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 SEPTEMBER 30,1998.
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
GROUND FLOOR, MARY STREET
GEORGETOWN, GRAND CAYMAN
CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE
- --------------------------------------------------------------------------------
(ADDRESS 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 NOVEMBER 1, 1998, 26,221,297 ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, WERE
ISSUED AND OUTSTANDING.
<PAGE>
APEX SILVER MINES LIMITED
FORM 10-Q
QUARTER ENDED SEPTEMBER 30,1998
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......................................... 10
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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
APEX SILVER MINES LIMITED
(Successor to Apex Silver Mines LDC)
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars)
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $32,991,838 $57,033,193
Amounts due from affiliate - 722,717
Prepaid expenses and other assets 580,504 1,070,462
------------- -------------
Current assets 33,572,342 58,826,372
Mining properties and development costs 26,968,712 11,888,258
Plant, buildings and equipment (net) 2,215,497 1,149,842
Value Added Tax recoverable 2,802,872 1,351,004
Other non-current assets 346,545 113,183
------------- -------------
Total assets $65,905,968 $73,328,659
============= =============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other accrued liabilities $ 1,823,887 $ 593,866
Current portion of long-term debt 284,773 412,408
------------- -------------
Current liabilities 2,108,660 1,006,274
Long-term debt 1,930,486 3,093,788
Shareholders' equity
Ordinary shares, $.01 par value, 75,000,000 shares
authorized; 26,213,297, and 19,124,916, shares
issued and outstanding 262,133 191,249
Contributed surplus 97,824,084 97,819,969
Accumulated deficit (36,219,395) (28,782,621)
------------- -------------
Total shareholders' equity 61,866,822 69,228,597
------------- -------------
Total liabilities and shareholders' equity $65,905,968 $73,328,659
============= =============
<FN>
The accompanying notes form an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
APEX SILVER MINES LIMITED
(Successor to Apex Silver Mines LDC)
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States dollars)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income
Interest income $ 488,812 $ 131,774 $ 1,882,808 $ 607,072
----------------------------- ------------------------------
Total income 488,812 131,774 1,882,808 607,072
Expenses
Exploration 1,202,739 2,167,115 3,539,127 10,128,698
Administrative 1,554,620 2,201,681 3,320,031 4,616,512
Consulting 885,976 802,532 1,711,608 1,862,201
Professional fees 163,341 (549,272) 621,990 226,591
Amortization and depreciation 42,785 14,148 126,826 55,346
----------------------------- ------------------------------
Total expenses 3,849,461 4,636,204 9,319,582 16,889,348
----------------------------- ------------------------------
Net loss $(3,360,649) $(4,504,430) $(7,436,774) $(16,282,276)
============================= ==============================
Net loss per ordinary share -
Basic and diluted(1) $ (0.13) $ (0.22) $ (0.28) $ (0.79)
============================= ==============================
Weighted average ordinary
shares outstanding 26,210,171 20,630,363 26,211,214 20,540,864
============================= ==============================
<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>
</TABLE>
<PAGE>
<TABLE>
APEX SILVER MINES LIMITED
(Successor to Apex Silver Mines LDC)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities $ (4,763,272) $ (15,879,238)
Cash flows from investing activities:
Purchase of short-term investments - -
Mining properties and development costs (15,680,454) (169,493)
Purchases of plant, buildings and equipment (1,254,019) -
Value Added Tax Receivable (1,451,868)
Other (275,805) -
--------------- ---------------
Net cash used in investing activities (18,662,146) (169,493)
Cash flows from financing activities:
Net cash used in financing activities (615,937) (1,094,756)
--------------- ---------------
Net decrease in cash and cash equivalents (24,041,355) (17,143,487)
Cash and cash equivalents beginning of period 57,033,193 25,949,771
--------------- ---------------
End of period $ 32,991,838 $ 8,806,284
=============== ===============
Supplemental non-cash transactions:
Capitalization of depreciation expense
related to San Cristobal assets $ 137,418 $ -
<FN>
The accompanying notes form an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
APEX SILVER MINES LIMITED
(Successor to Apex Silver Mines LDC)
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 1997 Annual Report on Form
10-K.
2. Summary of Significant Accounting Policies
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. This
Statement establishes standards for reporting and display of comprehensive
income and its components. The effect of adopting SFAS No. 130 was not material
for any of the periods presented.
3. Value Added Tax Recoverable
The Company has recorded all value added tax (''VAT'') paid by ASC Bolivia LDC
("ASC Bolivia"), ASC Peru LDC ("ASC Peru") 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 ASC Peru is expected to be recovered through the sale of mine
production and or the sale of mineral properties. As of September 30, 1998, the
VAT recorded by ASC Bolivia and ASC Peru is $2,460,077 and $187,985
respectively. The VAT paid by Cordilleras Mexico is recoverable upon
application to local authorities. As of September 30, 1998, the VAT recorded by
Cordilleras Mexico is $154,810, which represents the net balance after refunds
received during 1998 in the amount of $68,946.
4. Plant, Buildings and Equipment
The components of plant, buildings and equipment were as follows:
September 30, December 31,
1998 1997
-------------- -------------
(Unaudited)
Buildings........... $ 929,096 $ 410,639
Mining equipment.... 754,799 728,313
Other furniture and
equipment.......... 794,384 104,529
-------------- -------------
2,541,279 1,243,481
Less: Accumulated
depreciation....... (325,782) (93,639)
-------------- -------------
$ 2,215,497 $1,149,842
============== =============
<PAGE>
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 September
30, 1998 and 1997 and for the nine months ended September 30, 1998 and 1997 and
changes in its financial condition from December 31, 1997. This discussion
should be read in conjunction with the Management's Discussion and Analysis
included in the Company's 1997 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,
Central America and Central Asia. 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 is interest income.
The Company's policy is to invest all excess cash in liquid, high credit
quality, short-term financial instruments.
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 as
defined by the Securities and Exchange Commission ("SEC"), subsequent
development and exploration expenses are capitalized. Through December 31, 1997,
all acquisition and exploration costs have been expensed as incurred, except
those pertaining to the San Cristobal Project. Since September 1, 1997, the
Company has capitalized exploration and development costs associated with the
San Cristobal Project and will continue to do so in the future.
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. 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.
Results of Operations - Three Months Ended September 30, 1998
Interest Income. Interest income for the third quarter of 1998 is $488,812
compared to $131,774 for the third quarter of 1997. The increase in interest
income for the comparative periods was due to the additional cash raised in the
1997 Initial Public Offering.
Exploration. Exploration expenses were $1,202,739 for the third quarter of
1998 compared to $2,167,115 for the third quarter of 1997. The decreased
exploration expenses in 1998 compared to 1997 were due to the capitalization of
exploration activity at the San Cristobal Project during 1998.
Administrative. Administrative expenses were $1,554,620 for the third quarter
of 1998, compared to $2,201,681 for the third quarter of 1997. The decrease in
1998 compared to 1997 is primarily related to stock option compensation expense
associated with the granting of stock options to directors and officers in 1997.
<PAGE>
Consulting. Consulting fees were $885,976 for the third quarter of 1998
compared to $802,532 for the third quarter of 1997. The slight increase in 1998
compared to 1997 is primarily related to the use of third party consultants in
the development of financing strategies pertaining to the San Cristobal Project.
Professional Fees. Professional fees were $163,341 for the third quarter of
1998 compared to a net credit of $549,272 for the third quarter of 1997. The
third quarter credit to professional fees during 1997 was the result of the
capitalization of previously expensed legal and accounting fees, in the amount
of $682,355, related to the 1997 initial public offering. The 1997 credit was
partially offset by $133,083 of charges recorded to professional fees during the
period.
Results of Operations - Nine Months Ended September 30, 1998
Interest Income. Interest income for the nine months ended September 30, 1998
is $1,882,808 compared to $607,072 for the nine months ended September 30, 1997.
The increase in interest income for the comparative periods was due to the
additional cash raised in the 1997 Initial Public Offering.
Exploration. Exploration expenses were $3,539,127 for the nine months ended
September 30, 1998, compared to $10,128,698 for the nine months ended September
30, 1997. These expenditures were associated primarily with projects in
Bolivia, Mexico and Peru. The decreased exploration expenses in 1998 compared
to 1997 were due to the capitalization of exploration activity at the San
Cristobal Project in 1998.
Administrative. Administrative expenses were $3,320,031 for the nine months
ended September 30, 1998, compared to $4,616,512 for the nine months ended
September 30, 1997. The decrease in 1998 compared to 1997 is primarily related
to stock option compensation expense associated with the granting of stock
options to directors and officers in 1997.
Consulting. Consulting fees were $1,711,608 for the nine months ended
September 30, 1998, compared to $1,862,201 for the nine months ended September
30, 1997. The decrease in 1998 compared to 1997 is primarily due to a decrease
in expenses associated with retaining third party consultants to prepare
technical studies on exploration stage properties.
Professional Fees. Professional fees were $621,990 for the nine months ended
September 30, 1998, compared to $226,591 for the nine months ended September 30,
1997. The increase for 1998 compared to 1997 was primarily due to higher legal
and accounting fees related to SEC compliance and reporting and shareholder
relation activities.
Liquidity and Capital Resources
As of September 30, 1998, the Company had cash and cash equivalents of
$32,991,838 compared to $57,033,193 at December 31, 1997. The decrease was due
primarily to costs incurred on the San Cristobal Project and other exploration
activities.
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. In addition, 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.
<PAGE>
Recent Developments
The Company is currently conducting a bankable feasibility study on its
San Cristobal Project, which it expects to complete in mid-1999. Based on drill
results through the end of September 1998, the Company announced on October 28,
1998, that the proven and probable reserves have more than doubled from the 1997
first phase feasibility study.
Proven and probable reserves now total 259.5 million tonnes of ore
grading 1.96 ounces per tonne of silver, 1.57 percent zinc and 0.55 percent
lead. Assumptions used to develop these reserves include market prices of $5.00
per ounce silver, $0.47 per pound of zinc and $0.25 per pound of lead. Updated
reserves now contain 509 million ounces of silver, 4.1 million tonnes of zinc
and 1.4 million tonnes of lead.
1998 drilling also resulted in a modest increase in the strip ratio(tonnes of
waste per tonne of ore) to 1.90:1 versus a first phase feasibility strip ratio
of 1.66:1. In addition, the 1998 drilling has extended the mine life to 24.0
years using a throughput rate of 30,000 tonnes per day, compared to a first
phase feasibility mine life of 11.5 years at the same throughput rate. The
increased grade of the new reserves will also result in increased metal
production at the same throughput rate.
Other Matters
In April 1998, the Company retired $900,000 of long-term debt for a cash
payment of $300,000. This debt was originally supposed to be paid through a 5%
net smelter return royalty in the first year of production. The $600,000
difference was treated as a reduction of mining properties on the Company's
balance sheet.
In August 1998, the Company purchased Silver Holdings LDC's (Silver Holdings")
24 percent minority interest in Apex Silver Mines LDC ("Apex LDC"), the
Company's primary operating subsidiary. The Company purchased the minority
interest with 6,297,321 of its ordinary shares in accordance with the terms of a
1996 buy-sell agreement amongst the Company and minority shareholders in Apex
LDC. With completion of the purchase, the Company now owns 100 percent of Apex
LDC. As Silver Holdings' ownership in Apex LDC converted on a one-for-one
basis to the Company's ordinary shares, this transaction does not effect the
beneficial or economic interest in Apex LDC attributable to the Company's
shareholders.
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
September 30, 1998, the Company does not maintain a mainframe computer or
central database, and the accounting system is supported by personal computers
and their related software. Although the software may require minor
adjustments, the costs would be immaterial. 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.
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 and the future need for additional funds from outside
sources, 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. Future events
and actual results, financial and otherwise, could differ materially from those
set forth in or contemplated by the forward-looking statements therein.
<PAGE>
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.
There are currently no hedge positions against foreign currencies. The Company
to date has not hedged commodity and base metals price risks. However, in order
to complete the financing necessary to develop its mineral properties, 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 may also engage in hedging activities to hedge
the risk of exposure to currency fluctuations as a result of its operations in
several foreign countries. There can be no assurance that the use of hedging
techniques will always benefit the Company.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
During the period covered by this report, there were no legal proceedings
instituted that are reportable.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. (a) Reports on Form 8-K
None.
(b) Exhibits
3.1 Amended and restated Memorandum of Association of the Registrant.*
3.2 Amended and restated Articles of Association of the Registrant.*
27 Financial Data Schedule.
*Incorporated by reference to the Company's Annual Report on Form 10-K
filed for the year ended December 31, 1997 (File No. 1-13627).
<PAGE>
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: November 12, 1998 By: /s/ Thomas S. Kaplan
Thomas S. Kaplan
Chairman, Board of Directors
<TABLE> <S> <C>
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<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
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</TABLE>