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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(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
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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.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 1999 Annual Meeting of Shareholders are incorporated by reference in
Part III of this Report on Form 10-K.
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PART I
ITEMS 1 and 2: BUSINESS AND PROPERTIES
Apex Silver Mines Limited ("Apex Limited" or the "Company") is engaged in
the exploration and development of silver properties in South America and
Central America. Since the Company was founded in 1993, it has accumulated one
of the largest, most diversified portfolios of silver exploration properties
in the world, having acquired the rights to or gained control of approximately
95 non-producing silver and other mineral properties located in or near the
traditional silver producing regions of Bolivia, Mexico, Peru, Chile and
Honduras. Exploration efforts since 1993 have successfully produced the
Company's first development project, the 100 percent owned San Cristobal
project (the "San Cristobal project") located in southern Bolivia. San
Cristobal's proven and probable reserves total 259.5 million tonnes of ore
grading 2.0 ounces per tonne of silver, 1.57 percent zinc and 0.55 percent
lead, containing 509 million ounces of silver, 4.1 million tonnes of zinc and
1.4 million tonnes of lead.
Apex Silver Mines Ltd. was formed in 1993 under the laws of Bermuda. In
1994, Apex Silver Mines Ltd. contributed substantially all of its assets to
Apex Silver Mines ("Apex LDC") (formerly Apex Silver Mines LDC), a company
organized under the laws of the Cayman Islands. Apex Limited, which was formed
to serve as a holding company for certain ownership interests in Apex LDC, was
organized under the laws of the Cayman Islands in 1996. As the result of
several transactions from 1996 through 1998, including the exchange in 1998 by
certain minority shareholders of shares of Apex LDC for Ordinary Shares of
Apex Limited pursuant to a previously existing agreement, Apex Limited now
owns 100 percent of Apex LDC. In December 1997, the Company completed an
initial public offering of Ordinary Shares.
As used herein, Apex Limited, the Company, we and our refer collectively to
Apex Silver Mines Limited, its predecessors, subsidiaries and affiliates or to
one or more of them as the context may require.
BUSINESS STRATEGY
Apex Limited is one of a limited number of mining companies which focus on
silver exploration, development and production. Our strategy is to capitalize
on our sizeable portfolio of silver exploration properties in order to achieve
long-term profits and growth and to enhance shareholder value.
Although our primary focus is on mining silver, we intend to produce other
metals associated with our silver deposits, such as zinc, lead, copper and
gold, if economically practicable. The Company is managed by a team of
seasoned mining professionals with signficant experience in the identification
and exploration of mineral properties, as well as the construction,
development and operation of large scale, open pit and underground, precious
and base metals mining operations.
The principal elements of the Company's business strategy are to proceed to
develop the San Cristobal project into a large scale open pit mining
operation; continue to explore and evaluate the Cobrizos silver property in
southern Bolivia and the Platosa silver and zinc property in northern Mexico;
continue to explore and develop other properties which we believe are most
likely to contain significant amounts of silver and divest those properties
that are not of continuing interest; and identify and acquire additional
mining and mineral properties that we believe contain significant amounts of
silver or have exploration potential.
SAN CRISTOBAL PROJECT
The 100 percent owned San Cristobal project is located in the San Cristobal
mining district of the Potosi Department in southern Bolivia, a region that
has historically produced a significant portion of the world's silver supply.
San Cristobal is located in the Bolivian Altiplano in the Andes mountains,
approximately 500 kilometers south of the capital city of La Paz. The project
is accessible by a gravel road from the international railroad at Rio Grande,
approximately 50 kilometers to the north, and from the town of Uyuni, a former
railroad maintenance town, approximately 80 kilometers to the northeast. The
railroad begins at the Chilean port of Antafogasta, approximately 460
kilometers southwest of San Cristobal, and continues approximately 500
kilometers north to La Paz.
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The San Cristobal property is comprised of certain mining concessions in a
large block of concessions owned or controlled by the Company covering
approximately 345,000 acres. The property is largely unexploited. The
relatively small, shut down Toldos mine, located approximately 1.5 kilometers
from San Cristobal, was mined by underground block caving and open pit mining
between 1985 and 1995. At present, there is no significant plant or equipment
on the San Cristobal property.
Additional drilling in 1998 doubled proven and probable reserves at San
Cristobal, which total 259.5 million tonnes of ore grading 2.0 ounces per
tonne of silver, 1.57 percent zinc and 0.55 percent lead. These reserves
contain 509 million ounces of silver, 4.1 million tonnes of zinc and 1.4
million tonnes of lead. The full dimensions of the San Cristobal deposit have
not yet been determined; mineralized material extends outward from the
identified ore body in most directions as well as to depths below 260 meters.
The Company believes that its San Cristobal property contains one of the
largest known open pit silver, zinc and lead deposits in the world. Based on
the geology of San Cristobal, and the drilling, analysis and proven and
probable reserves identified to date, the Company believes that the San
Cristobal project could be extended in life and/or increased in scale.
The San Cristobal project is expected to be a large scale, open pit mining
operation using conventional mining and processing technologies capable of
producing and processing an aggregate 40,000 tonnes per day of ore. The
stripping ratio is expected to be approximately 1.9 tonnes of waste for each
tonne of ore. The Company plans to secure committed financing by the end of
1999, with mobilization for construction expected to commence shortly
thereafter. Start-up is targeted to commence in late 2001, with production
expected to commence in 2002.
A bankable feasibility study of the San Cristobal project is being prepared
for the Company by Kvaerner Metals, Nonferrous Division, an international
engineering, procurement, construction and management firm. We expect the
feasibility study to be completed mid year 1999. Kvaerner was also retained by
the Company to confirm independently the reliability of the Company's
drilling, sampling, and assaying procedures at the San Cristobal project.
Geology
The San Cristobal project occupies the central portion of a depression
associated with volcanism of Miocene age. The 4 kilometer diameter depression
is filled with fine to coarse grained volcanoclastic sedimentary rocks
(including shale, conglomerate, sandstone, landslide debris and talus). During
the late Miocene Period, after sedimentation had nearly filled the depression,
a series of dacite and andesite porphyry sills and domes intruded the
volcanoclastic rocks. Disseminated and stockwork silver-lead-zinc
mineralization formed locally both within the volcanoclastic sediments and in
the intrusions themselves. The disseminated mineralization was not mined in
the past except at the nearby Toldos mine. Historic production on the San
Cristobal property was from veins.
The two largest areas of mineralization, the Jayula and Tesorera deposits,
initially were drilled separately. Additional drilling in 1998, which more
than doubled proven and probable reserves, merged the Jayula and Tesorera
deposits into one large deposit, now called the San Cristobal orebody.
Mineralization at the Jayula portion of the San Cristobal orebody is
dominated by stockwork consisting of iron oxides, clays, galena, barite,
sphalerite, pyrite, tetrahedrite, and acanthite. The veins of the stockwork
are most abundant in the dacite sill, near its contact with the volcanoclastic
sedimentary rocks. At the Tesorera portion of the orebody, mineralization is
characterized by galena, sphalerite, and acanthite, disseminated in the
volcanoclastic sedimentary rocks. This mineralization is most prevalent in the
coarser grained beds, usually conglomerates and coarse sandstones. To the
extent that ore grade mineralization is confined to the sedimentary beds, the
mineral zones are both stratiform and strata-bound, forming tabular bodies.
Oxidation of the mineralized zone at San Cristobal has occurred to depths
averaging 40 to 75 meters and affects approximately ten percent of the
reserves. In this oxide zone, zinc has been almost completely leached
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out by groundwater; silver values, however, are locally enhanced due to
secondary enrichment processes. In the oxide zone, the dominant minerals are
iron oxides, clays, native silver, and secondary acanthite.
Reserves
As of December 31, 1998, the San Cristobal deposit drilling totals
approximately 149,500 meters of reverse circulation and approximately 20,100
meters of diamond drilling. The drilling indicates that the mineralization is
present over an area of 1,500 meters by 1,500 meters. The deposit is open at
depth and in several lateral directions.
Proven and probable reserves were calculated using a $4.75 NSR per tonne
cutoff value and market price assumptions of $5.00 per ounce of silver, $0.47
per pound of zinc, and $0.25 per pound of lead. Proven and probable reserves
include an average recovery of 75.5 percent for silver, 78.0 percent for zinc
and 73.3 percent for lead. The following tables show the Company's proven and
probable reserves of silver, zinc and lead at the San Cristobal project, which
were calculated by Mine Reserves Associates Inc. ("MRA").
<TABLE>
<CAPTION>
Proven and Probable Reserves--San Cristobal Project
-----------------------------------------------------------------------------
Average Grade Contained Metals
--------------------------------- -------------------------------
Tonnes Silver Zinc Lead Silver Zinc Lead
of ore Grade Grade Grade Ounces Tonnes Tonnes
(000s) (oz./tonne) (%) (%) (000s) (000s) (000s)
------- ----------- ----- ----- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
259,519 2.0 1.57 0.55 509,358 4,074 1,427
</TABLE>
In addition to proven and probable reserves, MRA has estimated 35 million
tonnes of mineralized material at an average grade of 1.60 ounces of silver
per tonne, 1.30 percent zinc, and 0.41 percent lead.
EXPLORATION
Other than San Cristobal and nearby exploration projects in the San
Cristobal district, the Company has a portfolio of silver properties in
Bolivia, Mexico, Peru, Chile, Honduras and Central Asia totaling in excess of
2.5 million acres and contain potential for silver mineralization or other
significant exploration potential. These mineral properties consist of (i)
mining concessions which the Company has acquired, or applied for directly;
(ii) mining concessions which the Company has leased, typically with an option
to purchase; and (iii) mining concessions which the Company has agreed to
explore and develop and, if feasible, bring into production, in concert with
joint venture partners.
The Company generally seeks to structure its acquisitions of mineral rights
so that individual properties can be optioned for exploration and subsequently
acquired at reasonable cost if justified by exploration results. Properties
that the Company determines do not warrant further exploration or development
expenditures are divested, typically without further financial obligation to
the Company. Although the Company believes that its exploration properties may
contain significant silver or other mineralization, the Company's analysis of
these properties is at a preliminary stage. The activities performed to date
at these properties often have involved the analysis of data from previous
exploration efforts by others, supplemented by the Company's own exploration
programs.
The Company's development activities are currently focused on the San
Cristobal project, while exploration is concentrated on the Cobrizos property
in southern Bolivia and the Platosa property in northern Mexico. In 1999, we
expect to complete metallurgical testing at Cobrizos and to complete
geophysical work followed by a drilling program at Platosa. Although the San
Cristobal project remains the Company's top development priority, the initial
work at the Cobrizos and Platosa properties has been promising, and the
Company believes that these properties eventually may become candidates for
development.
Cobrizos
The Cobrizos property is located on level terrain 12 kilometers north of the
San Cristobal project in southern Bolivia. Its proximity to San Cristobal
could afford significant potential operating and administrative efficiencies.
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During pre-Columbian times, green and blue supergene copper carbonate minerals
were produced from the deposit at Cobrizos for use as pigment. Spanish miners
subsequently engaged in small scale native copper and copper sulfate mining.
Between 1892 and 1906 Compania Arenal sank shafts as deep as 60 meters and
produced copper from approximately 100,000 tonnes of material extracted from
shallow underground and open cast workings. A combination of flooding and
carbon dioxide build-up in the workings ultimately forced a cessation of
operations.
The Company is party to a joint venture agreement with Corporacion Minera de
Bolivia S.A. ("Comibol"), a Bolivian government mining company, on its
approximately 5,000 acres of mining rights at the Cobrizos property. Under the
agreement, the Company must make certain payments to Comibol and complete
certain work commitments on the property in order to acquire an 85 percent
interest in the joint venture. Under the joint venture, Comibol would receive
five percent of the operating cash flow (as defined in the agreement) from
production at the Cobrizos property until the Company has recovered its entire
capital investment; thereafter, Comibol would receive 15 percent of operating
cash flow. The Company would be the operator of the joint venture.
Geology
Cobrizos is a partially oxidized copper-silver deposit of possible roll
front or red bed type in shale and sandstone of the Jurassic Potoco Formation.
Exploration and Mineralized Material
A drilling program in 1997 and 1998 focused on a silver and copper rich zone
previously identified by the Company. Twelve holes were drilled over a strike
length of 850 meters which, together with the four earlier holes, resulted in
the holes being spaced approximately 75 meters apart. The results indicate a
steeply dipping mineralized zone with an average width of 55 meters over the
855 meters of strike length, open at both ends. The indicated depth from
surface or near surface is at least 100 meters. MRA calculates that the
Cobrizos property contains mineralized material of 11 million tonnes at grades
averaging between 3 and 4 ounces of silver per tonne. Further drilling is
required to determine the limits of the Cobrizos mineralization, and whether
there are proven and probable reserves.
Platosa
In February 1999, the Company announced completion of its first drill
program on the approximately 10,800 acre Platosa property which is located 5
kilometers northwest of the town of Bermejillo in the Durango State in
northern Mexico. Under the terms of its exploration and development agreement,
the Company has the right to earn up to a 65 percent direct ownership interest
in the property. Upon completion of earn-in requirements, a joint venture
company would be formed with the Company as operator.
Five diamond drill holes totaling approximately 800 meters have been
completed. Four of the five holes contained mineralization or other
indications of favorable conditions for limestone replacement ("manto") type
silver-lead-zinc deposits. One hole encountered 7.45 meters of massive and
sanded sulfides averaging 36.4 ounces per tonne silver, 35 percent zinc and 14
percent lead. Overall core recovery averaged 53 percent for the 7.45 meter
interval. The Company's geologists believe that the material not recovered was
sulfide sand. The Company is conducting a geophysical survey, which will aid
geologists in mapping the subsurface anomaly and guide the design of a follow-
up drill program.
The Platosa property contains water and is located within approximately 1.5
kilometers of a major paved highway, railroad, and natural gas and power
lines. Platosa is located approximately 25 kilometers northeast of the Ojuela
mine at Mapimi where historical production totaled between 5 and 6 million
tonnes of ore grading 15.3 ounces per tonne of silver, in excess of 0.11
ounces per tonne of gold, 15 percent lead and 10 percent zinc. Ore deposits of
this type are important producers of these metals elsewhere in Mexico and the
American Cordillera.
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Other Mineral Properties
In addition to the San Cristobal project and the Cobrizos and Platosa
exploration properties, the Company has a portfolio of more than 2.5 million
acres of exploration properties located in the traditional and emerging silver
producing regions of the world. The distribution of these holdings is
summarized in the table below.
Location and Distribution of Major Groups of Exploration Properties
<TABLE>
<CAPTION>
Number of
Country Properties Acreage(1)
------- ---------- ----------
<S> <C> <C>
South America
Bolivia............................................. 3 1,134,001
Chile............................................... 1 1,977
Peru................................................ 6 183,899
--- ---------
Subtotal.......................................... 10 1,319,877
--- ---------
Central America
Honduras............................................ 7 120,580
Mexico.............................................. 6 166,691
--- ---------
Subtotal.......................................... 13 287,271
--- ---------
Central Asia 4 1,388,470
--- ---------
Total............................................. 27 2,995,618
=== =========
</TABLE>
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(1) The Company's holdings consist primarily of ownership interests, leases,
options and joint venture interests, in varying percentages. Acreage and
percent of total acreage figures do not include land considered part of
the San Cristobal, Cobrizos and Platosa properties. These three properties
consist of claims and concessions comprising approximately 345,000 acres,
5,000 acres, and 10,800 acres, respectively.
The Company's exploration activities in certain countries are described
below. Due to the preliminary nature of the available information regarding
these properties, the exploration portfolio is discussed in general terms.
Bolivia
The Company is one of the largest private owners of mineral rights in
Bolivia. The Company's holdings and joint ventures, excluding the Cobrizos
property and the San Cristobal project, now total approximately 1.1 million
acres, including its existing joint venture interests in the historic Pulacayo
mine and options on several properties currently under evaluation. The Company
is aggressively pursuing its exploration program in Bolivia.
Chile
The Company evaluates exploration opportunities in Chile, but does not
maintain an office there.
Peru
The Company has an exploration office in Lima and is actively exploring for
silver in Peru, the world's second largest silver producing country. In
addition to its San Juan de Lucanas (silver-gold veins) and Otuzco (copper-
gold porphyry) properties, the Company has several other properties currently
undergoing various stages of mapping, sampling and geophysical evaluation. The
Company owns approximately 20 percent of the San Juan de Lucanas property and
has rights to acquire most of the remaining 80 percent under contracts with
former employees of a company which previously operated a mine on the
property. The former employees acquired rights to the property in exchange for
a release of claims against their former employer pursuant to a settlement
agreement which has received required court approvals. The registration of the
settlement agreement (which has been ordered by the court) and subsequent
property transfers are pending. The Company's interest in this property may be
subject to slight dilution as certain employees have not agreed to sell their
rights to the Company or have sought or may seek to terminate their agreements
with the Company.
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Mexico
Mexico is the largest producer of silver in the world. The Company has an
exploration office at Zacatecas, Zacatecas State in northern Mexico, the heart
of the silver belt. We hold approximately 12,700 acres of mineral rights in
the Zacatecas mining district that we continue to evaluate for vein and
volcanogenic massive sulfide exploration targets. Excluding Platosa, the
Company controls approximately 165,000 acres of mineral rights in Mexico that
it is evaluating for silver and other metals in combination with silver.
Honduras
The Company holds approximately 120,000 acres of mineral rights in Honduras
that are administered by the exploration office in Zacatecas, Mexico.
Approximately 1,600 meters of diamond drilling was completed by the end of
1998 at the El Ocote silver-copper property, and further evaluation work is
planned for 1999.
RISK FACTORS
Investors in the Company should consider carefully, in addition to the other
information contained herein, the following risk factors:
No Production History--we have not mined any silver or other metals.
Our company has no history of producing silver or other metals. The
development of our economically feasible properties will require the
construction or rehabilitation and operation of mines, processing plants and
related infrastructure. As a result, we are subject to all of the risks
associated with establishing new mining operations and business enterprises.
There can be no assurance that we will successfully establish mining
operations or profitably produce silver or other metals at any of our
properties.
History of Losses--we expect losses to continue for at least the next three
years.
As an exploration and development company that has no production history, we
have incurred losses since our inception, and we expect to continue to incur
additional losses for at least the next three years. As of December 31, 1998,
we had an accumulated deficit of $39.8 million. There can be no assurance that
we will achieve or sustain profitability in the future.
Potential Inaccuracy of the Reserves and Other Mineralization Estimates
Unless otherwise indicated, reserves and other mineralization figures
presented in our filings with the Securities and Exchange Commission, press
releases and other public statements that may be made from time to time are
based on estimates of contained silver and other metals made by independent
geologists and/or our own personnel. These estimates are imprecise and depend
on geological interpretation and statistical inferences drawn from drilling
and sampling which may prove to be unreliable. There can be no assurance that:
. such estimates will be accurate;
. reserves and other mineralization figures will be accurate; or
. reserves or mineralization could be mined and processed profitably.
Since we have not commenced production on any of our properties, reserves
and other mineralization estimates for these properties may require
adjustments or downward revisions based on actual production experience.
Extended declines in market prices for silver, zinc and lead may render
portions of our reserves uneconomic and result in reduced reported reserves.
Any material reductions in estimates of our reserves and other mineralization,
or of our ability to extract such reserves or mineralization, could have a
material adverse effect on our results of operations and financial condition.
We have not established the presence of any proven or probable reserves at
any of our mineral properties other than the San Cristobal project. Although
independent parties have prepared conceptual studies with respect
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to certain of our other properties using data and assumptions that we have
provided, these studies involve assumptions and projections based on a level
of data insufficient to establish the presence of proven or probable reserves.
There can be no assurance that subsequent testing or future feasibility
studies will establish additional reserves at our properties. The failure to
establish additional reserves could restrict our ability to successfully
implement our strategies for long term growth beyond the San Cristobal
project.
San Cristobal Project Risks--the completion of the San Cristobal project is
subject to additional risks as detailed below.
We plan to complete the development of the San Cristobal project and
commence production operations by late 2001. However, there can be no
assurance that:
. the development of the San Cristobal project will be commenced or
completed on a timely basis, if at all;
. the resulting operations will achieve the anticipated production volume;
or
. the construction costs and ongoing operating costs associated with the
development of the San Cristobal project will not be higher than
anticipated.
If the actual cost to complete the development of the San Cristobal project
is significantly higher than expected, there can be no assurance that we will
have enough funds to cover such costs or that we would be able to obtain
alternative sources of financing to cover such costs. Failure to obtain
necessary project financing on acceptable terms, to commence or complete the
development of the San Cristobal project on a timely basis, to achieve
anticipated production capacity, and unexpected cost increases could have a
material adverse effect on our future results of operations and financial
condition.
The proximity of the town of San Cristobal may adversely affect our ability
to efficiently mine the San Cristobal project. We are in the process of
relocating the local population of approximately 350 persons to a new village
that we are currently constructing. There can be no assurance that we will
successfully complete this relocation program within the time period required
by our development plans, if at all.
The successful development of the San Cristobal project is subject to the
other risk factors described herein.
Dependence on a Single Mining Project--our principal asset is the San
Cristobal project.
We anticipate that the majority, if not all, of our revenues and profits for
the next few years and beyond will be derived from the sale of metals mined at
the San Cristobal project. Therefore, if we are unable to complete and
successfully mine the San Cristobal project in a timely manner, our ability to
generate revenue and profits would be materially adversely affected.
Management of Growth--our success will depend on our ability to manage our
growth.
We anticipate that as we bring our mineral properties into production and as
we acquire additional mineral rights, we will experience significant growth in
our operations. We expect this growth to create new positions and
responsibilities for management personnel and increase demands on our
operating and financial systems. There can be no assurance that we will
successfully meet such demands and manage our anticipated growth.
Volatility of Metals Prices--our profitability will be affected by changes in
the prices of metals.
Our profitability and long-term viability depend, in large part, on the
market price of silver, zinc, lead and other metals. The market prices for
such metals are volatile and are affected by numerous factors beyond our
control, including:
. global or regional consumption patterns;
. supply of, and demand for, silver, zinc, lead and other metals;
. speculative activities;
. expectations for inflation; and
. political and economic conditions.
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The aggregate effect of these factors on metals prices is impossible for our
company to predict. A decrease in metals prices could adversely affect our
ability to finance the development of the San Cristobal project and the
exploration and development of our other properties, which would have a
material adverse effect on our financial condition and results of operations.
Hedging Risks--we may lose money through our hedging program.
We have commenced a limited preliminary program to hedge against commodity
and base metals price risks. We anticipate that as we bring our mineral
properties into production and we begin to generate revenue, we may utilize
various price hedging techniques to mitigate some of the risks associated with
fluctuations in the prices of the metals we produce. We may also engage in
activities to hedge the risk of exposure to currency and interest rate
fluctuations as a result of our operations in several foreign countries.
Further, terms of certain of our financing arrangements may require us to
hedge against these risks.
There can be no assurance that we will be able to successfully hedge against
price, currency and interest rate fluctuations. In addition, our ability to
hedge against zinc and lead price risk in a timely manner may be adversely
affected by the smaller volume of transactions in both the zinc and lead
markets. Further, there can be no assurance that the use of hedging techniques
will always be to our benefit. Hedging instruments which protect against
market price volatility may prevent us from realizing the benefit from
subsequent increases in market prices with respect to covered production. Such
limitation would limit our revenues and profits. Hedging contracts are also
subject to the risk that the other party may be unable or unwilling to perform
its obligations under such contracts. Any significant nonperformance could
have a material adverse effect on our financial condition and results of
operations.
Acquisition, Exploration and Development Risks--the acquisition, exploration
and development of mineral properties is highly speculative in nature and
frequently non-productive.
Our future growth and profitability will depend, in part, on our ability to
identify and acquire additional mineral rights, and on the costs and results
of our continued exploration and development programs. Our strategy is to
expand our reserves through a broad program of exploration. Mineral
exploration is highly speculative in nature and is frequently non-productive.
If we discover mineralization, it usually takes several years from the initial
phases of exploration until production is possible. During this time, the
economic feasibility of production may change. Substantial expenditures are
required to:
. establish ore reserves through drilling and metallurgical and other
testing techniques;
. determine metal content and metallurgical processes to extract metal
from the ore; and
. construct, renovate or expand mining and processing facilities.
As a result of these uncertainties, there can be no assurance that we will
successfully acquire additional mineral rights or that our exploration
programs will result in new proven and probable reserves or in mineral
production.
None of our mineral properties, including the San Cristobal project, has an
operating history upon which we can base estimates of future cash operating
costs. Estimates of reserves and operating costs, particularly for development
projects like the San Cristobal project, are based to a large extent upon
interpreting geologic data obtained from drill holes and other sampling
techniques and on feasibility studies. Feasibility studies derive estimates of
cash operating costs based upon, among other things:
. anticipated tonnage and grades of ore to be mined and processed;
. anticipated metallurgical characteristics of the ore;
. configuration of the ore body;
. expected recovery rates of silver and other metals from the ore;
. expected presence or absence in the ore of metals that are deleterious
to metals recovery;
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. the cash operating costs of comparable facilities and equipment; and
. anticipated climatic conditions.
Actual cash operating costs, production and economic returns may differ
significantly from those anticipated by our studies and estimates.
In addition, there are a number of uncertainties inherent in the development
and construction of any new mine, including:
. the timing and cost, which can be considerable, of the construction of
mining and processing facilities;
. the availability and cost of skilled labor, power, water and
transportation facilities;
. the availability and cost of appropriate smelting and refining
arrangements;
. the need to obtain necessary environmental and other governmental
permits, and the timing of those permits; and
. the need to obtain funds to finance construction and development
activities.
The costs, timing and complexities of mine construction and development are
increased by the remote location of many mining properties, like the San
Cristobal project. It is common in new mining operations to experience
unexpected problems and delays during mine start-up. In addition, delays in
the commencement of mineral production often occur.
Thus, there can be no assurance that minerals will be discovered, in
sufficient quantities to justify commercial operations in any of our company's
properties, other than the San Cristobal project, or that the funds required
for mine construction and development can be obtained. Accordingly, there is
no assurance that our future development activities or exploration efforts
will result in profitable mining operations.
Title to Our Mineral Properties May be Challenged
Our policy is to seek to confirm the validity of our rights to title to, or
contract rights with respect to, each mineral property in which we have a
material interest. However, we cannot guarantee that title to our properties
will not be challenged or impugned. Title insurance generally is not
available, and our ability to ensure that we have obtained secure claim to
individual mineral properties or mining concessions may be severely
constrained. We have not conducted surveys of all of the claims in which we
hold direct or indirect interests and, therefore, the precise area and
location of such claims may be in doubt. Accordingly, our mineral properties
may be subject to prior unregistered agreements, transfers or claims, and
title may be affected by, among other things, undetected defects. In addition,
we may be unable to operate our properties as permitted or to enforce our
rights with respect to such properties.
We derive the rights to certain of our mineral properties, including certain
of our principal properties at the San Cristobal project, from leaseholds or
purchase option agreements which require the payment of rent or other
installment fees. If we fail to make such payments when they are due, our
rights to such property may lapse. There can be no assurance that we will
always make payments by the requisite payment dates. In addition, certain of
our contracts with respect to our mineral properties require development or
production schedules. There can be no assurance that we will be able to meet
any or all of such development or production schedules. In addition, our
ability to transfer or sell our rights to certain mineral properties requires
governmental approvals or third party consents, which may not be granted.
Mining Risks and Limits of Insurance Coverage--we cannot insure against all of
the risks associated with mining.
The business of mining is subject to a number of risks and hazards,
including:
. adverse environmental effects;
. industrial accidents;
. labor disputes;
. technical difficulties due to unusual or unexpected geologic formations;
. cave-ins; and
. flooding and periodic interruptions due to inclement or hazardous
weather conditions.
9
<PAGE>
Such risks can result in, among other things:
. damage to, and destruction of, mineral properties or production
facilities;
. personal injury;
. environmental damage;
. delays in mining;
. onetary losses; and
. legal liability.
Although we maintain, and intend to continue to maintain, insurance with
respect to our operations and mineral properties within ranges of coverage
consistent with industry practice, there can be no assurance that such
insurance will be available at economically feasible premiums. Insurance
against environmental risks (including potential liability for pollution or
other disturbances resulting from mining exploration and production) is not
generally available. In addition, certain risks associated with developing and
producing silver, zinc, lead and other metals may be excluded from coverage or
may result in liabilities which exceed policy limits. Further, we may elect to
not seek coverage for certain risks. The occurrence of an event that is not
fully covered, or covered at all, by insurance, could have a material adverse
effect on our financial condition and results of operations.
Foreign Operations--we conduct all of our exploration activities in countries
with developing economies and are subject to the risks of political and
economic instability associated with these countries.
We currently conduct exploration activities in countries with developing
economies including Bolivia, Chile, Honduras, Mexico and Peru in Latin
America. These countries and other emerging markets in which we may conduct
operations have from time to time experienced economic or political
instability. We may be materially adversely affected by risks associated with
conducting operations in countries with developing economies, including:
. political instability and violence;
. war and civil disturbance;
. expropriation or nationalization;
. changing fiscal regimes;
. fluctuations in currency exchange rates;
. high rates of inflation;
. underdeveloped industrial and economic infrastructure; and
. unenforceability of contractual rights.
Changes in mining or investment policies or shifts in the prevailing
political climate in any of the countries in which we conduct exploration and
development activities could adversely affect our business. Our operations may
be affected in varying degrees by government regulations with respect to,
among other things:
. production restrictions;
. price controls;
. export controls;
. income and other taxes;
. maintenance of claims;
. environmental legislation;
. foreign ownership restrictions;
. foreign exchange and currency controls;
10
<PAGE>
. labor;
. welfare benefit policies;
. land use;
. land claims of local residents;
. water use; and
. mine safety.
We cannot accurately predict the effect of these factors. In addition,
legislation in the United States regulating foreign trade, investment and
taxation could have a material adverse effect on our financial condition and
results of operations.
Government Regulation of Environmental Matters--our exploration activities are
subject to foreign environmental laws and regulations which may materially
adversely affect our future operations.
Our commercial production and mineral exploration and development are
subject to foreign laws and regulations which control the mining and
exploration of mineral properties and their potential effects upon the
environment. These laws and regulations are comprehensive and deal with
matters such as air and water quality, mine reclamation, waste handling and
disposal, the protection of certain species and the preservation of certain
lands. These laws and regulations will require our company to acquire permits
and other authorizations for certain activities. There can be no assurance
that we will be able to acquire such permits or authorizations on a timely
basis, if at all. Any delay in acquiring a permit or authorization could
increase the development cost of a project and may delay the commencement of
production.
Environmental legislation is evolving in a manner which will likely require
stricter standards and enforcement, increased fines and penalties for non-
compliance, more stringent environmental assessments of proposed projects and
a heightened degree of responsibility for companies and their officers,
directors and employees. Many aspects of mine operation and reclamation
require permits from various regulatory authorities. We cannot predict what
environmental legislation or regulations will be enacted or adopted in the
future or how future laws and regulations will be administered or interpreted.
Compliance with more stringent laws and regulations, as well as potentially
more vigorous enforcement policies or regulatory agencies or stricter
interpretation of existing laws, may (1) necessitate significant capital
outlays, (2) cause us to delay, terminate or otherwise change our intended
activities with respect to one or more projects and (3) materially adversely
affect our future operations.
Our preliminary analysis of the mining activities conducted by the previous
owner and operator of the Toldos mine at the San Cristobal project indicates
that 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. We expect to improve the environmental situation
which may currently exist at the site. We do not expect any such efforts to
have a material adverse effect on our proposed operations at the San Cristobal
project.
We may be unaware of existing environmental conditions on our other mineral
properties which have been caused by previous or existing owners or operators
of the properties. We have not sought complete environmental analyses of our
mineral properties and have not conducted comprehensive reviews of the
environmental laws and regulations in every jurisdiction in which we own or
control mineral properties. To the extent we are subject to environmental
requirements or liabilities, the cost of compliance with such requirements and
satisfaction of such liabilities would reduce our net cash flow and could have
a material adverse effect on our financial condition and results of
operations. If we are unable to fund fully the cost of remediation of any
environmental condition, we may be required to suspend operations or enter
into interim compliance measures pending completion of the required
remediation.
11
<PAGE>
Competition--we compete against larger and more experienced companies.
The mining industry is intensely competitive. We compete with many companies
that have greater financial resources, operational experience and technical
capabilities than we have. Competition in the mining business could adversely
affect our ability to attract requisite capital funding or acquire suitable
producing properties or prospects for mineral exploration in the future. We
may encounter increasing competition from other mining companies in our
efforts to acquire mineral properties and to hire experienced mining
professionals.
Holding Company Structure Risks--our ability to obtain dividends or other
distributions from our subsidiaries may be subject to restrictions imposed by
law and foreign currency exchange regulations.
We conduct, and will continue to conduct, all of our operations through
subsidiaries. Our ability to obtain dividends or other distributions from our
subsidiaries may be subject to restrictions on dividends or repatriation of
earnings under applicable local law, monetary transfer restrictions and
foreign currency exchange regulations in the jurisdictions in which the
subsidiaries operate. Our subsidiaries' ability to pay dividends or make other
distributions to our company is also subject to their having sufficient funds
to do so. If our subsidiaries are unable to pay dividends or make other
distributions, our growth may be inhibited unless we are able to obtain
additional debt or equity financing on acceptable terms. In the event of a
subsidiary's liquidation, we may lose all or a portion of our investment in
such subsidiary.
Requirement of External Financing--we may not be able to raise the funds
necessary to explore and develop our mineral properties.
We will need external financing to develop and construct the San Cristobal
project and to fund the exploration and development of our other mineral
properties. Sources of such external financing may include bank borrowings and
future debt and equity offerings. There can be no assurance that financing
will be available on acceptable terms, or at all. The failure to obtain such
financing could have a material adverse effect on our growth strategy and our
results of operations and financial condition. The mineral properties that we
are likely to develop are expected to require significant capital
expenditures. There can be no assurance that we will be able to secure the
financing necessary to retain our rights to, or to begin or sustain,
production at our mineral properties.
Dependence on Key Personnel
We are dependent on the services of certain key executives including our
chairman and our chief operating officer. The loss of these persons, other key
executives or personnel, or our inability to attract and retain additional
highly skilled employees required for expanding our activities, may have a
material adverse effect on our business or future operations. In addition, we
do not intend to maintain "key-man" life insurance on any of our executive
officers or other personnel.
Substantial Control By Directors and Officers, and Certain Shareholders--the
substantial control of our company by the directors and officers, and certain
shareholders may have a significant effect in delaying, deferring or
preventing a change in control of our company or other events which could be
of benefit to our other shareholders.
As of December 31, 1998, Thomas S. Kaplan and the other directors of our
company and officers of Apex Silver Mines Corporation, together with members
of their families and entities that may be deemed to be affiliates of or
related to such persons or entities, beneficially owned approximately 33% of
the outstanding shares of our company (including approximately 1.3% owned by
Paul Soros and his affiliates and approximately 6.7% owned by Eduardo Elsztain
and his affiliates). In addition, as of December 31, 1998, Quantum Industrial
Partners LDC and Geosor Corporation collectively owned approximately 17% of
the outstanding shares of our company. George Soros, by virtue of his
ownership of Geosor Corporation and his position with Soros Fund Management
LLC, an investment advisor to Quantum Industrial Partners LDC, may have the
power to direct the way that these shares are voted. Such a high level of
ownership by such persons may have a significant effect in delaying, deferring
or preventing a change in control of our company or other events which could
be of benefit to our other shareholders.
12
<PAGE>
METALS MARKET OVERVIEW
Silver Market
Silver has traditionally served as a medium of exchange, much like gold.
While silver continues to be used for currency, the principal uses of silver
can be divided into three main categories: (i) industrial uses, primarily
electrical and electronic components; (ii) photography; and (iii) jewelry and
silverware. According to publications of the CPM Group ("CPM"), in 1998
approximately 822.2 million ounces of silver were consumed for these and other
industrial purposes, an increase of 2.4 percent from 1997. An additional 25
million ounces of silver was used to satisfy the coinage demand in 1998, an
increase of 32.6 percent from 18.9 million ounces in 1997.
Silver's strength, malleability, ductility, thermal and electrical
conductivity, sensitivity to light and ability to endure extreme changes in
temperature combine to make silver a widely used industrial metal.
Specifically, it is used in photography, batteries, computer chips, electrical
contacts, and high technology printing. Silver's anti-bacterial properties
also make it valuable for use in medicine and in water purification.
Most silver production is obtained from mining operations in which silver is
not the principal or primary product. Approximately 76 percent of mined silver
is produced as a by-product of mining of lead, zinc, gold, nickel or copper
deposits. CPM estimates that in 1998 recycled or secondary supply of silver
increased at its fastest rate since 1995, rising 10.2 percent to 176 million
ounces, in response to higher silver prices. CPM further estimates that total
silver supply (from mine production, recycling and estimated dishoarding and
government stockpile sales) has been insufficient to meet industrial demand
since 1990, and stockpiles have been diminishing. CPM studies indicate that
approximately 630 million ounces of silver were supplied from all sources in
1998, an increase of 7.7 percent from 1997. Mine production of silver rose 6.7
percent to 448 million ounces.
The following table sets forth the London Silver Market's annual average,
high and low spot price of silver in U.S. dollars per troy ounce since 1978.
<TABLE>
<CAPTION>
Year Average High Low
---- ------- ----- -----
(U.S. dollars per
troy ounce)
<S> <C> <C> <C>
1978.................................................. 5.42 6.26 4.82
1979.................................................. 11.06 32.20 5.94
1980.................................................. 20.98 49.45 10.89
1981.................................................. 10.49 16.30 8.03
1982.................................................. 7.92 11.11 4.90
1983.................................................. 11.43 14.67 8.37
1984.................................................. 8.14 10.11 6.22
1985.................................................. 6.13 6.75 5.45
1986.................................................. 5.46 6.31 4.85
1987.................................................. 7.01 10.93 5.36
1988.................................................. 6.53 7.82 6.05
1989.................................................. 5.50 6.21 5.04
1990.................................................. 4.83 5.36 3.95
1991.................................................. 4.06 4.57 3.55
1992.................................................. 3.95 4.34 3.65
1993.................................................. 4.31 5.42 3.56
1994.................................................. 5.28 5.75 4.64
1995.................................................. 5.19 6.04 4.41
1996.................................................. 5.19 5.83 4.71
1997.................................................. 5.17 6.27 4.22
1998.................................................. 5.54 6.83 4.88
</TABLE>
- --------
Source: Silver Institute and Kitco
13
<PAGE>
Zinc and Lead Markets
The Company anticipates that the San Cristobal project will, and that other
future projects may, involve the production of economically significant
quantities of metals other than silver. The Company expects that production
from the San Cristobal project will include the extraction, processing and
sale of significant quantities of zinc and lead contained in sulfide
concentrates.
Due to the corrosion resisting property of zinc, zinc is used primarily as
the coating in galvanized steel, which is widely used in construction of
infrastructure, housing and office buildings. In the automotive industry, zinc
is used for galvanizing and die-casting, and in the vulcanization of tires.
Smaller quantities of various forms of zinc are used in the chemical and
pharmaceutical industries, including fertilizers, food supplements and
cosmetics, and in specialty electronic applications such as satellite
receivers. Industrial consumption of zinc in 1998 was estimated in
publications of the International Lead Zinc Study Group (the "ILZSG") at 6.47
million tonnes. Recycled zinc accounts for about eight percent of the zinc
consumed on an annual basis. According to the ILZSG, 5.60 million tonnes of
zinc were produced in 1998.
The primary use of lead is in motor vehicle batteries, but it is also used
in cable sheathing, shot for ammunition and alloying, and in chemical form is
used in alloys, glass and plastics. Western world industrial consumption of
lead in 1998 is estimated by the ILZSG at 5.23 million tonnes. Lead is widely
recycled with secondary production, accounting in recent years for
approximately 55 to 60 percent of total supply. According to the ILZSG, 4.95
million tonnes of lead were produced in 1998.
The following table sets forth the annual average spot prices for zinc and
lead on the London Metals Exchange since 1978.
<TABLE>
<CAPTION>
Year Zinc Lead
---- ----------- -----------
(U.S. cents per pound)
<S> <C> <C>
1978.............................................. 31.0 33.7
1979.............................................. 33.5 52.6
1980.............................................. 34.4 41.4
1981.............................................. 38.3 33.5
1982.............................................. 33.7 24.7
1983.............................................. 34.6 19.3
1984.............................................. 41.7 20.1
1985.............................................. 35.5 17.7
1986.............................................. 34.1 18.4
1987.............................................. 36.2 27.0
1988.............................................. 56.3 29.7
1989.............................................. 77.6 30.5
1990.............................................. 68.9 36.7
1991.............................................. 50.7 25.3
1992.............................................. 56.2 24.6
1993.............................................. 43.6 18.4
1994.............................................. 45.3 24.9
1995.............................................. 46.8 28.6
1996.............................................. 46.5 35.1
1997.............................................. 59.7 28.3
1998.............................................. 46.4 24.0
</TABLE>
- --------
Source: Fleming Global Mining Group and ILZSG
14
<PAGE>
MANAGEMENT
Executive Officers and Certain Personnel
Apex Limited has no executive officers. Under the Companies Law (1995
Revision) of the Cayman Islands, directors are authorized to bind the
corporation that they represent. Apex Limited has entered into a Management
Services Agreement pursuant to which it has engaged Apex Silver Mines
Corporation ("Apex Corporation") to provide a broad range of corporate
management and advisory services. Set forth below are certain personnel of the
Company and its subsidiaries.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Thomas S. Kaplan........ 36 Chairman of Apex Limited, and Chief Executive
Officer of Apex Corporation
Keith R. Hulley......... 59 President and Chief Operating Officer, Apex
Corporation
Marcel F. DeGuire....... 49 Vice President of Corporate Development, Apex
Corporation
Mark A. Lettes.......... 49 Vice President Finance and Chief Financial
Officer, Apex Corporation
Larry J. Buchanan....... 54 Chief Geologist, Apex Corporation
Douglas M. Smith, Jr.... 55 Vice President Exploration, Apex Corporation
Linda Good Wilson....... 41 Vice President Investor Relations, Apex
Corporation
Johnny Delgado Achaval.. 59 President and Chief Executive Officer, Andean
Silver Corporation LDC
</TABLE>
Thomas S. Kaplan. Mr. Kaplan has been the Chairman of the board of directors
of the Company since its inception in March 1996 and is a director and was the
founder of Apex LDC and its predecessor, Apex Silver Mines Ltd., which
contributed substantially all of its assets to Apex LDC in December 1994. Mr.
Kaplan is a director of Litani Capital Management LDC ("Litani LDC"). In 1998,
Litani LDC exchanged all its shares of Apex LDC for Ordinary Shares of the
Company. At Litani's request, such shares were issued directly to Litani's
shareholders. Mr. Kaplan is a principal shareholder in Consolidated
Commodities Ltd., a shareholder of Apex Limited. For the past ten years, Mr.
Kaplan has served as an advisor to private clients, trusts and fund managers
in the field of strategic forecasting, an analytical method which seeks to
identify and assess global trends in politics and economics and the way in
which such trends relate to international financial markets, particularly in
the developing markets of Asia, Latin America, the Middle East and Africa. Mr.
Kaplan has managed numerous venture capital investments and portfolio
investment accounts, and is a principal of several entities specializing in
direct and portfolio investments, including Feder Information Services
Corporation, Tigris Financial Group Ltd., FMS Partners L.P. and Bridge Capital
Group L.P. Mr. Kaplan also serves as a director of African Plantations
Corporation LDC, a Cayman Islands limited duration company which owns and
operates coffee and tea plantations in eastern and southern Africa. Mr. Kaplan
was educated in Switzerland and England and holds B.A., M.A., and D. Phil.
degrees in History from the University of Oxford.
Keith R. Hulley. Mr. Hulley has been a director of the Company since April
1997. A mining engineer with more than 30 years experience, Mr. Hulley serves
as the President and Chief Operating Officer of Apex Corporation and has
served as an executive officer of Apex Corporation since its formation in
October 1996. From early 1991 until he joined the Company, he served as a
member of the board of directors and the Director of Operations at Western
Mining Holdings Limited Corporation, a publicly traded international nickel,
gold and copper producer. At Western Mining, Mr. Hulley's responsibilities
included supervising on a global basis strategic planning, mine production,
concentrating, smelting, refining and sales. During this period, Western
Mining produced on an annual basis approximately 90,000 tonnes of nickel,
700,000 ounces of gold, 80,000 tonnes of refined copper and 1,500 tonnes of
uranium oxide. Mr. Hulley also supervised the development and operation of
Western Mining's Mount Keith open-pit nickel mine, an A$450 million mining
project. Prior to joining Western Mining, Mr. Hulley was the President, Chief
Executive Officer and Chairman of the board of directors of USMX Inc., a
publicly traded precious-metals exploration company. Mr. Hulley has also
served as the President of the minerals division and Senior Vice President for
Operations of Atlas Corporation, where he was in charge of mining exploration,
development and production. Previously he was Vice President of Mining and
Development of the U.S. division of BP Minerals, Inc. Over the course of his
career, Mr. Hulley has worked
15
<PAGE>
as a miner and shift supervisor in the gold mines of South Africa, Mine
Operation Superintendent of Kennecott Corporation's Bingham Canyon mine which
processed 100,000 tonnes of ore per day, and project manager of the early
phase of the Ok Tedi exploration and development projects in Papua New Guinea.
A member of the American Institute of Mining and Metallurgical Engineers and a
Fellow of the Australian Institute of Mining and Metallurgy, Mr. Hulley holds
a B.S. in Mining Engineering from the University of Witwatersrand and an M.S.
in Mineral Economics from Stanford University.
Marcel F. DeGuire. Mr. DeGuire serves as Vice President of Development of
Apex Corporation. Prior to joining Apex Corporation in August 1996, he served
as Vice President of Project Development and Regional Director for those
jurisdictions which were formerly part of the Soviet Union for Newmont Gold
Company, a subsidiary of Newmont Mining Corporation. During this period, Mr.
DeGuire acted as Project Leader of Newmont's Muruntau large scale open pit
heap leach gold project in Uzbekistan. This facility processes 37,800 tonnes
of ore per day and was built at a cost of $225 million. Mr. DeGuire was
directly involved in the joint venture negotiations leading up to the project,
the subsequent feasibility studies, completion of construction and the
commencement of mining operations. In addition to his work in Central Asia,
Mr. DeGuire has been responsible for various feasibility analyses, including
Newmont's Yanacocha gold project in Peru. During his almost 20 years with
Newmont, Mr. DeGuire worked as resident manager of a uranium mine and rose to
President of several of Newmont's subsidiaries and became a leading expert in
environmental management and mine reclamation, serving as Newmont's Vice
President of Environmental Affairs and Research and Development as well as in
other senior executive positions. Mr. DeGuire is a member of the American
Institute of Mining, Metallurgical and Petroleum Engineers, the Canadian
Institute of Metallurgy, the Mining and Metallurgical Society of America and
has published various articles on mineral processing and environmental
matters. Mr. DeGuire holds a B.S. in Metallurgical Engineering from Michigan
Technological University and an M.S. in Metallurgical Engineering from the
University of Nevada, Reno.
Mark A. Lettes. Mr. Lettes has served as Vice President Finance and Chief
Financial Officer of Apex Corporation since June 1998. Prior to joining Apex
Corporation, Mr. Lettes served from late 1996 to 1998 as Vice President
Trading for Amax Gold Inc. and Director of Treasury for Cyprus Amax Minerals
Company, where he was responsible for all Amax Gold hedging activities. A
financial professional with 25 years experience, Mr. Lettes served as Vice
President and Chief Financial Officer for Amax Gold from 1994 until 1996 where
he was responsible for numerous financings including project financings for
the Fort Knox mine in Alaska and the Refugio mine in Chile, parent-subsidiary
financing arrangements with Cyprus Amax and a convertible preferred issue. Mr.
Lettes started the gold hedging program at Amax Gold and was responsible for
all hedging activities of Amax Gold from 1987 through June 1998, when Amax
Gold merged with Kinross Gold Corporation. From 1979 through 1986, Mr. Lettes
held several positions at AMAX Inc. including Manager of Corporate
Development, Manager Futures Analysis and Group Planning Administration. In
those positions, Mr. Lettes was responsible for planning and economic analysis
activities for AMAX and for business development and acquisition functions.
Transactions on which Mr. Lettes worked at AMAX included the acquisition of
the remaining 50 percent of Alumax, AMAX's aluminum subsidiary. Prior to his
service at AMAX and Amax Gold, Mr. Lettes held professional positions in the
financial departments of United Technologies and Rockwell International from
1974 until 1979. Mr. Lettes holds a B.S. in Marketing from the University of
Connecticut and an M.B.A. from Ohio State University.
Dr. Larry J. Buchanan. Dr. Buchanan serves as Chief Geologist to Apex
Corporation and is a principal advisor to the Company's international
operations. He joined Apex Corporation in 1995, following five years as an
independent consultant from 1990 through 1994. Dr. Buchanan is a noted
exploration geologist with a reputation as one of the industry's leading
experts on epithermal deposits, on which he has written several definitive
texts. His analysis of such deposits has given rise to the industry paradigm
known as "The Buchanan Model". Dr. Buchanan has published eight geological
texts, played a key role in identifying several multi-million ounce gold
deposits, and developed implementation programs for numerous currently
producing mines. His consulting clients have included Cyprus Minerals Company,
FMC Corporation, Total Resources, Inc. and Fischer-Watt Gold Co. Inc. Dr.
Buchanan is a shareholder and director of Begeyge Minera Ltda. Dr. Buchanan
16
<PAGE>
holds a B.Sc. and an M.Sc. in Geological Engineering and a Ph.D in Economic
Geology from the Colorado School of Mines.
Douglas M. Smith, Jr. Mr. Smith has served as Vice President of Exploration
for Apex Corporation since early 1997. Mr. Smith began his career with Minas
de San Luis, S.A., where he was District Geologist at the Taylotita mine in
Mexico, one of the largest epithermal silver-gold deposits in the world, and
subsequently became Chief Geologist. Prior to joining Apex Corporation, Mr.
Smith was employed for almost 20 years by ASARCO Incorporated, which he joined
in 1977. During his tenure at ASARCO, he held numerous positions including
Manager of the Rocky Mountain Exploration Division and, most recently, Chief
Geologist of the Latin American Exploration Division, where he was responsible
for overseeing all aspects of exploration and project evaluation in Spanish-
speaking countries of the Americas, including Bolivia, Peru, Chile and Mexico.
Mr. Smith holds a B.S. in Geology from the University of New Mexico.
Linda Good Wilson. Ms. Wilson joined Apex Corporation as Vice President of
Investor Relations in October 1997. Prior to joining Apex Corporation, Ms.
Wilson served from March through October 1997 as Director of Investor
Relations for Addwest Minerals, a newly listed Canadian junior gold producer.
With 14 years of mining experience, Ms. Wilson spent the 10 years prior to
March 1997 at Cyprus Amax in numerous positions, including Director in the
Investor Relations and Treasury Department. Ms. Wilson began her career as a
Geologist at AMAX Inc.'s Mount Tolman Project, a large copper-molybdenum
deposit in eastern Washington. Ms. Wilson holds a B.A. in Geology from Colby
College and a M.S. in Mineral Economics from the Colorado School of Mines.
Johnny Delgado Achaval. Mr. Delgado serves as the Chief Executive Officer of
Andean Silver Corporation LDC. Mr. Delgado has over 30 years experience in the
South American mining industry, including 15 years as President and principal
shareholder of Mineria Tecnica Consultores Asociados S.A. ("Mintec"), which
was one of Bolivia's leading mining consulting firms and the agent for Andean
Silver Corporation LDC from the formation of its Bolivian branch in 1994 until
Mintec's acquisition by the Company in 1998. Mr. Delgado founded Mintec in
1981. Prior to the formation of Mintec, Mr. Delgado worked with International
Mining Company from 1966 to 1981, where he served initially as Chief of
Exploration and Project Manager and then as Technical Vice President of its
tungsten mining holding company, Estalsa Boliviana S.A. Both before and during
his tenure at Mintec, Mr. Delgado was involved in all aspects of international
mining, including the direction of major exploration efforts in Bolivia, Peru,
Brazil, Ecuador, Argentina and Chile, as well as management of mining
operations in Bolivia. Mr. Delgado has taught mining engineering, mining
finance and mine geology. He is a member of the Geological Society of Bolivia,
the Society of Bolivian Engineers and the Mining Club.
As of December 31, 1998, the Company had approximately 90 full-time
employees.
Apex Corporation provides management, advisory and administrative services
for the Company pursuant to a Management Services Agreement dated October 22,
1996. The services provided by Apex Corporation include identifying and
evaluating investment opportunities; making recommendations to the Company's
board of directors with respect to the Company's exploration and development
activities; providing staffing, employees and the necessary expertise to
manage the Company's affairs and monitor its exploration and development
activities; and advising the Company with respect to investments, contractual
and financing activities and providing financial services. The Company pays
Apex Corporation a service fee in an amount equal to the direct and indirect
costs incurred by Apex Corporation in providing its services, plus 10 percent
of such costs.
17
<PAGE>
GLOSSARY
Adit--a horizontal or nearly horizontal passage driven from the surface for
the working of a mine.
Andesite--a porphyritic igneous rock with low quartz content.
Back--a mining term indicating the rock volume which is above a level in a
mine; the term may also refer to the roof of a mine working.
Brecciation or Breccia--fracturing of preexisting rocks by natural forces; a
rock type formed in this manner.
Bulk Mining--surface or underground mining methods applied to large bodies
of ore which involve large-scale, automated excavation techniques.
Concentrate--a mineral processing product that generally describes the
material that is produced after crushing and grinding ore and then effecting
significant separation of gangue (waste) minerals from the metal and/or metal
minerals, discarding the waste and minor amounts of metal and/or metal
minerals leaving a "concentrate" of metal and/or metal minerals with a
consequent order of magnitude higher content of metal and/or metal minerals
than the beginning ore material.
Conceptual Study--an initial technical financial study of a project at a
sufficient level of accuracy and detail to allow a decision as to whether to
undertake a feasibility study with respect to a given property.
Conglomerate--a course-grained clastic sedimentary rock, composed of rounded
to subangular fragments larger than two millimeters in diameter set in a fine-
grained matrix of sand or silt.
Core--a sample of rock produced by diamond drilling.
Cut-off Grade--the minimum grade of mineralization or ore used to establish
quantitative estimates of total mineralized ore.
Development--work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
Diamond Drill--a type of rotary drill in which the cutting is done by
abrasion rather than by percussion. The hollow bit of the drill cuts a core of
rock which is recovered in long cylindrical sections.
Drift--a horizontal passage underground that follows along the length of a
vein or mineralized rock formation.
Epithermal--said of a hydrothermal mineral deposit formed within about 1
kilometer of the earth's surface and in the temperature range of 100 to 250
degrees Celsius, occurring mainly as veins; a term applied to deposits formed
at shallow depths from ascending solutions of moderate temperatures.
Exploration--work involved in searching for ore by geological mapping,
geochemistry, geophysics, drilling and other methods.
Fault--a fracture in a rock where there has been displacement of the two
sides.
Feasibility Study--a technical financial study of a project at sufficient
level of accuracy and detail to allow a decision as to whether a given project
should proceed.
Fracture--breaks in a rock, usually due to intensive folding or faulting.
Gangue--metallic or non-metallic minerals of little or no value that form
the matrix of an ore.
Grade--the average assay of a ton of ore, reflecting metal content.
Heap Leaching--a process involving the percolation of a cyanide solution
through crushed ore heaped on an impervious pad or base to dissolve minerals
or metals out of the ore.
18
<PAGE>
Hydrothermal alteration--alteration of rocks or minerals by the reaction of
hydrothermal water (hot water) with preexisting solid phases.
Intrusion--in geology, a mass of igneous rock that while molten was forced
into or between other rocks.
Kriging--a geostatistical estimation method for calculating a geological
three dimensional model for the estimation of mineralized material and proven
and probable reserves. This method was developed to provide the "best linear,
unbiased estimate" for grade based on a least squares minimization of the
error estimation, or Kriging errors.
Leached--the separation, selective removal or dissolving out of soluble
constituents from a rock or orebody by the natural action of percolating
water.
Lens--a geological deposit bounded by converging surfaces, at least one of
which is curved, thick in the middle and thinning out to the edges, resembling
a convex lens.
Level--a sub-horizontal working in a mine, like a drift or a tunnel, often
given a number which relates its depth below an arbitrarily chosen reference
point, e.g., the -300 Level usually means the working is 300 meters below some
chosen reference point.
Massive--said of mineral deposits characterized by a great concentration of
ore in one place, as opposed to disseminated or vein deposits.
Massive sulfides--said of massive mineral deposits in which valuable sulfide
and other metallic minerals are more abundant than metallic and non-metallic
gangue minerals.
Mill--a processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be treated
in some other type of plant, such as a smelter, to effect recovery of the pure
metal.
Mineable--the portion of a resource for which extraction is technically and
economically feasible.
Mineralization--the concentration of metals and their compounds in rocks,
and the processes involved therein.
Mineralized Material--that part of mineral deposits (i) for which tonnage
and grade are computed (a) partly from specific measurements, samples or
production data compiled from appropriately spaced assays of outcrops,
trenches, underground workings or drill holes and (b) partly from projections
based on geological evidence, and (ii) that have not been measured and sampled
with sufficient confidence to determine that the identified deposit can be
economically and legally extracted at the time of such determination.
Net Smelter Return or NSR--a return based on the actual proceeds from sale
of metal or mineral products received less the cost of refining or smelting at
an off-site refinery.
Open Pit--a surface working open to daylight, such as a quarry.
Ore--material that can be economically mined and processed.
Ounce--a unit of measurement of weight. In the precious metals industry, one
troy ounce, the equivalent of 31.103 grams.
Outcrop--the part of a rock formation that appears at the earth's surface,
often protruding above the surrounding ground.
Porphyry--an igneous rock of any composition that contains conspicuous
phenocrysts (large crystals) in a fine-grained rock mass.
19
<PAGE>
Probable Reserves--that part of a mineral deposit which may be economically
and legally extracted or produced at the time of the reserve determination for
which quantity and grade and/or quality are computed from information similar
to that used for proven reserves (see below), but the sites for inspection,
sampling and measurement are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven reserves,
is high enough to assume continuity between points of observation.
Proven Reserves--that part of a mineral deposit which may be economically
and legally extracted or produced at the time of the reserve determination for
which (a) quantity is computed from dimensions revealed in outcrops, trenches,
workings and drill holes and grade and/or quality are computed from the
results of detailed sampling; and (b) the sites for inspection, sampling and
grade measurement are spaced so closely and the geological character is so
well defined that size, shape, depth and mineral content of reserves are well
established.
Recovery--the percentage of contained metal extracted from ore in the course
of processing such ore.
Refining--the final stage of metal production in which residual impurities
are removed from the metal.
Reserves--that part of a mineral deposit which may be economically and
legally extracted or produced at the time of the reserve determination.
Reverse Circulation Drill--a rotary drill or rotary percussion drill in
which the drilling fluid and cuttings return to the surface through the drill
pipe, minimizing contamination.
Secondary enrichment/Supergene enrichment--a mineral deposition process in
which near surface oxidation produces acidic solutions that leach (dissolve)
minerals or metals, carry them downward, and precipitate them, thus enriching
sulfide minerals already present.
Sedimentary rocks/sediments--rocks resulting from the consolidation of loose
sediments that have accumulated in layers consisting of mechanically formed
fragments of older rock transported from its source and deposited in water, or
from air or ice.
Shaft--a vertical or steeply inclined excavation for the purposes of opening
and servicing an underground mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and materials.
Sill--a near horizontal flat-bedded strata of intrusive rock.
Smelting--heating ore or concentrate material with suitable flux materials
at high temperatures creating a fusion of these materials to produce a melt
consisting of two layers on top, a slag of the flux and gangue (waste)
minerals, and below molten impure metals. This generally produces an
unfinished product requiring refining.
Stockwork--a mineral deposit in the form of a three dimensional network of
anastomosing veinlets diffused in the host rock.
Strata-bound--a mineral deposit confined to a single stratigraphic unit.
Strike--the course or bearing of a vein or a layer of rock.
Tailings--the finely-ground waste product from ore processing.
Ton--a dry short ton (2,000 pounds).
Tonne--a metric ton (1,000 kilograms, or 2,205 pounds).
Vein--a mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
Waste--barren rock in a mine, or mineralization that is too low in grade to
be mined and milled at a profit.
20
<PAGE>
CONVERSION TABLE
In this report, figures are presented in both United States standard and
metric measurements. Conversion rates from United States standard to metric
and metric to United States standard measurement systems are provided in the
table below.
<TABLE>
<CAPTION>
U.S. Measure Metric Unit
- ------------ -----------
<S> <C>
2.47 acres.............. 1 hectare
3.28 feet............... 1 meter
0.62 miles.............. 1 kilometer
0.032 ounces (troy)..... 1 gram
1.102 tons.............. 1 tonne
</TABLE>
<TABLE>
<CAPTION>
Metric Measure U.S. Unit
- -------------- ---------
<S> <C>
0.4047 hectares......... 1 acre
0.3048 meters........... 1 foot
1.609 kilometer......... 1 mile
31.103 grams............ 1 ounce (troy)
0.907 tonnes............ 1 ton
</TABLE>
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 1998.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Ordinary Shares are listed on the American Stock Exchange
under the symbol "SIL". As of March 19, 1999, the Company had approximately 90
shareholders of record and an estimated 1,800 additional beneficial holders
whose Ordinary Shares were held in street name by brokerage houses.
The Company has never paid any dividends on its Ordinary Shares and expects
for the foreseeable future to retain all of its earnings from operations for
use in expanding and developing its business. Any future decision as to the
payment of dividends will be at the discretion of the Company's board of
directors and will depend upon the Company's earnings, receipt of dividends
from its subsidiaries, financial position, capital requirements, plans for
expansion and such other factors as the board of directors deems relevant.
The following table sets forth for the periods indicated the high and the
low sale prices per share of the Company's Ordinary Shares for the periods
indicated. The closing price of the Ordinary Shares on March 23, 1999 was $9
1/2.
<TABLE>
<CAPTION>
Ordinary Shares
-------------------------------
1998 1997
------------- --------------
Period High Low High Low
------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
1st Quarter............................... $14 1/8 $10 5/8 -- --
2nd Quarter............................... $12 3/4 $ 9 3/8 -- --
3rd Quarter............................... $10 5/16 $ 6 3/4 -- --
4th Quarter............................... $ 9 5/8 $ 7 1/2 $13 1/16* $11*
</TABLE>
- --------
* The Company's Ordinary Shares began trading on November 25, 1997;
accordingly, prices are shown for a partial period.
Pursuant to a Registration Statement on Form S-1 (Registration No. 333-
34685) filed in connection with the initial public offering (the "Offering")
and a concurrent offering to a shareholder, which became effective on November
25, 1997, the Company sold a total 5,532,000 of its Ordinary Shares.
21
<PAGE>
Since the date of the Offering, the Company estimates that of the $54.6
million net proceeds from the Offering, the following approximate amounts have
been used: (1) $1,545,000 for construction of plant, building and facilities;
(2) $1,300,000 for the acquisition of the business of Mintec; (3) $465,000 for
the repayment of indebtedness; (4) $6,126,000 for working capital; and (5)
$25,444,000 for exploration and development activities primarily related to
the San Cristobal project, including land acquisition and option payments. The
remaining net proceeds of the Offering were invested in cash equivalents and
investments with various maturity dates. The Company believes that the above
amounts are reasonable estimates of the amount of the net proceeds of the
Offering applied.
Other than compensation paid, and expenses reimbursed, to directors of the
Company and officers of subsidiaries of the Company, and certain payments made
in connection with the Company's acquisition of Mintec to then existing
shareholders of Mintec (who are currently employees of the Company), none of
the net proceeds of the Offering have been paid, directly or indirectly, to
directors, officers, general partners of the Company or their associates, to
persons owning 10 percent or more of any class of equity securities of the
Company or to affiliates of the Company.
22
<PAGE>
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company for the years ended
December 31, 1998, 1997, 1996 and 1995, and the periods from December 22, 1994
(inception) through December 31, 1994, and from December 22, 1994 (inception)
through December 31, 1998, are derived from the audited consolidated financial
statements of the Company. This table should be read in conjunction with the
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
December 22, 1994
(inception) through
Year ended December 31, December 31,
------------------------------------- --------------------
1998 1997 1996 1995 1994 1998
-------- -------- -------- ------- --------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Interest income......... $ 2,444 $ 962 $ 575 $ 462 $ 15 $ 4,458
-------- -------- -------- ------- -------- ----------
Total income............ 2,444 962 575 462 15 4,458
-------- -------- -------- ------- -------- ----------
Expenses
Exploration............ 5,148 9,754 9,591 1,560 105 26,158
Administrative......... 5,067 4,130 1,924 982 148 12,251
Consulting............. 2,258 1,523 2,506 560 145 6,992
Professional fees...... 832 391 1,096 657 20 2,996
Amortization and
depreciation........... 169 149 57 57 -- 432
-------- -------- -------- ------- -------- ----------
Total expenses.......... 13,474 15,947 15,174 3,816 418 48,829
-------- -------- -------- ------- -------- ----------
Loss before minority
interest............... (11,030) (14,985) (14,599) (3,354) (403) (44,371)
Minority interest....... -- -- 2,876 1,493 190 4,559
-------- -------- -------- ------- -------- ----------
Net loss for the
period................. $(11,030) $(14,985) $(11,723) $(1,861) $ (213) $ (39,812)
======== ======== ======== ======= ======== ==========
Net loss per Ordinary
Share.................. $ (0.42) $ (0.72) $ (0.66) $ (0.12) $ (0.01) $ (1.96)
======== ======== ======== ======= ======== ==========
Weighted average number
of Ordinary Shares
outstanding ........... 26,212 20,930 17,672 15,900 15,900 20,349
Cash Flow Data:
Net cash provided by
(used in) financing
activities............. $ (267) $ 55,008 $ 35,269 $ 6,430 $ 686 $ 97,126
Net cash used in
operating activities... (10,641) (17,776) (12,092) (3,491) (329) (44,329)
Net cash used in
investing activities... (19,908) (6,148) (524) -- -- (26,580)
-------- -------- -------- ------- -------- ----------
Net increase (decrease)
in cash................ $(30,816) $ 31,084 $ 22,653 $ 2,939 $ 357 $ 26,217
======== ======== ======== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets.............................. $62,347 $73,329 $26,797 $6,820 $9,929
Total liabilities......................... 3,950 4,100 2,486 359 114
Minority interest......................... -- -- -- 2,876 4,369
Shareholders' equity...................... 58,397 69,229 24,311 3,585 5,446
</TABLE>
23
<PAGE>
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
<PAGE>
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 and exploration expenses 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 exploration and development
costs associated with the San Cristobal project and will continue to do so in
the future.
25
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10: DIRECTORS OF THE REGISTRANT AND CERTAIN EXECUTIVE OFFICERS OF APEX
CORPORATION
Information regarding directors of Apex Limited and certain executive
officers of Apex Corporation is incorporated by reference to the section
entitled "Election of Directors" in the Company's definitive Proxy Statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A in connection with the 1999 Annual Meeting of Shareholders (the "Proxy
Statement").
ITEM 11: EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption "Executive
Compensation and Other Information" in the Company's Proxy Statement, which
information (except for the Report of the Board of Directors on Executive
Compensation and the Performance Graph) is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption "Security
Ownership of Principal Shareholders and Management" in the Company's Proxy
Statement, which information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information contained under the caption "Certain
Transactions" contained in the Company's Proxy Statement, which information is
incorporated herein by reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K or incorporated by reference.
1. The consolidated financial statements of the Company are listed on the
"Index to Financial Statements", on Page F-1 to this report.
2. Financial Statement Schedules (omitted because not material or not
applicable).
(b) Reports on Form 8-K (none).
(c) Exhibits.
30
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------- -----------------------
<C> <S>
3.1 Amended and restated Memorandum of Association of the Company.*
3.2 Amended and restated Articles of Association of the Company.*
4.1 Specimen of certificates representing the Company's Ordinary Shares,
par value U.S. $0.01 each.**
10.1 Summary of the Company's 401(k) Plan.**
10.2 Management Services Agreement among the Company and its
subsidiaries.**
10.3 Non-Employee Directors' Share Plan, as amended.
10.4 Employees' Share Option Plan.
10.5 Form of Option Grant to Non-Employee Directors dated April 10,
1997.***
10.6 Employment contract between the Company and Marcel F. DeGuire, dated
July 23, 1996.**
10.7 Employment contract between the Company and Mark A. Lettes, dated May
19, 1998.
10.8 Employment contract between the Company and Keith R. Hulley, dated
August 4, 1996.**
10.9 Employment contract between the Company and Douglas M. Smith Jr.,
dated January 21, 1997.**
10.10 English translation of Deed of Lease and Purchase Option Contract
between Monica de Prudencio and Mineria Tecnia Consultores Asociados,
S.A. ("Mintec"), dated November 7, 1994, regarding the Tesorera
concession, with an attached note from Keith Hulley, a director of the
Company, as required by Rule 306 of Regulation S-T.**
10.11 English translation of Assignment Agreement between ASC Bolivia LDC
and Mintec regarding the rights to the above agreement, with an
attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.**
10.12 English translation of the Lease and Purchase Option Contract between
Empresa Minera Yana Mallcu S.A. and Mintec, dated February 7, 1996,
regarding the Toldos concession, with an attached note from Keith
Hulley, a director of the Company, as required by Rule 306 of
Regulation S-T.**
10.13 English translation of the Assignment of Lease and Purchase Option
Agreement among Banco Industrial S.A., Mintec and ASC Bolivia LDC,
with an attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.**
10.14 English translation of the Purchase Option Agreement between Mintec
and Litoral Mining Cooperative Ltd., dated August 17, 1995, regarding
the Animas concession, with an attached note from Keith Hulley, a
director of the Company, as required by Rule 306 of Regulation S-T.**
10.15 English translation of the Assignment and Assumption Agreement between
Mintec and ASC Bolivia LDC, dated May 22, 1996, regarding the Animas
concession, with an attached note from Keith Hulley, a director of the
Company, as required by Rule 306 of Regulation S-T.**
10.16 English translation of the Purchase Agreement between ASC Bolivia LDC
and Litoral Mining Cooperative Ltd., regarding the Animas concessions
with an attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.**
10.17 English translation of the Joint Venture Agreement between Corporacion
Minera Boliviano S.A.("Comibol") and ASC Bolivia LDC, regarding the
Cobrizos Concession, with an attached note from Keith Hulley, a
director of the Company, as required by Rule 306 of Regulation S-T.**
10.18 English translation of the Joint Venture Agreement between Comibol and
ASC Bolivia LDC regarding the Choroma Concession, with an attached
note from Keith Hulley, a director of the Company, as required by Rule
306 of Regulation S-T.**
10.19 Mining Agreement between Compania Minera Ocote and Kerry A. McDonald,
dated June 24, 1994, regarding the El Ocote concession.**
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------- -----------------------
<C> <S>
10.20 Assignment and Assumption Agreement between Kerry A. McDonald and
Cordilleras Silver Mines Ltd., dated September 27, 1994, regarding the
assignment of the above Mining Agreement.**
10.21 Acknowledgment from Bruce Wallis in his capacity as President of
Compania Minera Ocote S. deR. L. that Cordilleras Silver Mines
(Cayman) LDC has been assigned Kerry A. McDonald's rights under the
above Mining Agreement, dated July 10, 1995.**
10.22 English translation of the agreement between Andean Silver Corporation
LDC and 190 of the co-owners of the assets which previously belonged
to Empressa Minera San Juan de Lucanas, S.A. ("EMSJ"), regarding the
San Juan de Lucanas concession, dated January 12, 1995, with an
attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.**
10.23 English translation of the agreement between Andean Silver Corporation
LDC and 133 of the co-owners of the assets which previously belonged
to EMSJ, regarding the San Juan de Lucanas concession, dated January
12, 1995, with an attached note from Keith Hulley, a director of the
Company, as required by Rule 306 of Regulation S-T.**
10.24 English translation of the form of agreement between 16 individuals
who are some of the co-owners of the assets which previously belonged
to EMSJ, regarding the San Juan de Lucanas concession, with an
attached note from Keith Hulley, a director of the Company, as
required by Rule 306 of Regulation S-T.**
10.25 Board Designation Agreement, dated October 28, 1997, by and between
the Company and Silver Holdings.**
10.26 Registration Rights and Voting Agreement, dated October 28, 1997, by
and among the Company, Silver Holdings, Consolidated, Argentum, Aurum
LLC and Thomas S. Kaplan.**
10.27 Amended and Restated Voting Trust Agreement, dated October 29, 1997,
between Thomas Kaplan and Consolidated.**
10.28 Amended and Restated Voting Trust Agreement, dated October 29, 1997,
between Thomas Kaplan and Argentum LLC.**
10.29 English translation of the Purchase Agreement between Monica de
Prundencio and ASC Bolivia, regarding the Tesorera and Jayula
concessions, dated September 3, 1997, with an attached note from Keith
Hulley as required by Rule 306 of Regulation S-T.**
21 List of Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-34685).
*** Incorporated by reference to Exhibit 4.3 in the Company's Registration
Statement on Form S-8 (File No. 333-53185)
32
<PAGE>
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
March 26, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas S. Kaplan Director March 26, 1999
______________________________________
Thomas S. Kaplan
/s/ Michael Comninos Director March 26, 1999
______________________________________
Michael Comninos
/s/ Harry M. Conger Director March 26, 1999
______________________________________
Harry M. Conger
/s/ Eduardo S. Elsztain Director March 26, 1999
______________________________________
Eduardo S. Elsztain
Director March 26, 1999
______________________________________
David Sean Hanna
/s/ Ove Hoegh Director March 26, 1999
______________________________________
Ove Hoegh
/s/ Keith R. Hulley Director March 26, 1999
______________________________________
Keith R. Hulley
/s/ Richard Katz Director March 26, 1999
______________________________________
Richard Katz
/s/ Paul Soros Director March 26, 1999
______________________________________
Paul Soros
</TABLE>
33
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
F-1
<PAGE>
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.
<TABLE>
<S> <C>
/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
</TABLE>
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
<PAGE>
APEX SILVER MINES LIMITED
A Development Stage Company
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-3
<PAGE>
APEX SILVER MINES LIMITED
A Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States dollars)
<TABLE>
<CAPTION>
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
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
- --------
(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
<PAGE>
APEX SILVER MINES LIMITED
A Development Stage Company
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in United States dollars)
<TABLE>
<CAPTION>
Accumulated
Deficit & Total
Shares Contributed Comprehensive Shareholders'
Outstanding Amount Surplus Deficit Equity
----------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
========== ======== =========== ============ ============
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-5
<PAGE>
APEX SILVER MINES LIMITED
A Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars)
<TABLE>
<CAPTION>
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
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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 $ -- $ --
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-6
<PAGE>
APEX SILVER MINES LIMITED
A 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 activity is the exploration 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
<PAGE>
APEX SILVER MINES LIMITED
A 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 exploration costs and 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
<PAGE>
APEX SILVER MINES LIMITED
A 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
<PAGE>
APEX SILVER MINES LIMITED
A 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 the sale of mine production. 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. The refunds were related to VAT paid in
1996. 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
<PAGE>
APEX SILVER MINES LIMITED
A 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:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
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
========== ==========
</TABLE>
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
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Organizational costs............................... $ 282,956 $ 282,956
Less: Accumulated amortization..................... (226,364) (169,773)
--------- ---------
$ 56,592 $ 113,183
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE>
APEX SILVER MINES LIMITED
A 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. The $826,196 gain on the extinguishment of this
debt has been credited to mining properties and development costs.
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:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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
</TABLE>
F-12
<PAGE>
APEX SILVER MINES LIMITED
A 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:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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)
</TABLE>
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
<PAGE>
APEX SILVER MINES LIMITED
A 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
<PAGE>
APEX SILVER MINES LIMITED
A 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:
<TABLE>
<CAPTION>
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
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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)
============ ============ ============ ============
</TABLE>
F-15
<PAGE>
APEX SILVER MINES LIMITED
A 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:
<TABLE>
<CAPTION>
Property 1999 2000 2001 2002 2003 Thereafter
-------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ========== ==========
</TABLE>
- --------
(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
<PAGE>
APEX SILVER MINES LIMITED
A 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:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
EXHIBIT 10.3
APEX SILVER MINES LIMITED
NON-EMPLOYEE DIRECTORS' SHARE PLAN
1. PURPOSE. The purpose of this Non-Employee Directors' Share Plan
(the "Director Plan") of APEX SILVER MINES LIMITED (the "Company"), is to
advance the interests of the Company and its shareholders by providing a means
to attract and retain highly qualified persons to serve as non-employee
directors of the Company and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's shareholders.
2. DEFINITIONS. In addition to terms defined elsewhere in the
Director Plan, the following are defined terms under the Director Plan:
(a) "Code" means the U.S. Internal Revenue Code of 1986, as
amended from time to time. References to any provision of the Code shall be
deemed to include regulations thereunder and successor provisions and
regulations thereto.
(b) "Exchange Act" means the U.S. Securities Exchange Act of
1934, as amended. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(c) "Fair Market Value" of a Share on a given date means the
last sales price or, if last sales information is generally unavailable, the
average of the closing bid and asked prices per Share on such date (or, if there
was no trading or quotation in the stock on such date, on the next preceding
date on which there was trading or quotation) as reported in the WALL STREET
JOURNAL; PROVIDED, HOWEVER, that the "Fair Market Value" of a Share subject to
Options granted effective on the date on which the Company commences an Initial
Public Offering shall be the price of the shares so issued and sold, as set
forth in the first final prospectus used in such Initial Public Offering.
(d) "Initial Public Offering" means an initial public offering
of Shares in a firm commitment underwriting register with the U.S. Securities
and Exchange Commission in compliance with the provisions of the U.S. Securities
Act of 1933, as amended.
(e) "Option" means the right, granted to a director under
Section 6, to purchase a specified number of Shares at the specified exercise
price for a specified period of time under the Director Plan. All Options will
be non-qualified Share Options.
<PAGE>
(f) "Participant" means a person who, as a non-employee
director of the Company, has been granted an Option which remains outstanding.
(g) "Share" means a share of the share capital, $.01 par value,
of the Company and such other securities as may be substituted for such share or
such other securities pursuant to Section 7.
3. SHARES AVAILABLE UNDER THE DIRECTOR PLAN. Subject to adjustment
as provided in Section 7, the total number of Shares reserved and available for
issuance under the Director Plan shall not exceed 5 percent of the Company's
share capital. Such Shares may be authorized but unissued Shares, treasury
Shares, or Shares acquired in the market for the account of the Participant. For
purposes of the Director Plan, Shares that may be purchased upon exercise of an
Option will not be considered to be available after such Option has been
granted, except for purposes of issuance in connection with such Option;
PROVIDED, HOWEVER, that, if an Option expires for any reason without having been
exercised in full, the Shares subject to the unexercised portion of such Option
will again be available for issuance under the Director Plan.
4. ADMINISTRATION OF THE DIRECTOR PLAN. The Director Plan will be
administered by the board of directors (the "Board") of the Company; PROVIDED,
HOWEVER, that any action by the Board relating to the Director Plan will be
taken only if, in addition to any other required vote, such action is approved
by the affirmative vote of a majority of the directors who are not then eligible
to participate in the Director Plan.
5. ELIGIBILITY. Each director of the Company who, on any date on
which an Option is to be granted under Section 6, is not an employee of the
Company or any subsidiary of the Company will be eligible, at such date, to be
granted an Option under Section 6. No person other than those specified in this
Section 5 will be eligible to participate in the Director Plan.
6. OPTIONS. An Option to purchase the number of Shares equal to
$50,000 divided by the Fair Market Value of the Shares on the date of the grant,
subject to adjustment as provided in Section 7, will be automatically granted,
(i) at the effective date of initial election to the Board, to each person so
elected or appointed who is eligible under Section 5 at that date (the "Initial
Grant"). In addition, an Option to purchase the number of Shares equal to
$50,000 divided by the Fair Market Value of the Shares on the date of the grant,
subject to adjustment as provided in Section 7, will be automatically granted,
at the close of business of each annual meeting of shareholders of the Company,
to each member of the Board who is eligible under Section 5 at the close of
business of such annual meeting (the "Annual Grant"). Notwithstanding the
foregoing, any person who received an Initial Grant shall not automatically
receive an Annual Grant at the first annual meeting of shareholders if such
annual meeting takes place within three months of the effective date of such
person's receipt of an Initial Grant.
2
<PAGE>
(a) EXERCISE PRICE. The exercise price per Share purchasable
upon exercise of an Option will be equal to 100% of the Fair Market Value of a
Share on the date of grant of the Option.
(b) OPTION EXPIRATION. A Participant's Option will expire at
the earlier of (i) 10 years after the date of grant or (ii) one year after the
date the Participant ceases to serve as a director of the Company for any
reason.
(c) EXERCISABILITY. Each Option may be exercised commencing
immediately upon its grant.
(d) METHOD OF EXERCISE. A Participant may exercise an Option,
in whole or in part, at such time as it is exercisable and prior to its
expiration, by giving written notice of exercise to the Secretary of the
Company, specifying the Option to be exercised and the number of Shares to be
purchased, and paying in full the exercise price in cash (including by check) or
by surrender of Shares already owned by the Participant having a Fair Market
Value at the time of exercise equal to the exercise price, or by a combination
of cash and Shares.
7. ADJUSTMENT PROVISIONS.
(a) RECAPITALIZATION. The aggregate number of Shares as to
which Options may be granted to Participants, the number of Shares thereof
covered by each outstanding Option granted or to be granted in accordance with
the formula set forth in Section 6 hereof, and the price per Share thereof in
each such Option, shall all be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a subdivision or
consolidation of Shares or other capital adjustment, or the payment of a Share
dividend or other increase or decrease in such Shares, effected without receipt
of consideration by the Company, or other change in corporate or capital
structure; provided, however, that any fractional shares resulting from any such
adjustment shall be eliminated. The Board may also make the foregoing changes
and any other changes, including changes in the classes of securities available,
to the extent it is deemed necessary or desirable to preserve the intended
benefits of the Director Plan for the Company and the Participants in the event
of any other reorganization, recapitalization, merger, consolidation, spin-off,
extraordinary dividend or other distribution or similar transaction.
Notwithstanding any other provision of the Director Plan, the Board may cause
any Option granted hereunder to be canceled in consideration of a cash payment
or alternative award made to the holder of such canceled Option equal in value
to the Fair Market Value of such canceled Option. Notwithstanding anything to
the contrary in this Section 7, no issuance of Shares effected pursuant to the
terms of the Buy-Sell Agreement dated as of August 6, 1996 by and among, inter
alia, the Company, Consolidated Commodities Ltd., Argentum LLC and Silver
Holdings LDC or certain entities affiliated therewith, that does not constitute
3
<PAGE>
a change in control shall result in any adjustment to the number or value of any
Shares to be issued pursuant to any Option hereunder.
(b) INSUFFICIENT NUMBER OF SHARES. If at any date an
insufficient number of Shares are available under the Director Plan for the
automatic grant of Options, Options will be automatically granted
proportionately to each eligible director, to the extent Shares are then
available (provided that no fractional Shares will be issued upon exercise of
any Option) and otherwise as provided under Section 6.
8. CHANGES TO THE DIRECTOR PLAN. The Board may amend, alter,
suspend, discontinue, or terminate the Director Plan or authority to grant
Options under the Director Plan without the consent of shareholders or
Participants, except that any amendment or alteration will be subject to the
approval of the Company's shareholders at or before the next annual meeting of
shareholders for which the record date is after the date of such Board action if
such shareholder approval is required by any U.S. federal or state law or
regulation or the rules of any stock exchange or automated quotation system as
then in effect, and the Board may otherwise determine to submit other such
amendments or alterations to shareholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant with respect to any previously granted
Option or any previous payment of fees in the form of Shares.
9. GENERAL PROVISIONS.
(a) AGREEMENTS. Options may be evidenced by agreements or
other documents executed by the Company and the Participant incorporating the
terms and conditions set forth in the Director Plan, together with such other
terms and conditions not inconsistent with the Director Plan, as the Board may
from time to time approve.
(b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will
not be obligated to issue or deliver Shares in connection with any Option in a
transaction subject to the registration requirements of the Securities Act of
1933, as amended, or any other U.S. federal or state securities law, any
requirement under any listing agreement between the Company and any stock
exchange or automated quotation system, or any other law, regulation, or
contractual obligation of the Company, until the Company is satisfied that such
laws, regulations, and other obligations of the Company have been complied with
in full. Certificates representing Shares issued under the Director Plan will be
subject to such stop-transfer orders and other restrictions as may be applicable
under such laws, regulations, and other obligations of the Company, including
any requirement that a legend or legends be placed thereon.
(c) LIMITATIONS ON TRANSFERABILITY. Options will not be
transferable by a Participant except by will or the laws of descent and
distribution or to a Beneficiary in the event of the Participant's death, and,
if exercisable, shall be
4
<PAGE>
exercisable during the lifetime of a Participant only by such Participant
or his guardian or legal representative. Notwithstanding the foregoing, the
Committee may, in its discretion, authorize all or a portion of the Options
granted to a Participant to be on terms which permit transfer by such
Participant to (i) the spouse, children or grandchildren of such
Participant ("Immediate Family Members"), (ii) a trust or trusts for
exclusive benefit of such Immediate Family Members, or (iii) a partnership
in which such Immediate Family Members are the only partners, provided that
(x) there may be no consideration for any such transfer, (y) the Option
must be approved by the Committee and must expressly provide for
transferability in a manner consistent with this Section, and (z)
subsequent transfers of transferred Options shall be prohibited except
those occurring by laws of descent and distribution. Following transfer,
any such awards shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that
for purposes of the Director Plan, the term Participant shall be deemed to
refer to the transferee. Options may not be pledged, mortgaged,
hypothecated or otherwise encumbered, and shall not be subject to the
claims of creditors.
(d) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in
the Director Plan or any agreement hereunder will confer upon any Participant
any right to continue to serve as a director or advisory director of the
Company.
(e) NO SHAREHOLDER RIGHTS CONFERRED. Nothing contained in the
Director Plan or any agreement hereunder will confer upon any Participant (or
any person or entity claiming rights by or through a Participant) any rights of
a shareholder of the Company unless and until Shares are in fact issued to such
Participant (or person) or, in the case an Option, such Option is validly
exercised in accordance with Section 6.
(f) NONEXCLUSIVITY OF THE DIRECTOR PLAN. Neither the adoption
of the Director Plan by the Board nor its submission to the shareholders of the
Company for approval shall be construed as creating any limitations on the power
of the Board to adopt such other compensatory arrangements for directors as it
may deem desirable.
(g) GOVERNING LAW. The validity, construction, and effect of
the Director Plan and any agreement hereunder will be determined in accordance
with the laws of the Cayman Islands.
10. SHAREHOLDER APPROVAL, EFFECTIVE DATE, AND DIRECTOR PLAN
TERMINATION. The Director Plan will be effective as of the date of its adoption
by the Board, subject to shareholder approval prior to the commencement of the
Initial Public Offering, and, unless earlier terminated by action of the Board,
shall terminate at such time as no Shares remain available for issuance
5
<PAGE>
under the Director Plan and the Company and Participants have no further rights
or obligations under the Director Plan.
6
<PAGE>
AMENDMENT NO. 1 TO THE
APEX SILVER MINES LIMITED
NON-EMPLOYEE DIRECTORS' SHARE PLAN
(Effective October 15, 1998)
Pursuant to a resolution duly adopted at the meeting of the Board of
Directors held on October 15, 1998, the Apex Silver Mines Limited Non-Employee
Directors' Share Plan (the "Director Plan") is amended, effective as of October
15, 1998, as follows:
The first paragraph of Section 6 of the Director Plan shall be designated
as Subsection A of Section 6 and a new Subsection B of Section 6 is hereby
inserted after Subsection A as follows:
"B. An Option valued at $3,000 calculated using the Black-Scholes option
pricing model to purchase Shares with an exercise price per share equal to that
of the Fair Market Value of a Share on the date of the grant of the Option,
subject to adjustment as provided in Section 7, will be automatically granted at
the close of business of each meeting of the Board to each member of the Board
who is eligible under Section 5, regardless of whether the member attends the
meeting. The grant of an Option pursuant to this Subsection B is distinct and
separate from any Option granted pursuant to Subsection A above."
The second paragraph of Section 6 of the Director Plan shall be designated
as Subsection C of Section 6 and the Subsections (a), (b), (c) and (d) shall be
subsections of Subsection C of Section 6 of the Director Plan.
7
<PAGE>
Exhibit 10.4
------------
APEX SILVER MINES LIMITED
EMPLOYEES' SHARE OPTION PLAN
I. Purpose.
-------
The purpose of the Apex Silver Mines Limited (the "Company")
Employees' Share Option Plan (the "Employee Plan") is to attract and retain and
provide incentives to employees, officers, consultants and agents of the
Company, and to thereby increase overall shareholder value. The Employee Plan
generally provides for the granting of Shares options, Shares appreciation
rights, restricted shares or any combination of the foregoing to the eligible
participants.
II. Definitions.
-----------
(a) "Award" includes, without limitation, Share options
(including incentive Share options within the meaning of Section 422(b) of
the Code) with or without stock appreciation rights, dividend equivalent
rights, Share awards, restricted Share awards, or other awards that are
valued in whole or in part by reference to, or are otherwise based on,
Shares ("other Share-based Awards"), all on a stand alone, combination or
tandem basis, as described in or granted under this Employee Plan.
(b) "Award Agreement" means a written agreement setting forth
the terms and conditions of each Award made under this Employee Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (i) the commission of a felony or a crime
involving moral turpitude or the commission of any other act involving
dishonesty, disloyalty or fraud with respect to the Company, (ii) conduct
tending to bring the Company into substantial public disgrace or disrepute,
(iii) substantial and repeated failure to perform duties as reasonably
directed by the Board, (iv) gross negligence or willful misconduct with
respect to the Company or any of its Subsidiaries, or (v) any other
material breach of any agreement between the Participant and the Company or
its Subsidiaries which is not cured within 15 days after written notice
thereof to the Participant.
(e) "Change of Control" shall be deemed to have occurred if,
at any time following the Effective Date, (i) two of the three Founders
sell or dispose of 50 percent or more of the Underlying Shares held by such
Founders on the Effective Date to any Person who was not an affiliate of
the Company or such Founder on the Effective Date, (ii) at least two of the
three Founders, or their respective designees, do not continue as senior
managers or members of
<PAGE>
the Board other than as a result of death or Disability, or (iii) all or
substantially all of the Company's assets are sold.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the Compensation Committee of the Board
or such other committee of the Board as may be designated by the Board from
time to time to administer this Employee Plan, provided however, that the
Committee shall consist of at least two (2) nonemployee directors within
the meaning of Rule 16b-3(b)(3).
(h) "Shares" means the Company's ordinary shares, par value
US$0.01 and other rights with respect to such shares.
(i) "Company" means Apex Silver Mines Limited, an exempted
limited liability company organized and existing under the laws of the
Cayman Islands.
(j) "Disability" means the Participant's inability, due to
illness, accident, injury, physical or mental incapacity or other
disability, to carry out effectively his duties and obligations to the
Company and its Subsidiaries or to participate effectively and actively in
the management of the Company and its Subsidiaries for a period anticipated
to last at least six (6) months, as determined in the good faith judgment
of the Board. In the event the Company adopts a plan which provides for
long-term disability insurance, "Disability" shall have the meaning set
forth in such plan.
(k) "Employee" means an employee of the Company or a
Subsidiary.
(l) "Fair Market Value" means the closing price for the Shares
as officially reported on the relevant date (or if there were no sales on
such date, on the next preceding date on which such closing price was
recorded) by the principal national securities exchange on which the Shares
are listed or admitted to trading, or, if the Shares are not listed or
admitted to trading on any such national securities exchange, the closing
price as furnished by the National Association of Securities Dealers
through NASDAQ or a similar organization, or if NASDAQ is no longer
reporting such information, or, if the Shares are not quoted on NASDAQ, as
determined in good faith by resolution of the Committee (whose
determination shall be conclusive), based on the best information available
to it.
(m) "Founders" means Consolidated Commodities Ltd., Argentum
LLC and Silver Holdings LDC and their respective shareholders or affiliates
as of the date hereof.
2
<PAGE>
(n) "Participant" means an employee, officer, consultant or
agent who has been granted an Award under the Plan.
(o) "Plan Year" means a twelve-month period beginning with
January 1 of each year.
(p) "Qualified Public Offering" means the sale in a firm
commitment underwritten public offering registered under the Securities Act
of Shares.
(q) "Retirement" means (i) a Participant's retirement from the
Company or a Subsidiary, as applicable (other than for Cause), or (ii) as
otherwise defined by the Committee.
(r) "Subsidiary" means any corporation or other entity,
whether organized under the laws of the Cayman Islands or any other
jurisdiction, in which the Company has or obtains, directly or indirectly,
a proprietary interest of more than 50 percent by reason of Shares
ownership or otherwise.
(s) "Underlying Shares" means (i) the Shares (including any
Shares received by a Founder after the Effective Date pursuant to the
purchase of the shares of Apex Silver Mines LDC owned by such Founder
pursuant to the terms of the Buy-Sell Agreement between the Founders, the
Company and Apex Silver Mines LDC and (ii) the shares of Apex Silver Mines
LDC owned by any Founder.
III. Eligibility.
-----------
Any person selected by the Committee who is an employee, officer,
consultant or agent of the Company or any Subsidiary, selected by the Committee
is eligible to receive an Award. Notwithstanding the foregoing, only employees
of the Company and any present or future corporation which is or may be a
"subsidiary corporation" of the Company (as such term is defined in Section
424(q) of the Code) shall be eligible to receive incentive Share options.
IV. Employee Plan Administration.
----------------------------
(a) Except as otherwise determined by the Board, the Employee
Plan shall be administered by the Committee. The Board, or the Committee to
the extent determined by the Board, shall periodically make determinations
with respect to the participation of employees, officers, consultants and
agents in the Employee Plan and, except as otherwise required by law or
this Employee Plan, the grant terms of Awards, including vesting schedules,
exercise, awards price, restriction or option period, dividend rights,
post-retirement and termination rights, payment alternatives such as cash,
Shares, contingent awards or other means of payment consistent with the
3
<PAGE>
purposes of this Employee Plan, and such other terms and conditions as the
Board or the Committee deems appropriate which shall be contained in an
Award Agreement with respect to a Participant.
(b) The Committee may delegate to one or more of its members
or to any other persons such ministerial duties as it may deem advisable.
The Committee may also employ attorneys, consultants, accountants, or other
professional advisors and shall be entitled to rely upon the advice,
opinions or valuations of any such advisors.
(c) The Committee shall have authority to interpret and
construe the provisions of the Employee Plan and any Award Agreement and
make determinations pursuant to any Employee Plan provision or Award
Agreement which shall be final and binding on all persons. No member of the
Committee shall be liable for any action or determination made in good
faith, and the members shall be entitled to indemnification and
reimbursement in the manner provided in the Company's Memorandum and
Articles of Association, as the same may be amended from time to time, or
as otherwise provided in any agreement between any such member and the
Company.
(d) No member of the Committee, nor any person to whom
ministerial duties have been delegated, shall be personally liable for any
action, interpretation or determination made with respect to the Employee
Plan or awards made thereunder and each member of the Committee shall be
fully indemnified and protected by the Company with respect to any
liability he or she may incur with respect to any such action,
interpretation or determination, to the extent permitted by applicable law
and to the extent provided in the Company's Memorandum and Articles of
Association, as amended from time to time, or under any agreement between
any such member and the Company.
(e) The Committee shall have the authority at any time to
provide for the conditions and circumstances under which Awards shall be
forfeited. The Committee shall have the authority to accelerate the vesting
of any Award and the times at which any Award becomes exercisable.
V. Shares Subject to the Provisions of this Plan.
---------------------------------------------
(a) The shares of the Company's share capital subject to the
provisions of this Employee Plan shall be authorized but unissued Shares.
Subject to adjustment in accordance with the provisions of Section X, and
subject to Section V(c) below, the total number of Shares available for
grants of Awards shall not exceed 10 percent of the Company's share
capital.
(b) The grant of a restricted Share Award shall be deemed to
be equal to the maximum number of Shares which may be issued under the
Award. Awards payable only in cash will not reduce the number of Shares
available for Awards granted under the Employee Plan.
4
<PAGE>
(c) There shall be carried forward and be available for Awards
under the Employee Plan, in addition to Shares available for grant under
paragraph (a) of this Section V, all of the following: (i) any unused
portion of the limit set forth in paragraph (a) of this Section V; (ii)
Shares represented by Awards which are canceled, forfeited, surrendered,
terminated, paid in cash or expire unexercised; and (iii) the excess amount
of variable Awards which become fixed at less than their maximum
limitations.
VI. Awards Under This Employee Plan.
--------------------------------
As the Board or Committee may determine, the following types of Awards and
other Share-based Awards may be granted under this Employee Plan on a stand
alone, combination or tandem basis:
(i) Share Options. A right to buy a specified number of Shares
at a fixed exercise price during a specified time, all as the
Committee may determine. The exercise price of options granted prior
to a Qualified Public Offering shall be $8.00 per Share. The exercise
price of options granted after a Qualified Public Offering shall not
be less than 100 percent of the Fair Market Value of the Shares on the
date of grant of the Award unless the Committee determines that an
exercise price lower than Fair Market Value is warranted. In the case
of incentive Share options granted to an employee owning (actually or
constructively under Section 422(d) of the Code), more than ten
percent (10%) of the total combined voting power of all classes of
shares of the Company or of a Subsidiary (a "10% Shareholder"), the
price of any such option shall not be less than 110 percent of the
Fair Market Value of the Shares on the date of grant.
(A) Limitation on Time of Grant. No grant of a Share Options
---------------------------
shall be made after August 1, 2006.
(B) Term. The term of each Share option granted hereunder
----
shall be determined by the Committee; provided that
notwithstanding any other provision of the Employee Plan,
in no event shall a Share option be exercisable after 10
years from the date it is granted.
(ii) Incentive Share Options. An Award in the form of a share
options which shall comply with the requirements of Section 422 of the
Code or any successor section as it may be amended from time to time.
(A) Limitation on Amount of Incentive Share Options. In the
-----------------------------------------------
case of incentive Share options, the aggregate Fair Market Value
(determined at the time the incentive Share options are granted) of
the Shares with respect to which incentive Share options are
exercisable for the first time by any
5
<PAGE>
optionee during any calendar year (under all plans of the
Company and any Subsidiary) shall not exceed $100,000.
(B) Limitation on Time of Grant. No grant of incentive Share
---------------------------
options shall be made under the Employee Plan more than
ten (10) years after the date the Employee Plan is
approved by shareholders of the Company.
(C) Term. Notwithstanding any other provision of the Employee
----
Plan, in no event shall incentive Share options be
exercisable after ten (10) years from the date they are
granted, or in the case of incentive Share options granted
to a 10% shareholder, five (5) years from the date they
are granted.
(iii) Share Appreciation Rights. Rights, which may or may not
be contained in the grant of share options or incentive Share options,
to receive in cash (or its equivalent value in Shares) the excess of
the Fair Market Value of the Shares on the date the rights are
surrendered over the options exercise price or other price specified
in the Award Agreement.
(iv) Restricted Shares. The issuance of Shares to a
Participant subject to forfeiture until such restrictions, terms and
conditions as the Committee may determine are fulfilled.
(v) Dividend or Equivalent. A right to receive dividends or
their equivalent in value in Shares, cash or in a combination of both
with respect to any new or previously existing Award.
(vi) Share Awards. The issuance of Shares, which may be on a
contingent basis, to a Participant.
(vii) Other Share-Based Awards. Other Share-based Awards which
are related to or serve a similar function to those Awards set forth
in this Section VI.
VII. Award Agreements.
----------------
Each Award under the Employee Plan shall be evidenced by an Award
Agreement setting forth the terms and conditions of the Award and executed by
the Company and Participant.
VIII. Other Terms and Conditions.
--------------------------
(a) Assignability. Unless provided to the contrary in any
Award, no Award shall be assignable or transferable except by will or by
the
6
<PAGE>
laws of descent and distribution and, during the lifetime of a Participant,
the Award shall be exercisable only by such Participant.
(b) Termination of Employment or Other Relationship. The
Committee shall determine the disposition of the grant of each Award in the
event of the retirement, disability, death or other termination of a
Participant's employment or other relationship with the Company or a
Subsidiary.
(c) Rights as a Shareholder. A Participant shall have no
rights as a shareholder with respect to Shares covered by an Award until
the date the Participant is the holder of record. No adjustment will be
made for dividends or other rights for which the record date is prior to
such date.
(d) No Obligation to Exercise. The grant of an Award shall
impose no obligation upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that
Awards for which a payment is due from a Participant may be payable: (i) in
U.S. dollars by personal check, bank draft or money order payable to the
order of the Company, by money transfers or direct account debits; (ii)
through the delivery of Shares with a Fair Market Value equal to the total
payment due from the Participant; (iii) pursuant to a broker-assisted
"cashless exercise" program if established by the Company; (iv) by a
combination of the methods described in (i) through (iii) above; or (v) by
such other methods as the Committee may deem appropriate.
(f) Exercise of Awards. Awards shall be exercisable at such
times, or upon the occurrence of such event or events as the Committee
shall determine at or subsequent to grant. Awards may be exercised in whole
or in part. Shares purchased upon the exercise of an Award shall be paid
for in full at the time of such purchase. Such payment may be made (i) the
deduction of withholding and any other taxes required by law will be made
from all amounts paid in cash and (ii) in the case of payments of Awards in
Shares, the Participant shall be required to pay the amount of any taxes
required to be withheld prior to receipt of such Shares, or alternatively,
a number of Shares the Fair Market Value of which equals the amount
required to be withheld may be deducted from the payment.
(g) Share Certificates. All Share certificates representing
Shares acquired pursuant to the exercise of an option or any other award
issued by the Company shall contain, until such time as their has been a
Qualified Public Offering of Shares, a legend substantially in the
following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED FOR
HYPOTHECATED
7
<PAGE>
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES. THE SALE IS MADE IN ACCORDANCE
WITH RULE 144 UNDER THE ACT OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL TO THE HOLDER OF THESE SECURITIES REASONABLY
SASTISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH.
IN ADDITION, THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN TRANSFERS AND VOTING RESTRICTIONS PURSUANT TO
A SHAREHOLDERS' AGREEMENT AMONG THE COMPANY AND CERTAIN OF THE
COMPANY'S MEMBERS. A COPY OF SUCH SHAREHOLDERS' AGREEEMENT WILL
BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF
UPON WRITTEN REQUEST."
(h) Listing and Qualification of Shares. The Employee Plan and
grant and exercise of options or other awards hereunder, and the obligation
of the Company to sell and deliver Shares under such awards, shall be
subject to all applicable United States federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as
may be required. The Company, in its discretion, may postpone the issuance
or delivery of Shares upon any exercise of an Award until completion of any
stock exchange listing, or other qualification of such Shares under any
United States federal or state law rule or regulation as the Company may
consider appropriate, and may require any individual to whom an Award is
granted, such individual's beneficiary or legal representative, as
applicable, to make such representations and furnish such information as
the Committee may consider necessary, desirable or advisable in connection
with the issuance or delivery of the shares in compliance with applicable
laws, rules and regulations.
(i) Non-Uniform Determinations. The Committee's determinations
under the Employee Plan (including, without limitation, determinations of
the persons to receive Awards, the form, term, provisions, amount and
timing of the grant of such Awards and of the Agreements evidencing the
same) need not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, Awards under the Employee Plan,
whether or not such persons are similarly situated.
IX. Termination, Modification and Amendments.
----------------------------------------
(a) The Board may at any time terminate the Employee Plan or
from time to time make such modifications or amendments of the Employee
8
<PAGE>
Plan as it may deem advisable; provided, however, that the Board shall not
make any material amendments to the Employee Plan without the approval of
at least the affirmative vote of the holders of a majority of the
outstanding Shares of the Company present or represented and entitled to
vote at a duly held Shareholders meeting.
(b) No termination, modification or amendment of the Employee
Plan may adversely affect the rights conferred by an Award without the
consent of the recipient thereof.
X. Recapitalization.
----------------
The aggregate number of Shares as to which Awards may be granted to
Participants, the number of Shares thereof covered by each outstanding Award and
by each option Award granted or to be granted in accordance with the formula set
forth in paragraph (ii) of Section VI hereof, and the price per Share thereof in
each such Award, shall all be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a subdivision or
consolidation of Shares or other capital adjustment, or the payment of a Share
dividend or other increase or decrease in such Shares, effected without receipt
of consideration by the Company, or other change in corporate or capital
structure; provided, however, that any fractional shares resulting from any such
adjustment shall be eliminated. The Committee may also make the foregoing
changes and any other changes, including changes in the classes of securities
available, to the extent it is deemed necessary or desirable to preserve the
intended benefits of the Employee Plan for the Company and the Participants in
the event of any other reorganization, recapitalization, merger, consolidation,
spin-off, extraordinary dividend or other distribution or similar transaction.
Notwithstanding any other provision of the Employee Plan or the Award Agreement,
the Committee may cause any Award granted hereunder to be canceled in
consideration of a cash payment or alternative Award made to the holder of such
canceled Award equal in value to the Fair Market Value of such canceled Award.
Notwithstanding anything to the contrary in this Section X, no issuance of
Shares effected pursuant to the terms of the Buy-Sell Agreement dated as of
August 6, 1996 by and among, inter alia, the Company and the Founders, or
certain entities affiliated therewith, that does not constitute a change in
control shall result in any adjustment to the number or value of any shares to
be issued pursuant to any Award hereunder.
XI. No Right to Employment.
----------------------
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to be
retained in the employ of, or in any other relationship with, the Company or any
Subsidiary. Further, the Company and each Subsidiary expressly reserve the right
at any time to dismiss a Participant free from any liability, or any claim under
the Employee Plan, except as provided herein or in any Award Agreement issued
hereunder.
9
<PAGE>
XII. Governing Law.
-------------
To the extent that United States federal laws do not otherwise control,
the Employee Plan shall be construed in accordance with and governed by the laws
of the Cayman Islands.
XIII. Savings Clause.
--------------
This Employee Plan is intended to comply in all aspects with applicable
laws and regulations. In case any one more of the provisions of this Employee
Plan shall be held invalid, illegal or unenforceable in any respect under
applicable law or regulation, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby and
the invalid, illegal or unenforceable provision shall be deemed null and void;
however, to the extent permissible by law, any provision which could be deemed
null and void shall first be construed, interpreted or revised retroactively to
permit this Employee Plan to be construed in compliance with all applicable laws
so as to foster the intent of this Plan.
XIV. Effective Date and Term.
-----------------------
The effective date of this Employee Plan is August 1, 1996. The Employee
Plan shall terminate on the tenth anniversary of the date of the adoption of
this Employee Plan. No awards shall be granted after the termination of the
Employee Plan.
10
<PAGE>
Exhibit 10.7
[LOGO OF APEX SILVER MINES CORPORATION APPEARS HERE]
May 19, 1998
Mr. Mark Lettes
6194 S. Macon Way
Englewood, CO 80111
Dear Mark,
We are pleased that you have accepted our offer to become Vice President
Finance and Chief Financial Officer of Apex Silver Mines Corporation reporting
to the Chairman and Chief Executive Officer. The following confirms
responsibilities and terms and conditions for this position.
RESPONSIBILITIES
A FINANCING
. Develop business plans in consultation with the senior management team
leading to projections of funding requirements to sustain the business and
its growth plans.
. Develop and recommend funding plans to the CEO, and manage the endeavors
required to achieve these funding requirements.
. Develop/review contractual documents required to effect all funding
requirements, recommend to the CFO final documents, with approval and as
necessary execute such documents, and manage these contractual
commitments.
. Develop the necessary relationships with funding sources and service
these relationships.
. Optimize and manage the banking and transferring of funds. Initiate,
design, recommend and manage risk management hedging activities (Treasury
function).
APEX SILVER MINES CORPORATION - A SERVICES COMPANY
1700 LINCOLN STREET - SUITE 3050 - DENVER, COLORADO 80203
TELEPHONE (303) 839-5060 - FAX (303) 839-5907
<PAGE>
Page 2
B. Accounting
. Ensure and if necessary, install appropriate accounting systems in the
geographic operating locations as well as at the corporate level.
Generate and deliver timely periodic expenditure versus budget progress
reporting, at least monthly.
. Manage the preparation of accounting and financial input for corporate
statutory reporting, and review and ensure that subsidiaries comply with
all national statutory accounting and financial reporting.
. Ensure that efficient and adequate project and operations cost
accounting systems are in place and functioning, which accurately report
progress of commitments, expenditures, and payments including trends
with early warning systems and comparisons to plans and budgets.
C. General
. Prepare for and participate in investor relations' activities with
focus on the financing aspects of the corporations' activities.
. Manage the human resources' function in the corporate office.
. Review requests for major capital expenditures.
START DATE
We expect you will commence working for the Company on June 8, 1998 at which
time your compensation and benefits will commence.
COMPENSATION
You will be paid an annual base compensation of $178,000. Your first review of
base compensation will be 18 months from the date you join the Company. You will
be paid twice a month - middle and end of the month. Direct deposit is
available.
SIGN-ON BONUS
You will be paid a one time sign-on bonus of $15,000.
BONUS
We plan to install a Performance Bonus Plan at Apex to include the calendar
year 1998 to be paid out according to the provisions of the Performance Bonus
Plan when it is adopted.
<PAGE>
Page 3
BENEFITS
. Principal Financial Group is Apex's medical, dental, life, and disability
insurance carrier. A summary of these benefits is attached.
. 401(k) savings plan - employee can contribute up to 15% of individual salary,
on a pre-tax basis. Company will make employer-matching contributions to the
plan on your behalf equal to 50% of your salary deferral contributions, up to
6% of your eligible compensation. A summary of this plan is attached.
. Holiday - 10 holidays a year are observed.
. Vacation - 4 weeks vacation per year.
. Paid Parking.
. Corporate American Express Card - mileage belongs to the employee.
STOCK OPTIONS
You will be eligible for participation in the Company's Employee Stock Option
Plan. You will be granted 60,000 share options with the exercise price to be
determined by the share price on the day you accept this offer. You will vest in
these options over a four-year period at 25 percent of the options on each of
your first four employment anniversary dates. You will be subject to the same
exercise conditions as all other Apex employees holdings stock options.
REIMBURSABLE EXPENSES
. You will be reimbursed in accordance with Company policy and guidelines for
all reasonable expenses incurred in connection with travel on Company
business.
. The Company provides corporate credit cards to cover travel, hotel, etc.
. As to class of travel, domestic travel will be coach and all international
travel will be business class.
. Frequent flyer miles will be the property of the user.
SEVERANCE AGREEMENT
In the event the Company should desire to terminate your employment, except for
cause, within two years after your employment starting date, you will be
entitled to severance pay for a twelve-month period at your existing salary if
severed in the first year, and six months if severed in the second year, as well
as a continuation of your benefits as permitted by the Company plans and
policies for similar periods.
<PAGE>
Page 4
You agree that in the event you leave Apex that for a period of two years you
will not join any company whose primary business is the acquisition and
development of silver mines.
As a result of getting to know you, I believe that you can make a major
contribution to our business and that you will find the work interesting and
challenging. We welcome you as a member of Apex's key executive staff.
Please sign in the space indicated below and return the designated copy to us.
Sincerely,
/s/ Keith R. Hulley
-------------------
Keith R. Hulley
President and
Chief Operating Officer
AGREED TO AND ACCEPTED:
- ----------------------
/s/ Mark A. Lettes
- ----------------------
6/2/98
- ----------------------
Date
cc: T. Kaplan
<PAGE>
Exhibit 21
APEX SILVER MINES LIMITED'S SUSBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Name Jurisdiction
- ------------------------------------------------------------------------------------------
<C> <S> <C>
1. Andean Silver Corporation Cayman Islands
2. Apex Asia LDC Cayman Islands
3. Apex Metals Ltd. Cayman Islands
4. Apex Partners LDC Cayman Islands
5. Apex Silver Mines Corporation Delaware, USA
6. Apex Silver Mines Cayman Islands
7. ASC Boliva LDC Cayman Islands
8. ASC Partners LDC Cayman Islands
9. ASC Peru LDC Cayman Islands
10 `Asgadmongu' Company Ltd. Mongolia
11. ASM Holdings Limited Cayman Islands
12. Compania Minerales de Zacatecas, S. de R.L. de C.V. Mexico
13. Cordilleras Silver Mines (Cayman) LDC Cayman Islands
14. Cordilleras Silver Mines Ltd. Bahamas
15. `JSC' Kumushtak Kyrgyzstan
16. Kumushtak Management Company Kyrgyzstan
17. Metalurgica Barones, S. de R.L. de C.V. Mexico
18. Minera Largo, S. de R.L. de C.V. Mexico
19. Minera de Cordilleras (Honduras), S. de R.L. Honduras
20. Minera de Cordilleras, S. de R.L. de C.V. Mexico
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-53185) of Apex Silver Mines Limited to our
report dated March 24, 1999 appearing on page F-2 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 JAN-01-1998
<CASH> 26,217,241 57,033,193
<SECURITIES> 0 0
<RECEIVABLES> 126,332 825,129
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,541,195 58,826,372
<PP&E> 2,571,309 1,243,481
<DEPRECIATION> 341,725 93,693
<TOTAL-ASSETS> 62,347,034 73,328,659
<CURRENT-LIABILITIES> (1,983,696) (1,006,274)
<BONDS> 0 0
0 0
0 0
<COMMON> (262,507) (191,249)
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> (62,347,034) (73,328,659)
<SALES> 0 0
<TOTAL-REVENUES> (2,444,357) (961,810)
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 13,473,927 15,946,768
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 11,029,570 14,984,958
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 11,029,570 14,984,958
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,029,570 14,984,958
<EPS-PRIMARY> 0.42 0.72
<EPS-DILUTED> 0.42 0.72
</TABLE>
