<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________TO________.
COMMISSION FILE NUMBER 1-13627
APEX SILVER MINES LIMITED
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
CALEDONIAN HOUSE
69 JENNETTE STREET
GEORGETOWN, GRAND CAYMAN
CAYMAN ISLANDS, BRITISH WEST INDIES NOT APPLICABLE
--------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(345) 949-0050
--------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
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AT NOVEMBER 9, 2000, 34,471,268 ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, WERE
ISSUED AND OUTSTANDING.
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APEX SILVER MINES LIMITED
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS....................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK AND HEDGING ACTIVITIES......................... 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................... 11
ITEM 2. CHANGES IN SECURITIES...................................... 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................ 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 11
ITEM 5. OTHER INFORMATION.......................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 11
SIGNATURES ............................................................. 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 70,619,858 $ 96,296,577
Accrued interest receivable - -
Prepaid expenses and other assets 281,208 362,604
------------- -------------
Total current assets 70,901,066 96,659,181
Property, plant and equipment (net) 70,188,748 50,561,766
Value added tax recoverable 4,799,773 3,810,460
Other non-current assets 334,023 45,997
------------- -------------
Total assets $ 146,223,610 $ 151,077,404
============= =============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other accrued liabilities $ 2,181,038 $ 2,210,585
Current portion of notes payable 1,175,254 901,459
------------- -------------
Total current liabilities 3,356,292 3,112,044
Notes payable 2,605,700 3,137,368
Commitments and contingencies (Note 5)
Shareholders' equity
Ordinary shares, $.01 par value, 75,000,000 shares
authorized; 34,471,268 and 34,466,168,
share344,713d and outstanding for
respective periods 344,713 344,662
Contributed surplus 192,467,547 192,274,553
Accumulated deficit (52,550,642) (47,791,223)
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Total shareholders' equity 140,261,618 144,827,992
------------- -------------
Total liabilities and shareholders'
equity $ 146,223,610 $ 151,077,404
============= =============
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
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APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Period
Three Months Ended Nine Months Ended December 22,
September 30, September 30, 1994 (inception)
----------------------------- ----------------------------- through
2000 1999 2000 1999 Sept. 30, 2000
----------------------------- ----------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Income
Interest and other income $ 1,382,814 $ 87,698 $ 4,538,728 $ 576,285 $ 10,110,415
------------ ------------ ------------ ------------ ------------
Total income 1,382,814 87,698 4,538,728 576,285 10,110,415
------------ ------------ ------------ ------------ ------------
Expenses
Exploration 1,463,784 1,783,833 3,751,963 5,307,402 51,918,672
Administrative 2,000,346 473,790 5,368,314 1,871,584 14,457,886
Amortization and depreciation 66,753 60,130 177,889 154,350 843,402
------------ ------------ ------------ ------------ ------------
Total expenses 3,530,883 2,317,753 9,298,166 7,333,336 67,219,960
------------ ------------ ------------ ------------ ------------
Loss before minority interest (2,148,069) (2,230,055) (4,759,438) (6,757,051) (57,109,545)
Minority interest in loss of
consolidated subsidiary - - - - 4,558,886
------------ ------------ ------------ ------------ ------------
Net loss for the period $ (2,148,069) $ (2,230,055) $ (4,759,438) $ (6,757,051) $(52,550,659)
------------ ------------ ------------ ------------ ------------
Net loss per Ordinary Share -- basic
and diluted(1) $ (0.06) $ (0.08) $ (0.14) $ (0.26) $ (2.24)
============ ============ ============ ============ ============
Weighted average Ordinary Shares outstanding 34,471,268 26,266,883 34,471,268 26,255,871 23,437,067
============ ============ ============ ============ ============
</TABLE>
(1) Diluted earnings per share were antidilutive for all periods presented.
The accompanying notes form an integral part of these consolidated financial
statements.
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APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, December 22,
------------------------------- 1994 (inception)
2000 1999 through
------------------------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities $ (5,369,138) $ (5,912,323) $ (59,021,976)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of short-term investments - - -
Mining properties and development costs - - -
Purchases of property, plant and equipment (19,835,054) (13,906,092) (61,084,459)
------------- ------------- -------------
Other - - -
------------- ------------- -------------
Net cash used in investing activities (19,835,054) (13,906,092) (61,084,459)
------------- ------------- -------------
Cash flows from financing activities:
Payments of notes payable (net) (472,527) (192,766) (1,173,700)
Net proceeds from issuance of Ordinary Shares - - 191,761,070
Proceeds from exercise of stock options - 224,156 421,879
Deferred organization costs - - (282,956)
------------- ------------- -------------
Net cash from (used in) financing activities (472,527) 31,390 190,726,293
------------- ------------- -------------
Net decrease in cash and cash equivalents (25,676,719) (19,787,025) 70,619,858
Cash and cash equivalents - beginning of period 96,296,577 26,217,241 -
------------- ------------- -------------
Cash and cash equivalents - end of period $ 70,619,858 $ 6,430,216 $ 70,619,858
============= ============= =============
Supplemental disclosure of non-cash transactions:
Capitalization of depreciation expense
related to San Cristobal Project $ 143,496 $ 116,708
Stock issued as compensation $ 55,463 $ -
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
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APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
1. Basis of Preparation of Financial Statements
These unaudited interim consolidated financial statements of Apex Silver
Mines Limited (the "Company") and its subsidiaries have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC"). Such rules and regulations allow the omission of certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles, so long as
such omissions do not render the financial statements misleading. Certain prior
year balances have been reclassified to conform to the classifications being
presented at September 30, 2000.
In the opinion of management, these financial statements reflect all
adjustments that are necessary for a fair statement of the results for the
periods presented. All adjustments were of a normal recurring nature. These
interim financial statements should be read in conjunction with the annual
financial statements of the Company included in its 1999 Annual Report on Form
10-K.
2. New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
and Hedging Activities ("SFAS 133"). SFAS 133, as amended by SFAS 137 and SFAS
138, is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000 (January 1, 2001 for the Company), and establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company is engaged in limited metals trading activities utilizing puts and calls
in a manner similar to anticipated lender requirements. In the near term the
Company will continue to mark its open positions to market and record the
difference in the carrying value to current earnings. During the first nine
months of 2000 the Company recorded mark to market gains of approximately
$400,000, which is included in interest and other income in the Consolidated
Statements of Operations.
In December 1999, the SEC released Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. The objective of this SAB is to
provide further guidance on revenue recognition issues in the absence of
authoritative literature addressing a specific arrangement or a specific
industry. The Company does not believe adoption of SAB 101 will have a material
effect on its financial position or results of operations.
3. Value Added Tax Recoverable
The Company has recorded value added tax ("VAT") paid by its wholly owned
subsidiaries, ASC Bolivia and Cordilleras Mexico, as recoverable assets. The
VAT paid by ASC Bolivia is expected to be recovered through the sales of its
production from the proven and probable reserves at the San Cristobal Project
that the Company has begun to develop. Bolivian law states that VAT paid prior
to production may be recovered as a credit against Bolivian taxes arising from
production, including income tax. The VAT paid by Cordilleras Mexico is related
to exploration activities and is recoverable upon application to the tax
authorities. Cordilleras Mexico continues to receive VAT refunds relating to
VAT paid during prior periods and has currently received, and continues to
receive, refunds for VAT taxes paid through the early part of 1999. Applications
for refund of the remaining VAT taxes continue to be filed on an ongoing basis
and the remaining refunds are expected in due course. At September 30, 2000,
the recoverable VAT recorded by ASC Bolivia and Cordilleras Mexico is $4,519,110
and $280,623 respectively.
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4. Property, Plant and Equipment
The components of property, plant and equipment were as follows:
September 30, December 31,
2000 1999
------------- ------------
Mineral properties .................. $ 65,980,454 $48,056,283
Buildings ........................... 1,166,868 1,137,173
Mining equipment .................... 2,947,872 1,267,679
Other furniture and equipment ....... 767,230 765,241
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70,862,424 51,226,376
Less: Accumulated depreciation ...... (673,676) (664,610)
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$ 70,188,748 $ 50,561,766
============= =============
5. Commitments and Contingencies
The Company had outstanding letters of credit in the amounts of
approximately $300,000 and $0, for the periods ended September 30, 2000 and
December 31, 1999, respectively. The letters of credit are associated with
infrastructure development at the San Cristobal Project.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis summarizes the results of operations
of Apex Silver Mines Limited (the "Company") for the three months ended
September 30, 2000 and 1999 and for the nine months ended September 30, 2000 and
1999 and changes in its financial condition from December 31, 1999. This
discussion should be read in conjunction with the Management's Discussion and
Analysis included in the Company's 1999 Annual Report on Form 10-K.
The Company is a mining exploration and development company that holds a
portfolio of silver and base metal exploration and development properties in
South America, Mexico and Central America. None of these properties are in
production and, consequently, the Company has no current operating income or
cash flow. The sole source of income for the Company since inception has been
interest income. The Company's policy is to invest all excess cash in liquid,
high credit quality, short-term financial instruments.
The Company is incorporated in the Cayman Islands and does not conduct any
business that currently generates U.S. taxable income. There is currently no
corporate taxation imposed by the Cayman Islands. If any form of taxation were
to be enacted in the Cayman Islands, the Company has been granted exemption
until January 16, 2015. Apex Silver Mines Corporation ("Apex Corporation"), the
Company's U.S. management services company, is subject to U.S. federal, state
and local income taxes. Other than the management services company, the Company
does not pay income tax in the U.S.
Results of Operations - Three Months Ended September 30, 2000
Interest and other income. Interest and other income for the third quarter
of 2000 was $1,382,814 as compared to $87,698 for the third quarter of 1999. The
increase in interest and other income for the third quarter of 2000 is primarily
the result of higher cash balances during 2000, resulting from proceeds of the
November 1999 offering of Ordinary Shares and warrants, compared to cash
balances during the same period of 1999.
Exploration. Exploration expense was $1,463,784 for the third quarter of
2000, compared to $1,783,833 for the third quarter of 1999. The decreased
exploration expense for 2000 is due to reduced exploration activity worldwide,
as the Company is focusing its attention on the development of its San Cristobal
Project in Bolivia.
Administrative. Administrative expenses were $2,000,346 for the third
quarter of 2000, compared to $473,790 for the third quarter of 1999. The 2000
administrative expenses are higher as the result of
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increased corporate activities primarily attributable to outside consulting
including advisory fees associated with San Cristobal Project financing.
Results of Operations - Nine Months Ended September 30, 2000
Interest and other income. Interest and other income was $4,538,728 for the
nine months ended September 30, 2000, compared to $576,285 for the same period
of 1999. The increase in interest and other income for the nine month period of
2000 is primarily the result of higher cash balances during 2000, resulting from
proceeds of the November 1999 offering of Ordinary Shares and warrants, compared
to cash balances during the same period of 1999.
Exploration. Exploration expense was $3,751,963 for the nine months ended
September 30, 2000, compared to $5,307,402 for the same period of 1999. The
decreased exploration expense for 2000 is due to reduced exploration activity
worldwide, as the Company is focusing its attention on the development of its
San Cristobal Project in Bolivia.
Administrative. Administrative expenses were $5,368,314 for the nine
months ended September 30, 2000, compared to $1,871,584 for the same period of
1999. The 2000 administrative expenses are higher as the result of increased
corporate activities primarily attributable to outside consulting including
advisory fees associated with San Cristobal Project financing.
Liquidity and Capital Resources
As of September 30, 2000, the Company had cash and cash equivalents of
$70,619,858 compared to $96,296,577 at December 31, 1999. The decrease is the
result of $5,369,138 used in operations, including $3,751,963 spent on
exploration, $19,835,054 invested in property, plant and equipment primarily
related to the development of the San Cristobal Project, and a $472,527
reduction of debt.
Based on recent estimated revisions to the September 1999 feasibility study
for the San Cristobal Project, which assumes contract mining, the Company
expects capital costs for construction to total approximately $435 million,
excluding approximately $60 million in expected tax credits. Approximately $35
million of the tax credits are expected to be recovered during the construction
phase of the Project while the remaining $25 million in tax credits are expected
to be recovered against the Company's future Bolivian income taxes. In
addition, the Company expects that the Project will require approximately $15
million of working capital. With infrastructure arrangements, primarily related
to the power supply facilities, in the process of being finalized the Company
has focused its efforts on continuing to advance the Project engineering and
permitting, thereby lowering spending on the Project. The Company estimates
Project spending for the year 2000 to be approximately $25 million, which will
be funded from our existing cash balances.
The Company expects to raise significant additional financing from outside
sources to complete development of the San Cristobal project. These outside
sources of financing for the San Cristobal project will include both debt and
equity. The Company continues to work with Barclays Bank PLC, Deutsche Bank
Securities Inc., the International Finance Corporation and Corporacion Andina de
Fomento to develop multilateral financing options as part of a total financing
package that may incorporate support from other official agencies as well as
debt financing from banks and capital markets. There can be no assurance that
the Company will be able to obtain the required financing on terms that it finds
attractive, or at all.
Recent Developments
On September 6, 2000, the Company amended and replaced its current
registration statement at the Securities and Exchange Commission with a
universal shelf registration statement. The universal shelf registration
statement became effective September 8, 2000, and allows the Company to raise up
to $200 million by selling any combination of equity or debt securities listed
in the statement. Proceeds from offering(s) under the shelf registration, if
any, may be used to construct and develop San Cristobal, continue exploring the
Company's other properties, maintain control or ownership of our properties,
acquire additional mining related properties or businesses and for general
corporate purposes. It is
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anticipated that project financing will constitute the substantial majority of
the overall financing for the San Cristobal project.
In September 2000, the Company announced the finalization of a letter of
intent with Kvaerner, an independent engineering firm, whereby Kvaerner will
perform detailed engineering, procurement and construction (EPC) services on the
Company's San Cristobal Project. The letter of intent frames the conditions for
a lump sum EPC contract.
The Company also announced in September 2000, the finalization of a letter
of intent with Washington Group International (Washington), formerly known as
Morrison Knudsen Corporation, framing the conditions for a long-term mining
contract. Washington's contract mining bid is approximately 17 percent lower
than what was assumed in the Feasibility Study for contract mining. The Company
believes that this savings makes it economically feasible to utilize contract
mining services for the life of the mine rather than converting to owner mining
after five years as was originally anticipated in the Feasibility Study. This
should eliminate approximately $53 million in mining capital required to convert
to owner mining, originally anticipated in year six of operations, while
retaining the Feasibility Study's low-cost operating economics.
Forward-Looking Statements
Some information contained in or incorporated by reference into this report
may contain forward-looking statements. These statements include comments
regarding mine development and construction plans, costs, grade, production and
recovery rates, permitting, financing needs, the availability of financing on
acceptable terms, the timing of engineering studies and environmental
permitting, and the markets for silver, zinc and lead. The use of any of the
words "anticipate", "continue," "estimate," "expect," "may," "will," "project,"
"should," "believe" and similar expressions are intended to identify
uncertainties. The Company believes the expectations reflected in those
forward-looking statements are reasonable. However, the Company cannot assure
that these expectations will prove to be correct. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of the risk factors set forth below and other factors set forth in, or
incorporated by reference into, this report:
. worldwide economic and political events affecting the supply of and demand
for silver, zinc and lead;
. volatility in market prices for silver, zinc and lead;
. financial market conditions, and the availability of financing on terms
acceptable to our company;
. uncertainties associated with developing a new mine, including potential
cost overruns and the unreliability of estimates in early stages of mine
development;
. variations in ore grade and other characteristics affecting mining,
crushing, milling and smelting operations and mineral recoveries;
. geological, technical, permitting, mining and processing problems;
. the availability and timing of acceptable arrangements for power,
transportation, water and smelting;
. uncertainties regarding future changes in tax legislation or
implementation of existing tax legislation;
. variations in smelting operations and capacity;
. the availability of experienced employees; and
. the factors discussed under "Risk Factors" in the Company's Form 10-K dated
December 31, 1999.
Many of those factors are beyond our ability to control or predict. You
should not unduly rely on these forward-looking statements. These statements
speak only as of the date of this report on Form 10-Q. Except as required by
law, we are not obligated to publicly release any revisions to these forward-
looking statements to reflect future events or developments.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk and
Hedging Activities
Currently, the Company's major principal cash balances are held in U.S.
dollars. The Company maintains minimum cash balances in foreign currencies and
therefore has a relative low exposure to currency fluctuations. Because the
Company conducts its activities largely in several foreign countries, the
Company may in the future engage in hedging activities to minimize the risk of
exposure to currency and interest rate fluctuations.
The Company expects that it will be required to hedge some portion of its
planned production in advance in order to complete the financing necessary to
develop San Cristobal. In addition, as the Company brings San Cristobal into
production and begins to derive revenue from the production, sale and exchange
of metals, it may utilize various price-hedging techniques to lock in forward
delivery prices on a portion of its production. The Company would expect to
balance the use of price-hedging techniques to mitigate some of the risks
associated with fluctuations in the prices of the metals it produces while
allowing it to take advantage of rising metal prices should they occur.
The Company is engaged in limited metals trading activities utilizing puts
and calls in a manner similar to anticipated lender requirements. At September
30, 2000, the Company recorded a year-to-date mark to market gain of
approximately $400,000 from these activities. There can be no assurance that the
Company will always benefit from the use of these techniques.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. (a) Reports on Form 8-K
None.
(b) Exhibits
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
APEX SILVER MINES LIMITED
(Registrant)
Date: November 9, 2000 By: /s/ Thomas S. Kaplan
---------------------
Thomas S. Kaplan
Chairman, Board of Directors
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