<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 JUNE 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
--------- ---------
AT AUGUST 11, 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 JUNE 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........................ 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................... 10
ITEM 2. CHANGES IN SECURITIES..................................... 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 10
ITEM 5. OTHER INFORMATION......................................... 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 10
SIGNATURES.............................................................. 11
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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>
June 30, December 31,
2000 1999
------------------ ------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 79,795,571 $ 96,296,577
Prepaid expenses and other assets 947,520 362,604
------------------ ------------------
Total current assets 80,743,091 96,659,181
Property, plant and equipment (net) 62,211,329 50,561,766
Value added tax recoverable 4,294,686 3,810,460
Other non-current assets 357,989 45,997
------------------ ------------------
Total assets $ 147,607,095 $ 151,077,404
================== ==================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other accrued liabilities $ 1,222,439 $ 2,210,585
Current portion of notes payable 966,025 901,459
------------------ ------------------
Total current liabilities 2,188,464 3,112,044
Notes payable 3,024,908 3,137,368
Shareholders' equity
Ordinary shares, $.01 par value, 75,000,000 shares
authorized; 34,471,268 and 34,466,168, shares issued
and outstanding for respective periods 344,713 344,662
Contributed surplus 192,451,580 192,274,553
Accumulated deficit (50,402,570) (47,791,223)
------------------ ------------------
Total shareholders' equity 142,393,723 144,827,992
------------------ ------------------
Total liabilities and shareholders' equity $ 147,607,095 $ 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 Six Months Ended December 22,
June 30, June 30, 1994 (inception)
--------------------------------- -------------------------------- through
2000 1999 2000 1999 June 30, 2000
--------------------------------- -------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Income
Interest and other income $ 1,421,052 $ 233,348 $ 3,155,914 $ 488,587 $ 8,727,601
--------------------------------- -------------------------------- -------------------
Total income 1,421,052 233,348 3,155,914 488,587 8,727,601
--------------------------------- -------------------------------- -------------------
Expenses
Exploration 1,245,841 1,830,057 2,288,179 3,523,569 50,454,888
Administrative 2,005,371 448,982 3,367,968 1,397,794 12,457,540
Amortization and depreciation 57,911 41,753 111,136 94,220 776,649
--------------------------------- -------------------------------- -------------------
Total expenses 3,309,123 2,320,792 5,767,283 5,015,583 63,689,077
--------------------------------- -------------------------------- -------------------
Net loss before minority interest (1,888,071) (2,087,444) (2,611,369) (4,526,996) (54,961,476)
Minority interest in loss of
consolidated subsidiary - - - - 4,558,886
------------------------------------------------------------------- -------------------
Net loss for the period $ (1,888,071) $ (2,087,444) $ (2,611,369) $ (4,526,996) $ (50,402,590)
--------------------------------- -------------------------------- -------------------
Net loss per Ordinary Share - basic and
diluted(1) $ (0.05) $ (0.08) $ (0.08) $ (0.17) $ (2.20)
================================= ================================ ===================
Weighted average Ordinary Shares
outstanding 34,471,268 26,251,969 34,471,268 26,250,365 22,938,008
================================= ================================ ===================
</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>
For the Period
Six Months Ended December 22,
June 30, 1994 (inception)
------------------------------------- through
2000 1999 June 30, 2000
------------------------------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities $ (4,485,040) $ (4,928,076) $ (58,108,472)
------------------ ----------------- -------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (11,779,020) (10,060,786) (53,057,831)
------------------ ----------------- -------------------
Net cash used in investing activities (11,779,020) (10,060,786) (53,057,831)
Cash flows from financing activities:
Payments of notes payable (net) (236,946) 23,992 (938,119)
Net proceeds from issuance of Ordinary Shares - - 191,761,070
Proceeds from exercise of stock options - - 421,879
Deferred organization costs - - (282,956)
------------------ ----------------- -------------------
Net cash from (used in) financing activities (236,946) 23,992 190,961,874
------------------ ----------------- -------------------
Net decrease in cash and cash equivalents (16,501,006) (14,964,870) 79,795,571
Cash and cash equivalents - beginning of period 96,296,577 26,217,241 -
------------------ ----------------- -------------------
Cash and cash equivalents - end of period $ 79,795,571 $ 11,252,371 $ 79,795,571
================== ================= ===================
Supplemental disclosure of non-cash transactions:
Capitalization of depreciation expense
related to San Cristobal Project $ 80,277 $ 52,465
Stock issued as compensation $ 55,463 $ -
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
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<PAGE>
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 June 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. Certain
amounts in the accompanying financial statements have been reclassified. 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"). FAS 133, as amended by FAS 137 and FAS 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 in the process of determining the future impact that the adoption of
FAS 133 will have on its earnings or financial position.
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 has received VAT refunds relating to VAT paid
through 1996 and in April 2000 received refunds for the remaining VAT paid
through 1998. Applications for refund of the remaining VAT paid through the
first quarter of 2000 have been filed and the remaining refund is expected in
due course. At June 30, 2000, the recoverable VAT recorded by ASC Bolivia and
Cordilleras Mexico is $4,011,799 and $282,887 respectively.
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<PAGE>
4. Property, Plant and Equipment
The components of property, plant and equipment were as follows:
June 30, December 31,
2000 1999
----------- -----------
Mineral properties................. $59,467,860 $48,056,283
Buildings.......................... 1,166,437 1,137,173
Mining equipment................... 1,451,371 1,267,679
Other furniture and equipment...... 797,202 765,241
----------- -----------
62,882,870 51,226,376
Less: Accumulated depreciation..... (671,541) (664,610)
----------- -----------
$62,211,329 $50,561,766
=========== ===========
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 June 30,
2000 and 1999 and for the six months ended June 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 June 30, 2000
Interest and other income. Interest and other income for the second quarter
of 2000 was $1,421,052 as compared to $233,348 for the second quarter of 1999.
The increase in interest and other income for the second 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 $1,245,841 for the second quarter of
2000, compared to $1,830,057 for the second quarter of 1999. The decreased
exploration expense for 2000 is due to reduced exploration activity worldwide,
as the Company has shifted its attention to the development of its San Cristobal
Project in Bolivia.
Administrative. Administrative expenses were $2,005,371 for the second
quarter of 2000, compared to $448,982 for the second quarter of 1999. The 2000
administrative expenses are higher as the result of increased corporate
activities primarily outside consulting.
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<PAGE>
Results of Operations - Six Months Ended June 30, 2000
Interest and other income. Interest and other income for the first six
months of 2000 was $3,155,914 as compared to $488,587 for the first six months
of 1999. The increase in interest and other income for the first six months 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 $2,288,179 for the first six months of
2000, compared to $3,523,569 for the first six months of 1999. The decreased
exploration expense for 2000 is due to reduced exploration activity worldwide,
as the Company has shifted its attention to the development of its San Cristobal
Project in Bolivia.
Administrative. Administrative expenses were $3,367,968 for the first six
months of 2000, compared to $1,397,794 for the same period of 1999. The 2000
administrative expenses are higher as the result of increased corporate
activities primarily outside consulting.
Liquidity and Capital Resources
As of June 30, 2000, the Company had cash and cash equivalents of
$79,795,571 compared to $96,296,577 at December 31, 1999. The decrease is the
result of $4,485,040 used in operations, including $2,288,179 spent on
exploration, $11,779,020 invested in property, plant and equipment primarily
related to the development of the San Cristobal Project, and a $236,946
reduction of debt.
Based on the September 1999 feasibility study for the San Cristobal Project
which assumes contract mining, the Company expects capital costs for
construction to total approximately $413 million, excluding approximately $60
million in expected tax credits. Approximately $40 million of the tax credits
are expected to be recovered during the construction phase of the Project while
the remaining $20 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. The
continuing engineering and commercial discussion with government officials has
provided additional information for scheduling and planning. Finalization of
infrastructure arrangements, primarily for power and port facilities, is
continuing and has resulted in a reduction of the 2000 expenditures, which are
now estimated to be approximately $40 million. The remaining capital costs will
be incurred in the following two years. We expect to fund these expenditures
from a combination of our existing cash balances and financing raised from
outside sources.
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. 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
In August 2000, the Company intends to file a universal shelf registration
statement with the Securities and Exchange Commission. The filing amends and
replaces the Company's current registration statement and, when effective, will
allow the Company to raise money by selling any combination of equity or debt
securities listed in the shelf filing. It is anticipated that project financing
will constitute the substantial majority of the overall financing for the San
Cristobal project. The Company continues to work with Barclays Bank PLC,
Deutsche Bank Securities Inc., International Finance Corporation and the
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. 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.
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<PAGE>
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.
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 currently developing policies, procedures and guidelines for
the hedging of metal prices, interest rates and foreign currency exposure. The
Company has engaged in limited metals trading activities utilizing puts and
calls in a manner similar to anticipated lender requirements, for the purpose of
testing procedures and controls surrounding the trading function. At June 30,
2000, the Company recorded a modest profit from these activities, which did not
have a material effect on its results of operations or
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<PAGE>
financial position. There can be no assurance that the Company will always
benefit from the use of these techniques.
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
The Annual Meeting of Shareholders was held on May 16, 2000. At the
meeting the following directors were elected until 2003:
Director Number of Common Shares Voted
-------- -----------------------------
Affirmative Negative
-----------------------------
Eduardo S. Elsztain 27,913,469 6,650
David Sean Hanna 27,913,469 6,650
Thomas S. Kaplan 27,913,469 6,650
Kevin R. Morano 27,913,469 6,650
The directors continuing in office until 2001 or 2002 are Michael
Comninos, Harry M. Conger, Ove Hoegh, Keith R. Hulley, Charles B. Smith
and Paul Soros.
The shareholders also ratified the Company's selection of
PricewaterhouseCoopers LLP as the independent accountants for 2000
fiscal year with an affirmative vote of 27,911,389 Common Shares, with
5,930 Common Shares voting against and 2,800 Common Shares abstaining.
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: August 11, 2000 By: /s/ Thomas S. Kaplan
-------------------------
Thomas S. Kaplan
Chairman, Board of Directors
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