------ Total liabilities and shareholders' equity..... $ 62,347,034 $ 73,328,659 ============ ============
The accompanying notes form an integral part of these consolidated financial statements. F-3 APEX SILVER MINES LIMITED An Exploration and Development Stage Company CONSOLIDATED STATEMENT OF OPERATIONS (Expressed in United States dollars)
For the period December 22, 1994 (inception) Year ended Year ended Year ended through December 31, December 31, December 31, December 31, 1998 1997 1996 1998 ------------ ------------ ------------ ------------ Income Interest income....... $ 2,444,357 $ 961,810 $ 574,470 $ 4,458,140 ------------ ------------ ------------ ------------ Total income........ 2,444,357 961,810 574,470 4,458,140 ------------ ------------ ------------ ------------ Expenses Exploration........... 5,147,935 9,754,231 9,590,632 26,157,857 Administrative........ 5,066,652 4,129,623 1,923,165 12,249,481 Consulting............ 2,257,647 1,523,116 2,506,250 6,991,913 Professional fees..... 832,577 390,369 1,096,271 2,997,438 Amortization and depreciation......... 169,116 149,429 57,392 432,528 ------------ ------------ ------------ ------------ Total Expense....... 13,473,927 15,946,768 15,173,710 48,829,217 ------------ ------------ ------------ ------------ Loss before minority interest............... (11,029,570) (14,984,958) (14,599,240) (44,371,077) Minority interest in loss of Consolidated subsidiary............. -- -- 2,875,927 4,558,886 ------------ ------------ ------------ ------------ Net loss for the period............. $(11,029,570) $(14,984,958) $(11,723,313) $(39,812,191) ============ ============ ============ ============ Net loss per Ordinary Share--Basic and diluted(1)............. $ (0.42) $ (0.72) $ (0.66) $ (1.96) ============ ============ ============ ============ Weighted average Ordinary Shares outstanding (See Note 1e).................... 26,212,009 20,929,882 17,672,206 20,348,742 ============ ============ ============ ============
- - -------- (1) Diluted earnings per share were antidilutive for all periods presented The accompanying notes form an integral part of these consolidated financial statements. F-4 APEX SILVER MINES LIMITED An Exploration and Development Stage Company CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Expressed in United States dollars)
Accumulated Deficit & Total Shares Contributed Comprehensive Shareholders' Outstanding Amount Surplus Deficit Equity ----------- -------- ----------- ------------- ------------- Issuance of shares upon incorporation December 22, 1994............... 8,822,546 $ 88,225 $ 5,571,398 $ -- $ 5,659,623 Net loss and comprehensive loss..... -- -- -- (213,165) (213,165) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1994................... 8,822,546 88,225 5,571,398 (213,165) 5,446,458 Net loss and comprehensive loss..... -- -- -- (1,861,185) (1,861,185) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1995................... 8,822,546 88,225 5,571,398 (2,074,350) 3,585,273 Issuance of shares in private placement...... 4,256,700 42,567 32,406,783 -- 32,449,350 Net loss and comprehensive loss..... -- -- -- (11,723,313) (11,723,313) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1996................... 13,079,246 130,792 37,978,181 (13,797,663) 24,311,310 Purchase of minority interest in ASC Bolivia................ 268,496 2,685 2,950,771 -- 2,953,456 Issuance of shares to associates............. 138,595 1,386 1,523,159 -- 1,524,545 Issuance of shares for services............... 115,207 1,152 231,566 -- 232,718 Stock option compensation expense... -- -- 416,562 -- 416,562 Issuance of shares upon Initial Public Offering............... 5,523,372 55,234 54,719,730 -- 54,774,964 Net loss and comprehensive loss..... -- -- -- (14,984,958) (14,984,958) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1997................... 19,124,916 191,249 97,819,969 (28,782,621) 69,228,597 Exchange of Apex LDC shares................. 7,079,006 70,790 (70,790) -- -- Stock options exercised.............. 25,001 250 197,473 -- 197,723 Restricted stock awards................. 21,838 218 185,407 -- 185,625 Unearned compensation... -- -- (185,625) -- (185,625) Net loss and comprehensive loss..... -- -- -- (11,029,570) (11,029,570) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1998................... 26,250,761 $262,507 $97,946,434 $(39,812,191) $ 58,396,750 ========== ======== =========== ============ ============
The accompanying notes form an integral part of these consolidated financial statements. F-5 APEX SILVER MINES LIMITED An Exploration and Development Stage Company CONSOLIDATED STATEMENT OF CASH FLOWS (Expressed in United States dollars)
For the period December 22, 1994 (inception) Year ended Year ended Year ended through December 31, December 31, December 31, December 31, 1998 1997 1996 1998 ------------ ------------ ------------ ------------ Cash flows from operating activities: Net cash used in operating activities (See Note 11)........ $(10,641,471) $(17,776,508) $(12,091,580) $(44,328,776) ------------ ------------ ------------ ------------ Cash flows from investing activities: Mining properties and development costs.... (18,486,098) (5,428,606) -- (23,914,704) Purchase of plant, buildings and equipment............ (1,421,467) (719,146) (524,335) (2,664,948) ------------ ------------ ------------ ------------ Net cash used in investing activities......... (19,907,565) (6,147,752) (524,335) (26,579,652) ------------ ------------ ------------ ------------ Cash flows from financing activities: Net proceeds from issuance of Ordinary Shares............... -- 55,007,682 35,269,068 97,675,541 Payment of debt....... (464,639) -- -- (464,639) Proceeds from exercise of stock options 197,723 -- -- 197,723 Deferred organizational and financing costs...... -- -- -- (282,956) ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities......... (266,916) 55,007,682 35,269,068 97,125,669 ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents............ (30,815,952) 31,083,422 22,653,153 26,217,241 Cash and cash equivalents beginning of period.............. 57,033,193 25,949,771 3,296,618 -- ------------ ------------ ------------ ------------ End of period........... $ 26,217,241 $ 57,033,193 $ 25,949,771 $ 26,217,241 ============ ============ ============ ============ Supplemental non-cash transactions: Acquisition of minority interest in ASC Bolivia for Ordinary Shares at $11 per share........ $ -- $ 2,953,456 $ -- Acquisition of mining properties for assumption of debt... $ -- $ 3,506,196 $ -- Non-cash debt extinguished by one- time early cash payment (See Note 7)................... $ 826,196 $ -- $ --
The accompanying notes form an integral part of these consolidated financial statements. F-6 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States dollars) 1. Incorporation, Recapitalization, Initial Public Offering, Ownership and Operations a. Apex Silver Mines Limited ("Apex Limited" or the "Company") was formed under the laws of the Cayman Islands in March of 1996 for the sole purpose of serving as a holding company for certain ownership interests in Apex Silver Mines LDC ("Apex LDC"). On April 15, 1996, holders of approximately 55% of the then-outstanding shares of Apex LDC elected to participate, effective as of the completion of a proposed private placement of shares of Apex Limited which was completed as of August 6, 1996, in a recapitalization effected by an exchange, on a one-for-one basis, of their shares in Apex LDC for identical equity instruments of Apex Limited (the "Recapitalization"). The balance of shareholders retained a direct ownership interest in Apex LDC. As a result of this recapitalization, Apex LDC became a majority-owned subsidiary of Apex Limited. The accompanying financial statements reflect the historical accounts of the Company's predecessor, Apex LDC. For purposes of the accompanying consolidated financial statements of Apex Limited, the recapitalization has been given retroactive effect to the date of incorporation of Apex LDC, with the results of operations and equity attributable to the other ownership interests in Apex LDC being reflected in "minority interest in consolidated subsidiary". Consequently, for purposes of these financial statements, Apex Limited is considered the successor to Apex LDC. b. In August of 1996, Apex Limited issued 4,256,700 Ordinary Shares in a private placement transaction (the "Private Placement") for net proceeds of $32.4 million. These proceeds were contributed to Apex LDC in exchange for the issuance by Apex LDC of 4,256,700 shares of its share capital. As a result of this private placement, the Company's ownership interest in Apex LDC was increased from approximately 55% to 65%. c. On December 1, 1997, the Company closed its initial public offering (the "Offering") of Ordinary Shares. The Company sold 5,000,000 Ordinary Shares at a price of $11 per share on the American Stock Exchange under the symbol "SIL". In addition, on December 23, 1997, the underwriters exercised an option to purchase an additional 523,372 Ordinary Shares at the initial price of $11 per share. Net proceeds raised in the offering were approximately $54.8 million. These proceeds were contributed to Apex LDC in exchange for the issuance by Apex LDC of 5,523,372 shares of its capital. d. Apex LDC was incorporated under the laws of the Cayman Islands on November 23, 1994 as a 30-year limited duration company on the contribution of all the assets of its predecessor entity, Apex Silver Mines Ltd., a Bermuda corporation. (Actual contribution occurred on December 22, 1994.) The Company's principal activities are the exploration and development of mineral properties. The Company participates in the acquisition and exploration of mineral properties for possible future development directly and indirectly through Apex LDC's principal subsidiaries, Andean Silver Corporation LDC ("Andean"), ASC Bolivia LDC ("ASC Bolivia"), Apex Asia LDC ("Apex Asia"), Minera de Cordilleras (Honduras), S. de R.L. ("Cordilleras Honduras"), Cordilleras Silver Mines Ltd. ("Cordilleras Bahamas"), Cordilleras Silver Mines (Cayman) LDC ("Cordilleras Cayman"), Compania Minerales de Zacatecas, S. de R.L. de C.V. ("CMZ"), Apex Silver Mines Corporation, ("Apex Corporation") and ASC Peru LDC ("ASC Peru"). e. In conjunction with the Recapitalization and the Private Placement, Apex Limited and the shareholders of Apex LDC entered into a Buy-Sell Agreement (the "Buy-Sell Agreement") which is intended to maintain the same beneficial interest in Apex LDC attributable to all shareholders of Apex LDC prior to the Recapitalization and Private Placement. During 1998, Pursuant to the terms of the Buy-Sell Agreement, Apex Limited exchanged 7,079,006 of its Ordinary Shares for an equal number of Apex LDC shares. Such shares are included in the 26,250,761 Apex Limited Ordinary Shares outstanding at December 31, 1998. At December 31, 1998, Apex Silver Mines Limited owned 100 percent of Apex LDC. Per the provisions of the Buy-Sell F-7 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) Agreement, all of the outstanding shares of Apex LDC are considered Ordinary Shares outstanding for the purposes of computing net loss per Ordinary Share for the periods presented. f. The Company, through indirect subsidiaries, is active in Central America and South America and currently holds interests in, or is the beneficial owner of, non-producing silver resource properties in Chile, Bolivia, Honduras, Mexico and Peru. The Company is in the process of evaluating certain of its properties to determine the economic feasibility of bringing one or more of the properties into production. 2. Summary of Significant Accounting Policies These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The policies adopted, considered by management to be significant, are summarized as follows: a. Basis of consolidation These consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. Investments in joint ventures are proportionately consolidated consistent with generally accepted accounting practices in the mining industry. b. Translation of foreign currencies Substantially all expenditures are made in United States dollars. Accordingly, the Company uses the United States dollar as its functional currency. c. Cash, cash equivalents and short-term investments The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments include certificates of deposit with maturities greater than three months, but not exceeding twelve months. Short-term investments are recorded at cost which approximates fair value. d. Mining properties, exploration and development costs The Company expenses general prospecting costs and the costs of acquiring and exploring unevaluated mining properties. When a property is determined to have proven and probable reserves, further development costs are capitalized. When ore reserves are developed and operations commence, capitalized costs will be amortized using the units-of-production method. Upon abandonment or sale of projects, all capital costs relating to the specific project are written off in the year abandoned or sold and a gain or loss is recognized. Beginning September 1, 1997, all costs associated with the Company's San Cristobal project have been capitalized. As of December 31, 1998, capitalized property and development costs related to the San Cristobal project amounted to $29,777,360. No other amounts related to mineral properties have been capitalized. e. Fixed assets Buildings and equipment are carried at cost and are depreciated on a straight-line basis over estimated useful lives of three to thirty years. F-8 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) f. Deferred organizational costs Costs incurred in the organization of the Company have been capitalized and are being amortized on a straight-line basis over five years. g. Asset impairment The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable. If the sum of estimated future net cash flows on an undiscounted basis is less than the carrying amount of the related asset, an asset impairment is considered to exist. The related impairment loss is measured by comparing estimated future net cash flows on a discounted basis to the carrying amount of the asset. Changes in significant assumptions underlying future cash flow estimates may have a material effect on the Company's financial position and results of operations. To date no such impairments have been identified. h. Stock compensation As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company has elected to measure compensation expense as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under that method, the difference between the exercise price and the estimated fair value of the shares at the date of grant is charged to compensation expense ratably over the vesting period. i. Net loss per ordinary share In 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which requires the presentation of basic and diluted earnings per share. All prior period earnings per share data have been restated to conform with the provisions of this Statement. Basic earnings per share excludes dilution and is computed by dividing net earnings available to ordinary shareholders by the weighted average number of Ordinary Shares outstanding for the period. Diluted earnings per share reflect the potential dilution that would occur if securities or other contracts to issue Ordinary Shares were exercised or converted into Ordinary Shares. Outstanding options to purchase 626,571, 455,625 and 281,250 Ordinary Shares were not included in the computation of diluted earnings per share at December 31, 1998, 1997, and 1996 respectively, because to do so would have been antidilutive. j. New accounting pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair- value hedge transactions in which the Company is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset by changes in the hedged item's fair value. For cash flow hedge transactions, in which the Company is hedging the variability of cash flows related to a variable-rate asset, liability or forecasted transaction, changes F-9 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current-period earnings. The Company has not yet determined the future impact that the adoption of FAS 133 will have on its earnings or statement of financial position. Other pronouncements issued by authoritative bodies with future effective dates are either not applicable or not material to the consolidated financial statements of the Company. 3. Income Taxes The provision for income taxes includes United States federal, state and foreign income taxes currently payable and deferred based on currently enacted tax laws. Deferred income taxes are provided for the tax consequences of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. There is currently no taxation imposed by the Cayman Islands. If any form of taxation were to be enacted, the Company has been granted exemption therefrom to January 16, 2015. The Company's subsidiaries which do business in other countries have not generated income and therefore are not liable for local income taxes. As of December 31, 1998 and 1997, operating loss carryforwards generated by ASC Bolivia amounted to approximately $13.1 and $9.6 million, respectively. Operating losses (as adjusted for inflation) may be carried forward and deducted from taxable income indefinitely. The deferred tax asset resulting from the operating loss carryforwards has been entirely offset by a valuation allowance. No net deferred tax assets related to operating losses generated through December 31, 1998 by the Company's other foreign subsidiaries have been included in the accompanying financial statements, as all such assets have been entirely offset by a valuation allowance. 4. Value Added Tax Recoverable The Company has recorded value added tax ("VAT") paid by ASC Bolivia and Cordilleras Honduras as recoverable assets. The VAT paid by ASC Bolivia is expected to be recovered through production from the proven and probable reserves at the San Cristobal Project that the Company intends 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 Honduras is related to exploration activities and is recoverable upon application to the tax authorities. During 1998, Cordilleras Honduras received VAT refunds totaling $68,946 relating to VAT paid in 1996. Applications for refund of VAT paid in 1997 and 1998 have been filed and are expected to be paid in due course. At December 31, 1998, the recoverable VAT recorded by ASC Bolivia and Cordilleras Honduras is $2,539,586 and $186,217 respectively. Because of the uncertainty of the recoverability of VAT paid by ASC Peru, during 1998 the Company recorded a one-time charge of $202,560 related to the ASC Peru VAT receivable. All future VAT costs incurred by ASC Peru will be charged to expense as incurred. F-10 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) 5. Plant, Buildings and Equipment The components of plant, buildings and equipment were as follows:
December 31, December 31, 1998 1997 ------------ ------------ Buildings.......................................... $ 828,077 $ 410,639 Mining equipment and machinery..................... 1,513,757 728,313 Other furniture and equipment...................... 229,475 104,529 ---------- ---------- 2,571,309 1,243,481 Less: Accumulated depreciation..................... (341,725) (93,693) ---------- ---------- $2,229,584 $1,149,842 ========== ==========
Depreciation expense for the period ended December 31, 1998, 1997 and 1996 totaled $112,471, $92,838 and $801, respectively. During 1998, $135,561 of depreciation associated with the San Cristobal development was capitalized. No amounts were capitalized during 1997 and 1996. 6. Deferred Organizational Costs
December 31, December 31, 1998 1997 ------------ ------------ Organizational costs............................... $ 282,956 $ 282,956 Less: Accumulated amortization..................... (226,364) (169,773) --------- --------- $ 56,592 $ 113,183 ========= =========
Amortization expense was $56,591 for each of the years ended December 31, 1998, 1997 and 1996. 7. Long-term Debt The Company's long-term debt consists of the following:
December 31, December 31, 1998 1997 ------------ ------------ Banco de Santa Cruz............................... $ 515,361 $ 536,000 Barex............................................. 900,000 900,000 Banco Industrial.................................. -- 1,126,196 Monica de Prudencio............................... 800,000 944,000 ---------- ---------- Sub-total..................................... 2,215,361 3,506,196 Less Current Portion.............................. (248,773) (412,408) ---------- ---------- Total......................................... $1,966,588 $3,093,788 ========== ==========
The following debt was assumed as a result of the Company's decision to exercise its option to purchase the Toldos property, a portion of San Cristobal, in December 1997: Banco de Santa Cruz--The Company made an initial payment of $53,600 on March 31, 1998. Beginning in 1999, the Company will pay $68,914 for each of the next seven years, plus interest at Banco de Santa Cruz' preferential rate of interest. As of December 31, 1998, the preferential interest rate was approximately 14%. Although the principal payments of $68,914 are due annually, the Company is required to make interest payments on a quarterly basis. Barex--The Company will make one payment of $900,000 on December 1, 2001. No interest is due on this debt. F-11 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) Banco Industrial - Originally this debt was to be paid through a 5% net smelter return royalty during the first year of production. However, on March 31, 1998,Banco Industrial agreed to extinguish the debt for a one-time payment of $300,000. Such settlement was based upon the resolution of several uncertainties relative to the determination of the fair value of the debt assumed and the resulting value to be assigned to the mineral property. Accordingly, the Company recorded an approximate $800,000 fair market value adjustment to the purchase price upon the resolution of this pre-acquisition contingency. Monica de Prudencio--This debt was acquired in September 1997, when the Company exercised its option to purchase various properties in the San Cristobal area. The total option price was $2,000,000 of which $1,020,000 was paid in cash. The remainder is being paid in 78 monthly installments of $12,000 due the fifteenth of every month until June, 2004 and a final payment of $8,000 due July 15, 2004. No interest is due on this debt. 8. Stock Option Plans The Company has established a plan to issue share options and other awards to be valued in whole or part by reference to the Company's Ordinary Shares for officers, employees, consultants and agents of the Company and its subsidiaries (the "Plan"). Under the Plan, the total number of options and other awards outstanding at any time cannot exceed ten percent of the Company's share capital. Options granted and other awards under the Plan are non-assignable. Options exist for a term, not to exceed ten years, as fixed by the Compensation Committee of the board of directors of the Company (the "Committee"). Options vest ratably over periods of up to four years with the first tranche vesting on the date of grant or the anniversary of the date of grant. Unexercised options expire ten years after the date of grant. The Company has established a share option plan for its non-employee directors (the "Director Plan"). Under the Director Plan, the total number of options outstanding at any one time cannot exceed five percent of the Company's share capital. Pursuant to the Director Plan non-employee directors receive i) at the effective date of their initial election to the Company's board of directors, an option to purchase the number of Ordinary Shares equal to $50,000 divided by the closing price of the Ordinary Shares on the American Stock Exchange the "AMEX") on such date, ii) at the close of business of each annual meeting of the Company's shareholders, an option to purchase the number of Ordinary Shares equal to $50,000 divided by the closing price of the Ordinary Shares on the AMEX on such date, and iii) at the close of business of each meeting of the Company's board of directors, an option valued at $3,000 calculated using the Black-Scholes option-pricing model to purchase Ordinary Shares with an exercise price equal to that of the closing price of the Ordinary Shares on the AMEX on such date. Options granted to a non-employee director vest on the date of the grant and expire 10 years after the date of the grant or one year after the date that such non-employee director ceases to be a director of the Company. Options granted under the Director Plan are transferable only in limited circumstances. The following table summarizes stock option information:
Year ended Year ended Year ended December 31, December 31, December 31, 1998 1997 1996 ------------ ------------ ------------ Options outstanding at beginning of period................................ 455,625 281,250 -- Options granted during period.......... 195,947 174,375 281,250 Options exercised during period........ (25,001) -- -- --------- --------- --------- Options outstanding at end of period... 626,571 455,625 281,250 ========= ========= ========= Options exercisable at end of period... 391,222 241,727 73,438 Weighted average grant-date fair value of options granted during period...... $ 1.98 $ 1.08 $ 1.30 Weighted average remaining Contractual life.................................. 8.3 years 8.9 years 9.7 years
F-12 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) Options granted during the period were at an average exercise price of $10.69, $8.00 and $8.00 for the years 1998, 1997 and 1996 respectively. Options granted during 1998 ranged in price from $8.25 to $12.75. Pro forma information regarding net income is required by SFAS No. 123, and has been determined as if the Company has accounted for its stock options under the fair value method of SFAS No. 123. For purposes of calculating the fair value of options, volatility was not considered for the years ended December 31, 1997 and 1996, as the Company was non-public at the date of those grants. The volatility for 1998 is based on the historical volatility of the Company's stock over its public trading life. The Company currently does not foresee the payment of dividends in the near term. The fair value for these options was estimated at the date of grant using the Black-Scholes option- pricing model with the following assumptions:
Year ended Year ended Year ended December 31, December 31, December 31, 1998 1997 1996 ------------ ------------ ------------ Weighted average risk-free interest rate............................... 5.55% 6.27% 6.45% Volatility.......................... 48.10% 0.00% 0.00% Expected dividend yield............. -- -- -- Weighted average expected life (in years)............................. 2.53 2.33 2.78
For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
Year ended Year ended Year ended December 31, December 31, December 31, 1998 1997 1996 ------------ ------------ ------------ As reported Net loss........................ $(11,029,570) $(14,984,958) $(11,723,313) Net loss per Ordinary Share..... (.42) (.72) (.66) Pro forma Net loss........................ $(11,548,400) $(15,199,421) $(11,852,522) Net loss per Ordinary Share..... (.44) (.73) (.67)
In addition, on December 15, 1998, the Company issued 21,838 of its Ordinary Shares to employees as a portion of performance bonuses paid during the year. Such shares are restricted for two years from the date of issuance and may not be traded or pledged during that period. Should the employee terminate during the restricted period the shares are forfeited to the Company. These shares are included in the outstanding shares at December 31, 1998. 9. Events Subsequent to December 31, 1998 During January 1999, the Company completed an engagement letter appointing Barclays Capital ("Barclays") and Deutsche Bank Securities Inc. ("Deutsche Bank") as Co-Lead Arrangers to provide exclusive financial arranging services in regard to development of the Company's San Crisobal project. Under the terms of the engagement letter, Barclays and Deutsche Bank will assist in the develop of an optimal capital structure for the San Cristobal project by reviewing debt financing options through banks and debt capital markets as well as support from development agencies. In addition, Barclays and Deutsche Bank will provide independent technical and legal reviews of the project as well as providing advice in the areas of insurance coverage and risk management strategies. Barclays' and Deutsche Bank are under no obligation to provide financing for the San Cristobal project. Consistent with these financing measures, the Company plans on filing a Universal Shelf Registration with the Securities and Exchange Commission by the end of the first quarter of 1999. F-13 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) 10. Related Party Transactions Apex LDC engaged Tigris Financial Group Ltd. ("Tigris") and LCM Holdings LDC ("LCM") to provide management advisory services to Apex LDC and its subsidiaries. Tigris is wholly owned by Mr. Thomas S. Kaplan, a director and officer of Apex LDC and a director and shareholder of the Company. LCM is wholly owned by a shareholder of the Company. The LCM consulting arrangement was terminated at the end of the first quarter of 1997, following the formation of Apex Corporation. During the years ended December 31, 1998, 1997 and 1996 fees and reimbursed expenses paid to Tigris and LCM for such services amounted to $39,637, $93,964, and $423,684, respectively. Apex Corporation has provided management, advisory and administrative services for the Company pursuant to a Management Services Agreement dated October 22, 1996, for a fee equal to 110% of certain costs incurred as provided by the agreement. During the years ended December 31, 1997 and 1996, Apex LDC hired both individuals and companies ("associates") to perform services on its behalf in countries in which Apex LDC has mineral interests. These services include property acquisitions on Apex LDC's behalf, consulting services and administrative costs. In certain cases persons affiliated with such associates served as officers or directors of certain Apex LDC's subsidiaries. During the years ended December 31, 1997 and 1996, the total amounts charged to Apex LDC by such related associates were $7,395,441 and $5,695,193 respectively, and are included in the statement of operations under the applicable captions. Prior to 1998 all of these associates became employees or subsidiaries of Apex LDC and are no longer considered related parties. During the year ended December 31, 1996, Apex LDC paid an associate who, until August 6, 1996, was a shareholder of certain subsidiaries of Apex LDC, $485,179 in consideration for geology services provided and disbursements made on Apex LDC's behalf. During 1997, this associate became an employee of Apex Corporation and thus, is not considered a related party. Two individuals, one of whom is an officer of a subsidiary and a shareholder of the Company, the second of whom is an officer of certain of the Company's subsidiaries, are shareholders and directors of Begeyge Minera Ltda. ("Begeyge"), from whom the Company has the right to purchase the Suyatal Project in Honduras for an aggregate purchase price of $3,000,000 (see Note 12). Begeyge also served as an associate during the years ended December 31, 1997 and 1996. During 1996, the Company paid Begeyge $106,691 for consulting services. F-14 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) 11. Cash Flow Information A reconciliation of net earnings to cash from operations is as follows:
For the period December 22, 1994 (inception) Year ended Year ended Year ended through December 31, December 31, December 31, December 31, 1998 1997 1996 1998 ------------ ------------ ------------ ------------ Cash flows from operating activities: Net loss............... $(11,029,570) $(14,984,958) $(11,723,313) $(39,812,191) Adjustments to reconcile net loss to net cash used in operating activities: Amortization and depreciation......... 169,116 149,429 57,392 432,528 Minority interest in loss of consolidated subsidiary........... -- -- (2,875,927) (4,558,886) Stock option compensation expense.............. -- 416,562 -- 416,562 Shares issued in consideration for services............. -- 1,524,545 -- 1,524,545 Changes in operating assets and liabilities: (Increase) decrease in accrued interest receivable........... (23,920) (102,412) 66,112 (126,332) (Increase) in prepaid expenses............. (229,572) (813,825) (154,225) (1,197,622) (Increase) in Value Added Tax recoverable.......... (1,374,799) (1,351,004) -- (2,725,803) (Increase) decrease in amounts due to/from affiliates........... 722,717 (1,254,800) 411,246 -- Increase (decrease) in other current assets & liabilities........ 1,124,557 (1,360,045) 2,127,135 1,718,423 ------------ ------------ ------------ ------------ Net cash used in operating activities... $(10,641,471) $(17,776,508) $(12,091,580) $(44,328,776) ============ ============ ============ ============
F-15 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) 12. Commitments and Contingencies The Company has outstanding options and other optional payments relating to certain mineral properties at December 31, 1998, as follows:
Property 1999 2000 2001 2002 2003 Thereafter -------- ---------- ---------- ---------- ---------- ---------- ---------- Honduras El Coloal District(1).......... $ 200,000 $ 75,000 $ 75,000 $ 75,000 $ 75,000 $ -- Suyatal(2)............ 25,000 40,000 40,000 40,000 40,000 2,745,000 Bolivia San Cristobal......... 464,480 256,116 245,712 1,137,829 229,945 -- Choroma............... 56,357 -- -- -- -- -- Ximena Group(3)....... 133,582 122,345 122,345 2,345 2,345 -- General............... 33,521 33,521 33,521 33,521 33,521 -- Pulacayo(4)........... 18,000 18,000 18,000 18,000 18,000 -- Peru Otuzco(5)............. 54,798 54,798 54,798 54,798 54,798 -- Aventura(6)........... 15,689 15,689 15,689 15,689 15,689 -- San Juan de Lucanas(7)........... 1,292,852 42,852 42,852 42,852 42,852 -- General............... 19,600 19,600 19,600 19,600 19,600 -- Chile................... 24,080 24,080 24,080 24,080 24,080 -- Mexico General............... 34,900 34,900 34,900 34,900 34,900 -- San Juan Cordero(8)... 36,000 137,000 218,000 390,000 1,560,000 148,000 Saltillera & Platosa(9)........... 370,000 700,000 1,100,000 1,200,000 975,000 -- ---------- ---------- ---------- ---------- ---------- ---------- Total............... $2,778,859 $1,573,901 $2,044,497 $3,088,614 $3,125,730 $2,893,000 ========== ========== ========== ========== ========== ==========
- - -------- (1) This district is comprised of five separate properties. Upon production, the Company would also pay a 5% net smelter return ("NSR") royalty on one of these properties. (2) Annual installments are not to exceed the greater of $40,000, or a 2% NSR. (3) These payments include purchase payments of $120,000 per year plus property payments of $2,345. (4) These payments will be applied toward a joint venture with Cooperativa Minera Pulacayo. (5) Otuzco is comprised of five properties, two of which are leased with an option to buy. Should the Company elect to exercise these options, payments would total $550,000. (6) Aventura is comprised of five properties, two of which are leased with an option to buy. Should the Company elect to exercise these options, payments would total $90,000. (7) The Company has an option to purchase this property for $2.1 million payable in 15 installments. This table reflects the payments to be made after the Company made an initial payment in June 1998. (8) San Juan Cordero is comprised of three properties. In addition to the lease payments scheduled in this table, the Company has an option to purchase two of the properties for a $462,000 payment in February 2004. In lieu of the purchase payment the Company may elect to pay $1,250,000 to the owners of the two properties through a 2.5% net smelter return royalty ("NSR"). In addition to the lease payments in this schedule the third property also carries a 2% NSR capped at $2,000,000. Also included in the lease payment schedule is $75,000 in finder's fees payable to a third party. As part of the finder's fee agreement the third party is also entitled to a 0.35% NSR capped at $425,000. F-16 APEX SILVER MINES LIMITED An Exploration and Development Stage Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Expressed in United States dollars) (9) With the final payment in 2003 the Company would own 65% of Saltillera and Platosa. Included in the payment schedule are $1,775,000 in lease payments and $2,570,000 of work commitments. In addition to these scheduled payments, the owners would retain a 3%, 1.5 year NSR capped at $2,000,000. 13. Fair Value of Financial Instruments The Company's financial instruments consist of cash and cash equivalents, receivables, VAT recoverable, accounts payable, other current liabilities and long-term debt. Except for the VAT and long-term debt, the carrying amounts of these financial instruments approximate fair value due to their short maturities. The estimated fair values of the Company's long-term financial instruments, as measured on December 31, 1998 and 1997, are as follows:
1998 1997 --------------------- --------------------- Carrying Carrying Amount Fair Value Amount Fair Value ---------- ---------- ---------- ---------- VAT Recoverable.................. $2,725,803 $2,145,645 $1,351,004 $ 995,314 Long-term Debt................... 1,966,588 1,449,227 3,093,788 2,046,358
The fair values of the VAT recoverable and the long-term debt are estimated based on expected discounted future cash flows. 14. Segment Information In 1998, the Company adopted SFAS 131, "Disclosure about segments of an Enterprise and Related Information." The Company's sole activity is exploration for and development of silver properties and, consequently, the Company has only one operating segment mining. Substantially all of the Company's long-lived assets are in Bolivia. F-17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed October 5, 1999 on its behalf by the undersigned, thereunto duly authorized. Apex Silver Mines Limited Registrant /s/ Thomas S. Kaplan By: _________________________________ Thomas S. Kaplan Chairman, Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant, in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Thomas S. Kaplan Director October 5, 1999 ______________________________________ Thomas S. Kaplan /s/ Michael Comninos Director October 5, 1999 ______________________________________ Michael Comninos Director October 5, 1999 ______________________________________ Harry M. Conger Director October 5, 1999 ______________________________________ Eduardo S. Elsztain Director October 5, 1999 ______________________________________ David Sean Hanna /s/ Ove Hoegh Director October 5, 1999 ______________________________________ Ove Hoegh /s/ Keith R. Hulley Director October 5, 1999 ______________________________________ Keith R. Hulley Director October 5, 1999 ______________________________________ Richard Katz /s/ Paul Soros Director October 5, 1999 ______________________________________ Paul Soros
EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR YEAR DEC-31-1998 DEC-31-1998 JAN-01-1998 JAN-01-1997 DEC-31-1998 JAN-01-1998 26,217,241 57,033,193 0 0 126,332 825,129 0 0 0 0 27,541,195 58,826,372 2,571,309 1,243,481 341,725 93,693 62,347,034 73,328,659 (1,983,696) (1,006,274) 0 0 0 0 0 0 (262,507) (191,249) 0 0 (62,347,034) (73,328,659) 0 0 (2,444,357) (961,810) 0 0 0 0 13,473,927 15,946,768 0 0 0 0 11,029,570 14,984,958 0 0 11,029,570 14,984,958 0 0 0 0 0 0 11,029,570 14,984,958 0.42 0.72 0.42 0.72
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