Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-122286
PROSPECTUS
APEX
SILVER MINES LIMITED
$20,000,000
ORDINARY
SHARES
WARRANTS
This
prospectus relates to up to $20,000,000 of ordinary shares and warrants that
Apex Silver Mines Limited (together with its subsidiaries, “Apex Silver,”“we,”“us,” or “our company”) may offer and sell from time to time in connection with
acquisitions of other businesses, assets, properties or securities.
The
amount and type of consideration we will offer and the other specific terms
of
each acquisition will be determined by negotiations with the owners or
controlling persons of the businesses, assets, properties or securities to
be
acquired. We may structure business acquisitions in a variety of ways, including
acquiring stock, other equity interests or assets of the acquired business
or
merging the acquired business with us or one of our subsidiaries. We do not
expect to receive any cash proceeds from the sale of securities issued pursuant
to this prospectus. We may be required to provide further information by
means
of a post-effective amendment to the registration statement or a supplement
to
the prospectus once we know the actual information concerning a specific
acquisition.
We
will pay all the expenses of this offering. We will not pay underwriting
discounts or commissions in connection with issuing these shares, although
we
may pay finder’s fees in specific acquisitions. Any person receiving a finder’s
fee may be deemed an underwriter within the meaning of the Securities Act
of
1933, as amended.
We
may also permit individuals or entities who have received or will receive
ordinary shares or warrants in connection with the acquisitions described
above
to use this prospectus to cover resales of those securities. See “Selling
Securityholders” for the identity of such individuals or entities.
Our
ordinary shares are traded on the American Stock Exchange under the symbol
“SIL.”
Investing
in the securities offered in this prospectus involves risk. See “Risk Factors”
beginning on page 6 of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved these securities, or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is May 18,
2005.
TABLE
OF CONTENTS
|
WHERE
YOU CAN FIND MORE INFORMATION
|
1
|
|
ENFORCEABILITY
OF CIVIL LIABILITIES UNDER UNITED STATES LAWS
|
2
|
|
FORWARD-LOOKING
STATEMENTS
|
2
|
|
SUMMARY
|
4
|
|
RISK
FACTORS
|
6
|
|
SELLING
SECURITYHOLDERS
|
16
|
|
USE
OF PROCEEDS
|
17
|
|
PLAN
OF DISTRIBUTION
|
17
|
|
DESCRIPTION
OF ORDINARY SHARES
|
17
|
|
DESCRIPTION
OF THE WARRANTS
|
22
|
|
CERTAIN
TAX CONSIDERATIONS
|
23
|
|
LEGAL
MATTERS
|
23
|
|
EXPERTS
|
23
|
You
should rely only on information contained or incorporated by reference in
this
prospectus. We have not authorized anyone to provide you with information
different from that contained or incorporated in this prospectus.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any of these documents at
the
SEC’s public reference room at 450 Fifth Street N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. Our SEC filings are also available to the public at the SEC’s
website at http://www.sec.gov.
The
SEC allows us to “incorporate by reference” the information we file with the
SEC, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
part of this prospectus, and information that we file later with the SEC
will
automatically update and supersede the information in this
prospectus.
The
following documents, which were previously filed with the SEC pursuant to
the
Securities Exchange Act of 1934, or the Exchange Act, are hereby incorporated
by
reference:
| · |
our
Annual Report on Form 10-K for the year ended December 31, 2004,
as
amended; |
| · |
our
Quarterly Report on Form 10-Q for the quarter ended March 31,
2005; |
| · |
our
Current Reports on Form 8-K filed on January 13, 2005 (two
reports);
and |
| · |
the
description of the ordinary shares and other classes or series of
shares
contained under the caption “Description of Ordinary Shares” in our
registration statement on Form S 1, as amended (File No. 333 34685),
and
incorporated by reference into the Registration Statement on Form
8-A
under the Securities Exchange Act of 1934 filed with the SEC on November
18, 1997. |
All
reports and other documents filed by us pursuant to Sections 13(a), 13(c),
14 or
15(d) of the Exchange Act subsequent to the date of this prospectus and prior
to
the termination of this offering shall be deemed to be incorporated by reference
into this prospectus and shall be a part hereof from the date of filing of
such
reports and documents.
Any
statement contained in a document incorporated or deemed to be incorporated
by
reference in this prospectus shall be deemed modified, superseded or replaced
for purposes of this prospectus to the extent that a statement contained
in this
prospectus, or in any subsequently filed document that also is deemed to
be
incorporated by reference in this prospectus, modifies, supersedes or replaces
such statement. Any statement so modified, superseded or replaced shall not
be
deemed, except as so modified, superseded or replaced, to constitute a part
of
this prospectus. Subject to the foregoing, all information appearing in this
prospectus is qualified in its entirety by the information appearing in the
documents incorporated by reference.
Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance we refer you
to the
copy of the contract or document filed as an exhibit to the registration
statement or the documents incorporated by reference in this prospectus,
each
such statement being qualified in all respects by such reference.
You
may receive a copy of any of these filings (excluding exhibits to those
documents unless they are specifically incorporated by reference in those
documents), at no cost, by writing or calling Apex Silver Mines Corporation,
1700 Lincoln Street, Suite 3050, Denver, Colorado 80203, Attention: Vice
President, Investor Relations and Corporate Development, telephone (303)
839-5060.
ENFORCEABILITY
OF CIVIL LIABILITIES UNDER UNITED STATES LAWS
Apex
Silver is a Cayman Islands exempted company and some of our directors reside
in
jurisdictions outside of the United States. At any one time, all or a
substantial portion of our assets and directors are or may be located in
jurisdictions outside of the United States. Therefore, it could be difficult
for
investors to effect within the United States service of process on us or
any of
our directors who reside outside the United States. Further, it could be
difficult to recover against us or such directors judgments of courts in
the
United States, including judgments based upon civil liability under U.S.
federal
securities laws and similar state laws. Notwithstanding the foregoing, we
have
irrevocably agreed that we may be served with process with respect to actions
based on offers of the securities offered by this prospectus in the United
States by serving Apex Silver Mines Corporation, 1700 Lincoln Street, Suite
3050, Denver, Colorado 80203, our U.S. agent appointed for that
purpose.
Walkers,
our Cayman Islands counsel, has advised us that there may be circumstances
where
the courts of the Cayman Islands would not enforce:
| · |
judgments
of U.S. courts obtained in actions against us or our directors that
are
not resident within the United States that are based upon the civil
liability provisions of U.S. federal securities laws and similar
state
laws; or |
| · |
original
actions brought in the Cayman Islands against us or such persons
based
solely upon U.S. federal securities laws. |
There
is no treaty in effect between the United States and the Cayman Islands
providing for such enforcement. There are grounds upon which Cayman Islands
courts may not enforce judgments of U.S. courts. In addition, some remedies
that
are available under the laws of U.S. jurisdictions, including certain remedies
under U.S. federal securities laws, may not be allowed in Cayman Islands
courts
as being contrary to public policy.
FORWARD-LOOKING
STATEMENTS
Some
information contained or incorporated by reference in this prospectus may
contain forward-looking statements. These statements include comments regarding
San Cristobal development and construction plans, costs, grade, production
and
recovery rates, permitting, infrastructure arrangements, Bolivian political
and
economic conditions, financing needs, the availability of financing on
acceptable terms, the timing of construction at San Cristobal, 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. We believe the expectations reflected in these
forward-looking statements are reasonable. However, we cannot assure you
that
these expectations will prove to be correct. Our 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
this
prospectus:
| · |
worldwide
economic and political events affecting the supply of and demand
for
silver, zinc and lead; |
| · |
political
and economic instability in Bolivia and other developing countries
in
which we conduct business; |
| · |
volatility
in market prices for silver, zinc and lead;
|
| · |
financial
market conditions, and the availability of financing on terms acceptable
to Apex Silver; |
| · |
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; |
| · |
the
availability, terms, conditions and timing of required government
permits
and approvals; |
| · |
uncertainties
regarding future changes in applicable law or implementation of existing
law, including Bolivian laws related to tax, mining, environmental
matters
and exploration; |
| · |
the
availability, terms and timing of arrangements for smelting and variations
in smelting operations and capacity; |
| · |
the
availability of experienced employees; and
|
| · |
the
factors discussed under “Risk Factors.” |
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 prospectus. 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. All subsequent written and oral forward-looking
statements attributable to us and persons acting on our behalf are qualified
in
their entirety by the cautionary statements contained in this section and
elsewhere in this prospectus.
SUMMARY
This
summary contains basic information about us and the ordinary shares and warrants
that we may offer and sell from time to time in connection with acquisitions
of
other businesses, assets, properties or securities.
Because
it is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled “Risk Factors” and our financial statements and
the related notes contained elsewhere or incorporated by reference in this
prospectus, before making an investment decision.
Our
Company
Apex
Silver Mines Limited, incorporated under the laws of the Cayman Islands in
1996,
is engaged in the exploration and development of silver properties in South
America, and Mexico. Our exploration efforts have produced our first development
property, our 100% owned San Cristobal project located in southern Bolivia.
San
Cristobal’s proven and probable reserves, based on $5.37 per ounce silver, $0.40
per pound zinc and $0.28 per pound lead, total approximately 219 million
tonnes
of ore grading 64.69 grams per tonne of silver, 1.60% zinc and 0.59% lead,
containing approximately 456 million ounces of silver, 7.7 billion pounds
of
zinc and 2.8 billion pounds of lead. The prices used represent the three-year
average price for each of the metals as per guidelines established by the
Securities and Exchange Commission.
Based
on recently completed evaluations for our updated life-of-mine development
plan,
we expect San Cristobal to have an annual average payable production of
approximately 17 million ounces of silver, 165,000 tonnes of zinc and 64,000
tonnes of lead over a mine life of approximately 16 years. We have
commenced construction at San Cristobal, and, assuming that metals markets
remain favorable and that we are able to complete the additional financing
required for the project, we expect to commence and start-up and production
in
2007.
We
also have a large diversified portfolio of privately owned and controlled
silver
exploration properties. We have rights to or control over 100 silver and
other
mineral exploration holdings, divided into approximately 50 property groups,
located in or near the traditional silver producing regions of Bolivia, Mexico,
and Peru. None of our properties is in production, and consequently we have
no
operating income or cash flow.
We
are managed by a team of seasoned mining professionals with significant
experience in the construction, development and operation of large scale,
open
pit and underground, precious and base metals mining operations, as well
as in
the identification and exploration of mineral properties.
Our
principal executive office is located at 1700 Lincoln Street, Suite 3050,
Denver, Colorado 80203, and our telephone number is (303) 839-5060. Our internet
address is www.apexsilver.com. Information on our website is not incorporated
into this prospectus and is not a part of this prospectus.
Our
Strategy
Apex
Silver is one of a limited number of silver companies with significant exposure
to other metals. Our strategy is to capitalize on the San Cristobal project
and
our sizeable portfolio of silver exploration properties in order to achieve
long-term profits and growth and to enhance shareholder value.
The
principal elements of our business strategy are to:
| · |
secure
financing for and proceed to develop the San Cristobal project as
a large
scale open pit mining operation; |
| · |
continue
to explore and develop those properties which we believe are most
likely
to contain significant amounts of silver and/or other metals
and divesting 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 and/or other metals or have
exploration potential. |
Certain
Tax Considerations
We
believe that we likely were a passive foreign investment company (“PFIC”) with
respect to 2004, and likely will be a PFIC in 2005 as well as potentially
with
respect to future years. If we are a PFIC, U.S. holders of ordinary
shares and warrants to acquire ordinary shares will
be
subject to certain adverse U.S. federal income tax rules. Under the PFIC
rules,
a U.S. holder who disposes or is deemed to dispose of ordinary
shares or warrants at a gain, or who receives or is
deemed to
receive certain distributions with respect to ordinary shares, generally
will be
required to treat such gain or distributions as ordinary income and pay an
interest charge on the tax imposed with respect thereto. Certain elections
may
sometimes be used to reduce the adverse impact of the PFIC Rules for holders
of
ordinary shares(so-called "QEF elections" and "mark-to-market" elections),
but
these elections may accelerate the recognition of taxable income and may
result
in the recognition of ordinary income.
In
addition, elections that may be used to reduce the adverse impact of the
PFIC
rules will not be available with respect to warrants
to acquire ordinary shares.
The PFIC rules are extremely complex, and prospective investors are urged
to
consult their own tax advisers regarding the potential consequences to them
of
Apex Silver being classified as a PFIC. See “Certain Tax
Considerations.”
Use
of Proceeds
We
will be offering and issuing our ordinary shares and/or warrants from time
to
time in connection with the acquisition of other businesses, assets, properties
or securities. We will not receive any cash proceeds from these
offerings.
RISK
FACTORS
You
should carefully consider the risk factors set forth below as well as the
other
information included in this prospectus before deciding to purchase any shares.
The risks described below are not the only risks that we face. Additional
risks
and uncertainties not currently known to us or that we currently deem immaterial
may also impair our business operations. Any of these risks may have a material
adverse effect on our business, financial condition, results of operations
and
cash flows. In that case, you may lose all or part of your investment in
the
securities.
Risks
Related to the Business
We
have identified a material weakness in our internal controls over financial
reporting.
Section
404 of the Sarbanes-Oxley Act of 2002 requires management to make an assessment
of the design and operating effectiveness of our internal controls and our
auditors to audit the design and operating effectiveness of our internal
controls as well as forming an opinion on management's assessment. As
of
December 31, 2004, we had a material weakness in our internal controls
because we lacked a sufficient complement of personnel with a level of
accounting expertise that is commensurate with our financial reporting
requirements. This material weakness resulted in certain adjustments to our
financial statements.
| |
·
|
In
January 2005, it was determined that the accounting for capitalized
interest relating to our San Cristóbal development project asset was
incorrect. Generally accepted accounting principles require the
capitalization of a portion of the interest incurred on debt
borrowed for
the construction of certain qualifying assets (such as our San
Cristóbal
project). We restated our consolidated financial statements for
the first,
second and third quarters of 2004 to capitalize additional interest
and to
reduce interest expense.
|
| |
·
|
We
had a material adjustment to reclassify cash and cash equivalents
to short
and long term investments prior to filing our second quarter
2004
financial statements and an adjustment to stock compensation
expense and
related disclosures associated with our adoption of Statement
of Financial
Accounting Standards 123, Accounting
for Stock-Based Compensation,
prior to filing our third quarter 2004 financial
statements.
|
| |
·
|
We
had an audit adjustment to the 2004 financial statements to increase
costs
capitalized related to our San Cristóbal development project asset and to
reduce administration expense.
|
We
have
retained the public accounting firm currently assisting in our Section
404
compliance effort to assist us in preparing our financial statements and
to
provide technical expertise in the proper application of generally accepted
accounting principles to various transactions and other financial statement
matters. We have hired additional personnel and continue to evaluate the
need
for additional personnel for our accounting department, including personnel
with
technical expertise in the application of generally accepted accounting
principles. However, we have not yet been able to test and assess the operating
effectiveness of our internal controls, including these mitigating steps,
surrounding the financial reporting process, and testing may reveal similar
or
additional weaknesses in the design and effectiveness related to the financial
reporting process. Since this material weakness was not effectively remediated,
management has concluded that Apex Silver’s controls are ineffective. Further,
our independent registered public accounting firm has issued an adverse
opinion on our internal controls as of December 31, 2004.
Because opinions on internal controls have not been issued in the past,
it is
uncertain what impact an adverse opinion would have on our company or our
stock
price.
We
have no history of production.
We
have no history of producing silver or other metals. The development of our
San
Cristobal Project 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.
We
have a history of losses and 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, 2004,
we
had an accumulated deficit of $97.7 million. There can be no assurance that
we
will achieve or sustain profitability in the future.
The
calculation of our reserves and other mineralization is subject to
significant estimates.
Unless
otherwise indicated, reserves and other mineralization figures presented
in our
filings with the SEC, 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 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:
| · |
these
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 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 these reserves or
mineralization, could have a material adverse effect on our results of
operations, financial condition and cash flows.
We
have not established the presence of any proven or probable reserves at any
of
our mineral properties other than the San Cristóbal project. 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 Cristóbal project.
The
San Cristobal project is subject to risks including delays in commencement
and
completion and we may be unable to achieve anticipated production volume
or
manage cost increases.
Completion
of the development of the San Cristóbal Project is subject to various factors,
including availability, terms, conditions and timing of acceptable arrangements
for financing, transportation, construction, and smelting; required government
approvals, and the performance of our engineering and construction contractors,
mining contractor, suppliers and consultants. The lack of availability on
acceptable terms or the delay in any one or more of the other items listed
above
could also delay or prevent the development of San Cristóbal as currently
planned. Further, completion of the development of the San Cristóbal Project may
be compromised in the event of a prolonged decline in price levels for silver
and zinc. There can be no assurance:
| · |
when
or whether the San Cristóbal Project will be
completed; |
| · |
whether
the resulting operations will achieve the anticipated production
volume;
or |
| · |
that
the construction costs and ongoing operating costs associated with
the
development of the San Cristóbal Project will not be higher than
anticipated. |
We
have never developed or operated a mine or managed a significant mine
development project. We cannot assure you that the development of San Cristóbal
will be completed at the cost and on the schedule predicted, or that silver,
zinc and lead grades and recoveries, production rates or anticipated capital
or
operating costs will be achieved.
If
the actual cost to complete the development of the San Cristóbal Project is
significantly higher than currently expected, there can be no assurance that
we
will have enough funds to cover these costs or that we would be able to obtain
alternative sources of financing to cover these costs. Unexpected cost
increases, reduced silver and zinc prices or the failure to obtain necessary
project financing on acceptable terms to commence or complete the development
of
the San Cristóbal Project on a timely basis, or to achieve anticipated
production capacity, could have a material adverse effect on our future results
of operations, financial condition and cash flows.
The
successful development of the San Cristóbal Project is also subject to the other
risk factors described herein.
We
depend on a single mining project.
We
anticipate that the majority, if not all, of any revenues for the next few
years
and beyond will be derived from the sale of metals mined at the San Cristóbal
project. Therefore, if we are unable to complete and successfully mine the
San
Cristóbal project, our ability to generate revenue and profits would be
materially adversely affected.
Our
success will depend on our ability to manage our
growth.
As
we increase our development activity at San Cristóbal, we are experiencing
significant growth in our operations, which we expect to continue and accelerate
over the next several years now that construction has commenced and we
anticipate the commencement of production in 2007. This growth has created
and
will continue to create new positions and responsibilities for management
personnel and will substantially increase demands on our operating and financial
systems. There can be no assurance that we will successfully meet these demands
and manage our anticipated growth.
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 these 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. |
The
aggregate effect of these factors on metals prices is impossible for us to
predict. Decreases in metals prices have delayed, and could in the future
adversely affect, our ability to finance the development of the San Cristóbal
Project and the exploration and development of our other properties, which
would
have a material adverse effect on our financial condition, results
of
operations and cash flows. There can be no assurance that metals prices will
not
decline.
The
following table sets forth for the periods indicated (1) the Comex nearby
active
silver futures contract’s high and low price of silver in U.S. dollars per troy
ounce and (2) the London Metals Exchange’s high and low settlement prices of
zinc and lead in U.S. dollars per pound.
| |
|
|
Silver
|
|
|
Zinc
|
|
|
Lead
|
|
|
Year |
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
2000
|
|
|
5.57
|
|
|
4.62
|
|
|
0.58
|
|
|
0.46
|
|
|
0.26
|
|
|
0.18
|
|
|
2001
|
|
|
4.83
|
|
|
4.03
|
|
|
0.48
|
|
|
0.33
|
|
|
0.24
|
|
|
0.20
|
|
|
2002
|
|
|
5.13
|
|
|
4.22
|
|
|
0.42
|
|
|
0.33
|
|
|
0.24
|
|
|
0.18
|
|
|
2003
|
|
|
5.99
|
|
|
4.35
|
|
|
0.46
|
|
|
0.34
|
|
|
0.34
|
|
|
0.19
|
|
|
2004
|
|
|
8.29
|
|
|
5.49
|
|
|
0.56
|
|
|
0.42
|
|
|
0.45
|
|
|
0.29
|
|
|
2005
|
|
|
7.57 |
|
|
6.41 |
|
|
0.66
|
|
|
0.54 |
|
|
0.45 |
|
|
0.39 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| *
Through April 29, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
closing prices of silver, zinc and lead on April 29, 2005 were $6.90 per
troy
ounce, $0.59 per pound and $0.43 per pound, respectively.
We
may not be successful in hedging against price, currency and interest rate
fluctuations and may incur mark to market losses and lose money through our
hedging programs.
We
have
engaged in limited metals trading activities to hedge against commodity and
base
metals price risks, using puts and calls. We are in the process of securing
additional project debt financing for the San Cristóbal Project and in
connection with that financing we will be required to utilize various price
hedging techniques to hedge a limited amount of the metals we produce at
San
Cristóbal. The level of hedging we are required to maintain in the future will
be determined based on negotiations with our lenders.
We
may
also engage in activities to hedge the risk of exposure to currency and interest
rate fluctuations related to the development of the San Cristóbal Project in
Bolivia or to exploration or development in other countries in which we incur
substantial expenditures. Further, terms 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 that protect against market price volatility
may prevent us from realizing the benefit from subsequent increases in market
prices with respect to covered production which would limit our revenues
and
profits. Hedging contracts also are subject to the risk that the other party
may
be unable or unwilling to perform its obligations under these contracts.
Any
significant nonperformance could have a material adverse effect on our financial
condition, results of operations and cash flows.
The
exploration of mineral properties is highly speculative in nature, involves
substantial expenditures and is 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. Competition for attractive
mineral exploration properties is intense. 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. Substantial
expenditures are required to:
| · |
establish
ore reserves through drilling and metallurgical and other testing
techniques; |
| · |
determine
metal content and metallurgical recovery processes to extract metal
from
the ore; and |
| · |
construct,
renovate or expand mining and processing
facilities. |
If
we discover ore, 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. 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
in sufficient quantities to justify commercial operations in any of our
properties, other than the San Cristobal project.
We
consider from time to time the acquisition of operating or formerly operating
mines. Our decisions to acquire these properties are based on a variety of
factors including historical operating results, estimates of and assumptions
about future reserves, cash and other operating costs, metals prices and
projected economic returns, and evaluations of existing or potential liabilities
associated with the property and its operation. Other than historical operating
results, all of these may differ significantly from our estimates and
assumptions. In addition, there is intense competition for attractive
properties. Accordingly, there is no assurance that our acquisition efforts
will
result in profitable mining operations.
Our
profitability depends, in part, on actual economic returns and actual costs
of
developing mines, which may differ significantly from our estimates and involve
unexpected problems and delays.
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.
Our
decision to develop the San Cristobal project is based on feasibility studies.
Decisions about the development of other projects in the future may also
be
based on feasibility studies. Feasibility studies derive estimates of reserves
and operating costs and project economic returns. Estimates of economic returns
are based, in part, on assumptions about future metals prices. Our profitability
will be affected by changes in the price of metals. Feasibility studies derive
estimates of average cash operating costs based upon, among other
things:
| · |
anticipated
tonnage, grades and metallurgical characteristics of ore to be mined
and
processed; |
| · |
anticipated
recovery rates of silver and other metals from the
ore; |
| · |
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.
There
are a number of uncertainties inherent in the development and construction
of
any new mine, including the San Cristobal project. These uncertainties
include:
| · |
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; |
| · |
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
availability of 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 development, construction and mine
start-up. In addition, delays in the commencement of mineral production often
occur. Accordingly, there is no assurance that our future development activities
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. 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 these 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 our properties.
We
may lose rights to properties if we fail to meet payment requirements or
development or production schedules.
We
derive the rights to some of our mineral properties, including some of our
principal properties at the San Cristóbal project, from leaseholds
or
purchase option agreements which require the payment of rent or other
installment fees. In addition, we must make annual mining patent payments
to the
Bolivian government totaling approximately $360,000 to maintain our concessions
at San Cristóbal. If we fail
to make these payments when they are due, our rights to the property may
lapse.
There can be no assurance that we will always make payments by the requisite
payment dates. Some 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 the development or production schedules. In addition,
our ability to transfer or sell our rights to some of our mineral properties
requires governmental approvals or third party consents, which may not be
granted.
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; |
| · |
technical
difficulties due to unusual or unexpected geologic
formations; |
| · |
failures
of pit walls; and |
| · |
flooding
and periodic interruptions due to inclement or hazardous weather
conditions. |
These
risks can result in, among other things:
| · |
damage
to, and destruction of, mineral properties or production
facilities; |
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 insurance will be available
at
economically feasible premiums. Insurance against environmental risks is
not
generally available. These environmental risks include potential liability
for
pollution or other disturbances resulting from mining exploration and
production. In addition, not all risks associated with developing and producing
silver, zinc, lead and other metals are included in coverage and some covered
risks may result in liabilities which exceed policy limits. Further, we may
elect to not seek coverage for all 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, results of operations and cash
flows.
Our
San Cristobal project and our exploration activities are 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, 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. |
Bolivia
has experienced slow economic growth and political instability in the last
three
years. In late 2003, there were violent demonstrations in La Paz and elsewhere
in Bolivia, protesting, among other things, the proposed export of natural
gas
to the U.S. through Chile. These demonstrations resulted in the resignation
of
President Sanchez de Lozada in October 2003, and his constitutional replacement
by President Mesa. Demonstrations have continued in 2004 and early 2005,
focused
on, among other things, the opposition of certain political parties to
a
proposed statute regulating oil and gas development in Bolivia. As proposed,
the
new law would provide incentives for foreign investment
and increase taxes and royalties on oil and gas
production. Following a period of demonstrations, President Mesa resigned
in
early March 2005. The Bolivian Congress rejected his resignation, and President
Mesa has agreed to continue to serve as President based on agreements regarding
passage of a new oil and gas statute and progress on certain other initiatives.
The remaining opposing political party continues its active opposition.
There
have been no formal proposals to impose royalties or increase taxes on
the
mining industry. Although these conditions and events have not caused any
adverse impact on our San Cristóbal project, political and economic
uncertainties and instability continue and may not be resolved successfully.
The
political and economic climate may become more unstable, and political
and
economic uncertainties may in the future have an adverse impact on the
development or operations of San Cristóbal.
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; |
| · |
export
and import controls; |
| · |
income
and other taxes; |
| · |
environmental
legislation; |
| · |
foreign
ownership restrictions; |
| · |
foreign
exchange and currency controls; |
| · |
welfare
benefit policies; |
| · |
land
claims of local residents; |
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, results of operations
and cash flows.
Our
activities are subject to foreign environmental laws and regulations which
may
materially adversely affect our future operations.
We
conduct mineral exploration and development activities primarily in Central
America and South America, and are most active in Bolivia, where the San
Cristobal project is located, and Mexico. With the development of San Cristobal,
we also expect to conduct mining operations in Bolivia. These countries have
laws and regulations which control the exploration and mining of mineral
properties and their effects on the environment, including air and water
quality, mine reclamation, waste handling and disposal, the protection of
different species of flora and fauna and the preservation of lands. These
laws
and regulations will require us to acquire permits and other authorizations
for
certain activities. In many countries, including Bolivia, there is relatively
new comprehensive environmental legislation, and the permitting and
authorization processes may be less established and less predictable than
they
are in the United States. There can be no assurance that we will be able
to
acquire necessary permits or authorizations on a timely basis, if at all.
Delays
in acquiring any permit or authorization could increase the development cost
of
San Cristobal or other projects and could delay the commencement of
production.
Environmental
legislation in many countries 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. In Bolivia, where there is relatively new environmental
legislation, enforcement activities and strategies may be under development,
and
thus may be less predictable than in the United States. 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.
Many
of our exploration and development properties are located in historic mining
districts where prior owners may have caused environmental damage which may
not
be known to us or to the regulators. In most cases, 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 these requirements and satisfaction of these 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.
We
compete against larger and more experienced
companies.
The
mining industry is intensely competitive. Many of the largest mining companies
are primarily producers of base metals, and may become interested in the
types
of silver deposits on which we are focused because these deposits typically
are
polymetallic, containing significant quantities of base metals including
zinc,
lead and copper. Many of these companies have greater financial resources,
operational experience and technical capabilities than we have. We may encounter
increasing competition from other mining companies in our efforts to acquire
mineral properties and hire experienced mining professionals. Increased
competition in our business could adversely affect our ability to attract
necessary capital funding or acquire suitable producing properties or prospects
for mineral exploration in the future.
Our
ability to obtain dividends or other distributions from our subsidiaries
may be
subject to restrictions imposed by law and foreign currency exchange regulations
and our financing arrangements.
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. Further, our anticipated financing for the San Cristóbal project is
expected to include requirements that we satisfy certain debt service reserve
or
operating reserve requirements or meet debt payment obligations prior to
payment
to us of any dividends by our subsidiaries. Our subsidiaries’ ability to pay
dividends or make other distributions to us 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
that subsidiary.
We
may not be able to raise the funds necessary to explore and develop our mineral
properties.
Although
we raised approximately $536.7 million through equity sales and proceeds
from
the sale of notes in 2004, we will need additional external financing to
develop
and construct the San San Cristóbal Project and to fund the exploration and
development of our other mineral properties. Sources of 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 financing would 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.
We
depend on the services of key executives.
We
are dependent on the services of key executives including our executive chairman
and chief executive officer and a small number of highly skilled and experienced
executives and personnel focused on the development of the San Cristóbal
project. Due to the relatively small size of Apex Silver, the loss of these
persons or our inability to attract and retain additional highly skilled
employees required for the development of the San Cristóbal Project may delay or
otherwise adversely affect the development of the San Cristóbal project, which
could have a material adverse effect on our business or future
operations.
The
substantial control of Apex Silver by our directors, officers and 5%
shareholders may have a significant effect in delaying, deferring or preventing
a change in control of Apex Silver or other events which could be of benefit
to
our other shareholders.
As
of April 30, 2005, the directors of Apex Silver 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 these persons or entities, and
5%
shareholders beneficially owned approximately 28.4 million,
or 60%, of our outstanding shares, assuming the conversion of currently
exercisable options and warrants. This level of ownership by these persons
may
have a significant effect in delaying, deferring or preventing a change in
control of Apex Silver or other events which could be of benefit to our other
shareholders.
Apex
Silver and certain lower tier subsidiaries may be treated as passive foreign
investment companies for U.S. federal income tax
purposes.
We
believe that we likely were a passive foreign investment company (“PFIC”) with
respect to 2004, and likely will be a PFIC in 2005 as well as potentially
with
respect to future years. If we are a PFIC, U.S. holders of Ordinary
Shares and warrants to acquire Ordinary Shares will be subject
to
certain adverse U.S. federal income tax rules. Under the PFIC rules, a U.S.
holder who disposes or is deemed to dispose of Ordinary Shares or
warrants at a gain, or who receives or is deemed to receive certain
distributions with respect to Ordinary Shares, generally will be required
to
treat such gain or distributions as ordinary income and pay an interest charge
on the tax imposed with respect thereto. Certain elections may sometimes
be used
to reduce the adverse impact of the PFIC Rules for holders of Ordinary
Shares(so-called “QEF elections” and “mark-to-market” elections), but these
elections may accelerate the recognition of taxable income and may result
in the
recognition of ordinary income. In addition, elections that may
be used to reduce the adverse impact of the PFIC rules will not be available
with respect to warrants to acquire Ordinary
Shares. The PFIC rules are extremely complex, and prospective
investors are urged to consult their own tax advisers regarding the potential
consequences to them of Apex Silver being classified as a PFIC.
We
have in certain prior filings stated that we believed that (i) Apex
Silver
may be considered a PFIC but (ii) none of our non-U.S. lower tier
subsidiaries was a corporation for U.S. tax purposes that would itself be
considered to be a PFIC. We now believe that certain of our non-U.S. lower
tier
subsidiaries, including the subsidiary that contains the principal assets
associated with the San Cristobal project, were corporations for U.S. tax
purposes that constituted PFICs in certain prior years. As a result, there
is a
possibility that some shareholders may suffer adverse U.S. federal income
tax
consequences that arguably might not have been suffered had they been aware
of
the PFIC status of these lower tier subsidiaries. Such shareholders may,
however, be able to make retroactive elections in some cases that would mitigate
any such adverse consequences. Moreover, under applicable proposed regulations,
the fact that our lower tier subsidiaries of any consequence may not have
had
earnings and profits for any taxable year since formation may arguably eliminate
any such tax consequences in respect of prior taxable years. For the current
and
all subsequent taxable years, we believe that the potential for our lower
tier
subsidiaries to be classified as PFICs with respect to new investors can
be
substantially eliminated without adverse tax consequences.
In
the future, holders of our shares may claim that they have suffered adverse
tax
consequences for which they could have taken remedial action if they had
been
aware that such subsidiaries constituted PFICs. It is not possible for us
to
determine the number of shareholders, if any, that might make such a claim
or to
determine the merits or impact of such claims on us and whether such claims
may
be material to us.
SELLING
SECURITYHOLDERS
The
Selling Securityholders listed in any supplement to this prospectus, and
any
transferees or successors-in-interest to those persons, may from time to
time
offer and sell, pursuant to this prospectus, some or all of the ordinary
shares
or warrants, or ordinary shares issued on exercise of warrants, covered by
this
prospectus.
Resales
by Selling Securityholders may be made directly to investors or through a
securities firm acting as an underwriter, broker or dealer. When resales
are to
be made through a securities firm, such securities firm may be engaged to
act as
the Selling Securityholder’s agent in the sale of the shares by such Selling
Securityholder, or the securities firm may purchase shares or warrants from
the
Selling Securityholders as principal and thereafter resell such shares or
warrants from time to time. The fees earned by or paid to such securities
firm
may be the normal stock exchange commission or negotiated commissions or
underwriting discounts to the extent permissible. In addition, such securities
firm may effect resales through other securities dealers, and customary
commissions or concessions to such other dealers may be allowed. Sales of
securities may be at negotiated prices, at fixed prices, at market prices
or at
prices related to market prices then prevailing. Any such sales may be made
on
the American Stock Exchange, in the over-the-counter market, by block trade,
in
special or other offerings, directly to investors or through a securities
firm
acting as agent or principal, or a combination of such methods. Any
participating securities firm may be indemnified against certain liabilities,
including liabilities under the Securities Act. Any participating securities
firm may be deemed to be an underwriter within the meaning of the Securities
Act, and any commission earned by such firm may be deemed to be underwriting
discounts or commissions under the Securities Act.
In
connection with resales of the securities sold hereunder, a prospectus
supplement, if required, will be filed under Rule 424(b) under the Securities
Act, disclosing the name of the Selling Securityholder, the participating
securities firm, if any, the number of shares involved, any material
relationship the Selling Securityholder may have with us or our affiliates,
and
other details of such resale to the extent appropriate. Information concerning
the Selling Securityholders will be obtained from the Selling
Securityholders.
Shareholders
may also offer ordinary shares or warrants issued in past and future
acquisitions by means of prospectuses under other available registration
statements or pursuant to exemptions from the registration requirements of
the
Securities Act, including sales which meet the requirements of Rule 145(d)
under
that Act, and securityholders should seek the advice of their own counsel
with
respect to the legal requirements for such sales.
USE
OF PROCEEDS
We
will be offering and issuing our ordinary shares and/or warrants from time
to
time in connection with the acquisition of other businesses, assets, properties
or securities. We will not receive any cash proceeds from these
offerings.
PLAN
OF DISTRIBUTION
The
$20,000,000 of ordinary shares and warrants covered by this prospectus are
available for use in connection with acquisitions by us of other businesses,
assets, properties or securities. The consideration offered by us in such
acquisitions, in addition to any securities offered by this prospectus, may
include cash, certain assets and/or assumption by us of liabilities of or
related to the businesses, assets, properties or securities being acquired.
The
amount and type of consideration we will offer and the other specific terms
of
each acquisition will be determined by negotiations with the owners or
controlling persons of the businesses, assets, properties or securities to
be
acquired after taking into account the current and anticipated future value
of
such businesses, assets, properties or securities, along with all other relevant
factors. The securities issued to the owners of the businesses, assets,
properties or securities to be acquired normally are valued at a price
reasonably related to the market value of such ordinary shares either at
the
time an agreement is reached regarding the terms of the acquisition or upon
delivery of the shares.
We
may also permit individuals or entities who have received or will receive
our
ordinary shares in connection with the acquisitions described above, or their
transferees or successors-in-interest, to use this prospectus to cover their
resale of such shares. See “Selling Securityholders,” as it may be amended or
supplemented from time to time, for a list of those individuals or entities
who
are authorized to use this prospectus to sell their ordinary shares and
warrants.
DESCRIPTION
OF ORDINARY SHARES
As
of the
date of this prospectus, our authorized share capital consists of one class
of
75,000,000 ordinary shares, par value $.01 per share, of which
47,707,556 ordinary shares were outstanding as of April 21,
2005.
The
ordinary shares offered by this prospectus are validly issued, fully paid
and
nonassessable. There are no provisions of Cayman Islands law, our Memorandum
of
Association (the “Memorandum”) or our Articles of Association (the “Articles”)
which impose any limitation on the rights of shareholders to hold or vote
ordinary shares by reason of their not being resident in the Cayman Islands.
Dividends
Holders
of ordinary shares are entitled to receive dividends ratably when and as
declared by the Board of Directors. The right to receive dividends is also
subject to the rights of holders of preference shares, if any.
Liquidation
In
the event of any dissolution, liquidation or winding up of Apex Silver, whether
voluntary or involuntary, after there shall have been paid or set aside for
payment to the holders of any outstanding shares ranking senior to the shares
as
to distribution on liquidation, distribution or winding up, the full amount
to
which they shall be entitled, the holders of the then outstanding ordinary
shares shall be entitled to receive, pro
rata
according to the number of ordinary shares registered in the names of such
shareholders, any of our remaining assets available for distribution to our
shareholders; provided, if, at such time, the holder of ordinary shares has
any
outstanding debts, liabilities or engagements to or with us (whether presently
payable or not, either alone or jointly with any other person, whether a
shareholder or not (including, without limitation, any liability associated
with
the unpaid purchase price of such ordinary shares)), the liquidator appointed
to
oversee our liquidation shall deduct from the amount payable in respect of
such
ordinary shares the aggregate amount of such debts, liabilities and engagements
and apply such amount to any of such holder’s debts, liabilities or engagements
to or with us (whether presently payable or not). The liquidator may distribute,
in kind, to the holders of the ordinary shares remaining assets or may sell,
transfer or otherwise dispose of all or any part of such remaining assets
to any
other corporation, trust or entity and receive payment therefor in cash,
shares
or obligations of such other corporation, trust or entity or any combination
thereof, and may sell all or any part of the consideration so received, and
may
distribute the consideration received or any balance or proceeds thereof
to
holders of the ordinary shares.
Voting
Rights
The
Articles provide that the quorum required for a general meeting of the
shareholders is not less than one shareholder present in person or by proxy
holding at least 50 percent of the issued and outstanding shares entitled
to
vote at such meeting. Subject to applicable law and any provision of the
Articles requiring a greater majority, we may from time to time by special
resolution alter or amend the Memorandum or Articles; voluntarily liquidate,
dissolve or wind- up our affairs; reduce our share capital
or any capital, redemption or reserve funds, or any share premium account;
or
change our name or alter our objects.
Each
shareholder is entitled to one vote per share on all matters submitted to
a vote
of shareholders at any such meeting. All matters, including the election
of
directors, voted upon at any duly held shareholders’ meeting shall be carried by
ordinary resolution, except (i) approval of a merger, consolidation
or
amalgamation which requires (in addition to any regulatory or court approvals)
the approval of at least seventy-five percent of the outstanding voting shares,
voting together as a single class; (ii) any matter that must be approved
by
special resolution, including any amendment of the Memorandum and Articles;
and
(iii) as otherwise provided in the Articles. A special resolution
requires
the approval of at least two-thirds of the votes cast by holders of the
outstanding voting shares voting together as a s ingle class represented
in
person or by proxy at a duly convened meeting. An ordinary resolution requires
the approval of a simple majority of votes cast at a meeting of shareholders
represented in person or by proxy.
The
Articles provide that, except as otherwise required by law and subject to
the
rights of the holders of any class or series of shares we have issued having
a
preference over the ordinary shares as to dividends or upon liquidation to
elect
directors in specified circumstances, extraordinary general meetings of the
shareholders may be called only by (i) the directors or (ii) at
the
request in
writing
of shareholders owning at least 25 percent of the outstanding shares generally
entitled to vote.
The
ordinary shares have noncumulative voting rights, which means that the holders
of a majority of the ordinary shares may elect all of our directors and,
in such
event, the holders of the remaining ordinary shares will not be able to elect
any directors. Our board of directors is presently divided into three classes,
of three directors each. At present, each class is elected for a term of
three
years, with the result that shareholders will not vote for the election of
a
majority of directors in any single year. Pursuant to the Articles, directors
may be removed by the shareholders only with the vote of 80 percent of the
outstanding shares generally entitled to vote. The classified board provision
and the removal of directors by shareholder provision can only be amended
with
the vote of 80 percent of the outstanding shares generally entitled to vote.
This
classified board provision could prevent a party who acquires control of
a
majority of the outstanding voting power from obtaining control of the board
of
directors until the second annual shareholders meeting following the date
the
acquirer obtains the controlling share interest. The classified board provision
could have the effect of discouraging a potential acquirer from making a
tender
offer or otherwise attempting to obtain control of us and could thus increase
the likelihood that incumbent directors will retain their positions.
Preemptive
Rights
No
holder of our outstanding shares shall, by reason of such holding, have any
preemptive rights to subscribe to any additional issue of shares of any class
or
series nor to any security convertible into such shares.
Transfer
of Shares
The
Articles also provide that the board of directors may suspend the registration
of transfers of ordinary shares for such periods as the board of directors
may
determine, but shall not suspend the registration of transfers for more than
40
days.
Other
Class or Series of Shares
The
Articles authorize the directors to create and issue one or more classes
or
series of shares and determine the rights and preferences of each such class
or
series, to the extent permitted by the Articles and applicable law. There
are no
other classes or series of shares outstanding.
Transfer
Agent
Our
registrar and transfer agent for all ordinary shares is American Stock
Transfer & Trust Company.
Differences
in Corporate Law
The
Companies Law (2004 Revision) (the “Companies Law”) of the Cayman Islands is
modeled after that of England, and differs in certain respects from such
laws
generally applicable to United States corporations and their shareholders.
Set
forth below is a summary of certain significant provisions of the Companies
Law
(including such modifications thereto adopted pursuant to the Articles)
applicable to us which differ from provisions generally applicable to United
States corporations and their shareholders. These statements are a brief
summary
of certain significant provisions of the Companies Law and, as such, do not
deal
with all aspects of every law that may be relevant to corporations and their
shareholders.
Interested
Directors
Our
Articles provide that any transaction we enter into in which a director has
an
interest is not voidable by us nor can such director be liable to us for
any
profit realized pursuant to such transaction. A director having an interest
in a
transaction is entitled to vote in respect of such transaction provided the
nature of the interest is disclosed at or prior to the vote on such transaction.
Mergers
and Similar Arrangements
We
may acquire the business of another company and carry on such business when
it
is within the objects of the Memorandum. The approval of the holders of at
least
75 percent of the outstanding shares entitled to vote, voting together as
a
single class, at a meeting called for such purpose is required for us to
(i) merge, consolidate or amalgamate with another company,
(ii) reorganize or reconstruct us pursuant to a plan sanctioned by
the
Cayman Islands courts or (iii) sell, lease or exchange all or substantially
all of our assets, except in the case of a transaction between us and any
entity
which we, directly or indirectly, control. In order to merge or amalgamate
with
another company or to reorganize and reconstruct itself, as a general rule,
the
relevant plan would need to be approved in accordance with the provisions
of the
Companies Law by the holders of not less than 75 percent of the votes cast
at a
general meeting called for such purpose and thereafter sanctioned by the
Cayman
Islands court. In respect of such a court sanctioned reorganization, while
a
dissenting shareholder may have the right to express to a Cayman Islands
court
his view that the transaction sought to be approved would not provide the
shareholders with the fair value of their shares, (i) the court ordinarily
would not disapprove the transaction on that ground absent other evidence
of
fraud or bad faith, and (ii) if the transaction were approved and
consummated, the dissenting shareholder would have no rights comparable to
the
appraisal rights (as here defined, rights to receive payment in cash for
the
judicially determined value of their shares) ordinarily available to dissenting
shareholders of Untied States corporations.
Shareholders’
Suits
There
does not appear to be any history of either a class action or a derivative
action ever having been brought by shareholders in the Cayman Islands courts.
There has, however, until recently been no official law reporting in the
Cayman
Islands and actions subject to the Confidential Relationships (Preservation)
Law
of 1976, as amended, are held in closed court. However, in this regard, the
Cayman Islands courts ordinarily would be expected to follow English precedent,
which would permit a minority shareholder to commence an action against or
a
derivative action in the name of the corporation only (i) where the
act
complained of is alleged to be beyond the corporate power of the corporation
or
illegal, (ii) where the act complained of is alleged to constitute
a fraud
against the minority perpetrated by those in control of the corporation,
(iii) where the act requires approval by a greater percentage of the
corporation’s shareholders than actually approved it, or (iv) where there
is an absolute necessity to waive the general rule that a shareholder may
not
bring such an action in order that there not be a denial of justice or a
violation of the corporation’s memorandum of association.
Indemnification;
Exculpation
Cayman
Islands law does not limit the extent to which a company’s Articles of
Association may provide for the indemnification of officers and directors,
except to the extent that such provision may be held by the Cayman Islands
courts to be contrary to public policy (for instance, for purporting to provide
indemnification against the consequences of committing a crime). In addition,
an
officer or director may not be indemnified for fraud or willful default.
Our
Articles contain provisions providing for the indemnity by us of an officer,
director, consultant, employee or agent of ours for threatened, pending or
contemplated actions, suits or proceedings, whether civil, criminal,
administrative or investigative (including, without limitation, an action
by or
the right of the company), brought against such indemnified person by reason
of
the fact that such person was an officer, director, consultant, employee
or
agent of ours. In addition, the board of directors may authorize us to purchase
and maintain insurance on behalf of any such person against any liability
asserted against him and incurred by him in any such capacity, or arising
out of
his status as such, whether or not we would have the power to indemnify him
against such liability under the provisions of the Articles.
We
also purchase directors and officers liability insurance from third parties
for
our directors and officers. Our Articles provide that our directors and officers
shall have no liability (i) for the acts, receipts, neglects, defaults
or
omissions of any other such director or officer or agent of ours or (ii) by
reason of his having joined in any receipt for money not received by him
personally or (iii) for any loss on account of defect of title to
any of
our property or (iv) on account of the insufficiency of any security
in or
upon which any money of ours shall be invested or (v) for any loss
incurred
through any bank, broker or other agent or (vi) for any loss occasioned
by
any negligence, default, breach of duty, breach of trust, error of judgment
or
oversight on his part or (vii) for any loss, damage or misfortune
whatsoever which may happen in or arise from the execution or discharge of
the
duties, powers, authorities, or discretions of his office or in relation
thereto, unless the same shall happen through his own dishonesty.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Inspection
of Books and Records
Shareholders
of a Cayman Islands company have no general rights to inspect or obtain copies
of the list of shareholders or corporate records of a corporation.
Anti-Takeover
Effects of Articles of Association
The
Articles contain certain provisions that make more difficult the acquisition
of
control of us by means of a tender offer, open market purchase, a proxy fight
or
otherwise. These provisions are designed to encourage persons seeking to
acquire
control of us to negotiate with the directors. The directors believe that,
as a
general rule, the interests of our shareholders would be best served if any
change in control results from negotiations with the directors. The directors
would negotiate based upon careful consideration of the proposed terms, such
as
the price to be paid to shareholders, the form of consideration to be paid
and
the anticipated tax effects of the transaction. However, these provisions
could
have the effect of discouraging a prospective acquirer from making a tender
offer or otherwise attempting to obtain control of us. To the extent these
provisions discourage takeover attempts, they could deprive shareholders
of
opportunities to realize takeover premiums for their shares or could depress
the
market price of the shares.
In
addition to those provisions of the Articles discussed above, set forth below
is
a description of other relevant provisions of the Articles. The descriptions
are
intended as a summary only and are qualified in their entirety by reference
to
the Articles.
Shareholder
Action by Written Consent
Cayman
law permits shareholders to act by unanimous written consent.
Availability
of Our Ordinary Shares for Future Issuances
The
availability for issue of shares by our directors without further action
by
shareholders (except as may be required by applicable stock exchange
requirements) could be viewed as enabling the directors to make more difficult
a
change in control of us, including by issuing warrants or rights to acquire
shares to discourage or defeat unsolicited share accumulation programs and
acquisition proposals and by issuing shares in a private placement or public
offering to dilute or deter share ownership of persons seeking to obtain
control
of us.
Shareholder
Proposals
The
Articles provide that if a shareholder desires to submit a proposal for
consideration at an annual general meeting or extraordinary general meeting,
or
to nominate persons for election as directors, written notice of such
shareholder’s intent to make such a proposal or nomination must be given and
received by our secretary at our principal executive offices not later than
(i) with respect to an annual general meeting, 60 days prior to the
anniversary date of the immediately preceding annual general meeting and
(ii) with respect to an extraordinary general meeting, the close of
business on the tenth day following the date on which notice of such meeting
is
first sent or given to shareholders. The notice must describe the proposal
or
nomination in sufficient detail for a proposal or nomination to be summarized
on
the agenda for the meeting and must set forth (i) the name and address
of
the shareholder, (ii) a representation that the shareholder is a holder
of
record of our shares entitled to vote at such meeting and intends to appear
in
person or by proxy at the meeting to present such proposal or nomination,
and
(iii) the class and number of our shares which are beneficially owned
by
the shareholder. In addition, the notice must set forth the reasons for
conducting such proposed business at the meeting and any material interest
of
the shareholder in such business. In the case of a nomination of any person
for
election as a director, the notice shall set forth: (i) the name and
address of any person to be nominated; (ii) a description of all
arrangements or understandings between the shareholder and each nominee and
any
other person or persons, (iii) such other information regarding such
nominee proposed by such shareholder as would be required to be included
in a
proxy statement filed pursuant to Regulation 14A under the Exchange
Act,
whether or not we are then subject to such Regulation; and (iv) the
consent
of each nominee to serve as a director, if so elected. The presiding officer
of
the annual general meeting or extraordinary general meeting shall, if the
facts
warrant, refuse to acknowledge a proposal or nomination not made in compliance
with the foregoing procedure.
The
advance notice requirements regulating shareholder nominations and proposals
may
have the effect of precluding a contest for the election of directors or
the
introduction of a shareholder proposal if the procedures summarized above
are
not followed and may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or to introduce
a
proposal.
DESCRIPTION
OF THE WARRANTS
Presently
Outstanding Warrants
We
have 450,000 warrants for the purchase of ordinary shares outstanding as
of April 29, 2005. Each of our outstanding warrants are exercisable
for one ordinary share at an initial exercise price ranging from $12.92 to
$20.79 per share, subject to any adjustments made pursuant to the warrant
agreements. Our outstanding warrants will expire on various dates ranging
from
April 1, 2008 to September 27, 2009. There is no public market for our warrants.
Warrants
that May be Issued
We
may issue warrants independently or together with preference shares or ordinary
shares. Each class or series of warrants will be issued under a separate
warrant
agreement to be entered into at the time the warrants are issued.
The
prospectus supplement relating to a particular issue of warrants to issue
ordinary shares will describe the terms of the warrants, including
the
following:
| · |
the
title of the warrants; |
| · |
the
offering price for the warrants, if any; |
| · |
the
aggregate number of the warrants; |
| · |
the
securities or other rights (including rights to receive payments
in cash
or securities based on the value, rate or price of one or more specified
commodities, currencies or indices), purchasable upon exercise of
such
warrants; |
| · |
if
applicable, the designation and terms of the securities that the
warrants
are issued with and the number of warrants issued with each
security; |
| · |
if
applicable, the date from and after which the warrants and any securities
issued with the warrants will be separately
transferable; |
| · |
the
dates on which the right to exercise the warrants shall commence
and
expire; |
| · |
if
applicable, the minimum or maximum amount of the warrants that may
be
exercised at any one time; |
| · |
the
price at which and the currency or currencies, including composite
currencies, in which the securities or other rights purchasable upon
exercise of such warrants may be
purchased; |
| · |
if
applicable, a discussion of material U.S. federal income tax
considerations; |
| · |
the
antidilution provisions of the warrants, if
any; |
| · |
the
redemption or call provisions, if any, applicable to the warrants;
|
| · |
the
identity of the warrant agent, if applicable; and
|
| · |
any
additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants. |
You
should refer to the provisions of the warrant agreement that will be filed
with
the SEC in connection with the offering of warrants for the complete terms
of
the warrant agreement.
CERTAIN
TAX CONSIDERATIONS
United
States Federal Income Taxation
The
following discussion is a summary of the material U.S. federal income tax
consequences relating to the ownership and disposition of ordinary shares
and
warrants to acquire ordinary shares. This discussion does not address special
situations that may apply to particular holders including, but not limited
to,
holders subject to the U.S. federal alternative minimum tax, U.S. expatriates,
dealers in securities, traders in securities who elect to apply a mark-to-market
method of accounting, financial institutions, banks, insurance companies,
regulated investment companies, partnerships or other pass-through entities,
U.S. Holders who own (directly, indirectly or by attribution) 10 per cent
or
more of our ordinary shares, U.S. Holders whose “functional currency” is not the
U.S. dollar and persons who hold ordinary shares or warrants in connection
with
a “straddle,”“hedging,”“conversion” or other risk reduction transaction. The
following discussion also does not apply to tax-exempt entities except to
the
extent that certain matters are specifically addressed. This discussion does
not
address the tax consequences to U.S. Holders of ordinary shares or warrants
under any state, local, foreign and other tax laws.
The
U.S. federal income tax consequences set forth below are based upon the Internal
Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder,
court decisions, revenue rulings and administrative pronouncements of the
Internal Revenue Service (the “IRS”), all of which are subject to change or
changes in interpretation. Prospective investors should particularly note
that
any such change or changes in interpretation could have retroactive effect
so as
to result in U.S. federal income tax consequences different from those discussed
below.
As
discussed in more detail below, we believe that we likely were a passive
foreign
investment company (“PFIC”) with respect to 2004, and likely will be a PFIC in
2005 as well as potentially with respect to future years. If we are a PFIC,
U.S.
Holders of ordinary shares and warrants will be subject to certain adverse
tax
rules (the “PFIC rules”), which are described below. The PFIC rules are
extremely complex, and prospective investors are urged to consult their own
tax
advisers regarding the potential consequences to them of us being classified
as
a PFIC.
As
used herein, the term “U.S. Holder” means a beneficial owner of ordinary shares
or warrants to acquire ordinary shares that is for U.S. federal income tax
purposes:
| · |
an
individual who is a citizen or resident of the United
States; |
| · |
a
corporation (or other entity taxable as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of
the
United States or any state thereof (including the District of
Columbia); |
| · |
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or |
| · |
a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more
U.S.
persons control all of the substantial decisions of the
trust. |
If
a partnership (including for this purpose any entity treated as a partnership
for U.S. federal income tax purposes) is a beneficial owner of ordinary shares
or warrants, the U.S. federal income tax treatment of a partner in the
partnership generally will depend on the status of the partner and the
activities of the partnership. A holder of ordinary shares or warrants that
is a
partnership and partners in such partnership should consult their own tax
advisers regarding the U.S. federal income tax consequences of holding and
disposing of ordinary shares and warrants.
This
discussion is limited to holders of the ordinary shares and warrants who
will
hold the ordinary shares and warrants as capital assets.
Prospective
investors are urged to consult their own tax advisers with respect to the
particular tax consequences to them of the purchase, ownership and disposition
of ordinary shares and warrants, including the tax consequences under any
state,
local, foreign and other tax laws.
The
Passive Foreign Investment Company Rules
Classification
as a PFIC
We
believe that we likely were a PFIC with respect to 2004, and likely will
be a
PFIC with respect to 2005 as well as potentially with respect to future years.
We will be a PFIC for any taxable year if either 75 percent or more of our
gross
income for the taxable year is “passive” income or the average portion of our
assets during the taxable year that produce “passive” income or are held for the
production of “passive” income is at least 50 percent.
We
will likely be a PFIC with respect to 2005 and potentially with respect to
future years because we expect to earn significant passive income from
investments prior to our commencement of substantial mining operations. In
addition, we may constitute a PFIC even after we begin to generate significant
income from mining and processing operations.
If
we are classified as a PFIC for any taxable year during any part of which
a U.S.
Holder owns ordinary shares or warrants to acquire ordinary shares, the U.S.
Holder generally will be required to continue to treat us as a PFIC even
if we
cease to be a PFIC in a future year. We do not intend to make or issue to
U.S.
Holders of ordinary shares or warrants determinations as to our PFIC status,
or
the PFIC status of any lower-tier subsidiary, for any taxable year.
Consequences
of PFIC Status
If
we are treated as a PFIC for any taxable year during any part of which a
U.S.
Holder owns ordinary shares or warrants, the U.S. Holder generally will be
subject to a special tax regime in respect of “excess distributions.” Excess
distributions generally will include dividends or other distributions on
the
ordinary shares in any taxable year to the extent the amount of such
distributions exceeds 125 percent of the average distributions for
the
three preceding years or, if shorter, the investor’s holding period. In
addition, gain on a sale or other disposition of ordinary shares or warrants
generally will be treated as an excess distribution. For this purpose, certain
transfers of ordinary shares or warrants that otherwise would qualify as
tax
free will be treated as taxable dispositions.
As
discussed in more detail below under “Taxation of U.S. Holders of Ordinary
Shares—Qualified Electing Fund Election” and “—Mark-to-Market Election”, there
are two alternative taxation regimes for PFICs that may be elected by U.S.
Holders in respect of ordinary shares, subject to certain conditions. These
alternative regimes will not be available to U.S. Holders of ordinary shares
or
warrants.
Tax
Treatment of Excess Distributions
Under
the PFIC rules, a U.S. Holder will be required to allocate any excess
distributions with respect to ordinary shares or warrants to each day during
the
U.S. Holder’s holding period for the ordinary shares or warrants on a straight
line basis. For this purpose, a U.S. Holder’s holding period for ordinary shares
acquired upon exercise of warrants generally will include the period during
which the U.S. Holder owned the warrants. Any portion of the excess distribution
that is allocable to the current year or to periods in the U.S. Holder’s holding
period before we became a PFIC will be included in the U.S. Holder’s gross
income for the current year as ordinary income. Any portion of the excess
distribution that is allocable to any other year will be taxable at the highest
rate of taxation applicable to ordinary income for that year, without regard
to
the U.S. Holder’s other items of income and loss for such year; and this tax
will be increased by an interest charge computed by reference to the periods
to
which the tax is allocable and based on the rates generally applicable to
underpayments of tax. Any such interest charge generally will be non-deductible
interest expense for individual taxpayers.
Tax
Exempt Holders
Distributions
with respect to ordinary shares held by, and gain from a sale of ordinary
shares
or warrants by, a U.S. Holder that is exempt from U.S. federal income taxation,
such as a tax exempt charitable organization, pension fund or an individual
retirement account, will not be taxed as an “excess distribution” unless a
dividend with respect to our ordinary shares would be taxable to the tax
exempt
U.S. Holder.
Lower-Tier
PFICs
If
we are a PFIC and if one or more of our non-U.S. corporate subsidiaries were
treated as a PFIC (“lower-tier PFICs”), U.S. Holders of ordinary shares would be
considered to own, and also would be subject to the PFIC rules with respect
to,
their proportionate share of the lower-tier PFIC stock that we own, regardless
of the percentage of their ownership in us. In such circumstances a U.S.
Holder
of ordinary shares could elect an alternative taxation regime in respect
of its
indirect ownership interest in a lower-tier PFIC, subject to certain conditions.
See “Taxation of U.S. Holders of Ordinary Shares—Lower-Tier PFICs.” U.S. Holders
of warrants would not be treated as owning the stock of any lower-tier
PFIC.
Taxation
of U.S. Holders of Warrants
Sale
or Other Disposition
If
a U.S. Holder’s holding period for its warrants includes any portion of a
taxable year for which we were a PFIC, any gain from a sale or other disposition
of the warrants generally will be taxed as an “excess distribution” under the
PFIC rules.
If
we are not treated as a PFIC at any time during which a U.S. Holder owns
warrants, the U.S. Holder will recognize capital gain or loss on a sale or
other
disposition of the warrants, which will constitute long-term capital gain
or
loss if the holding period for the warrants exceeds one year at the time
of
disposition. Such gain or loss will generally be U.S. source gain or
loss.
Exercise
of Warrants
A
U.S. Holder’s acquisition of ordinary shares by exercising warrants will be a
non-taxable purchase for U.S. federal income tax purposes, regardless of
our
PFIC status.
A
U.S. Holder’s holding period for ordinary shares acquired upon exercise of
warrants will generally include the period during which the U.S. Holder owned
the warrants.
Constructive
Dividends
Adjustments
to the exercise price of the warrants, or the failure to make adjustments
to the
exercise price upon the occurrence of certain events, may result under certain
circumstances in the receipt of constructive dividends by U.S. Holders of
warrants. U.S. Holders should consult their own tax advisers with respect
to the
tax consequences of any exercise price adjustment.
Taxation
of U.S. Holders of Ordinary Shares
Taxation
of Dividends
We
do not expect to make distributions on the ordinary shares in the foreseeable
future. However, if we were to make a distribution on the ordinary shares,
and
if a U.S. Holder’s holding period for its ordinary shares (including its holding
period for warrants that were used to acquire the ordinary shares) includes
any
portion of a taxable year for which we were a PFIC, the portion of the
distribution payable to the U.S. Holder may be taxed as an “excess distribution”
under the PFIC rules, unless the U.S. Holder makes a QEF election or
mark-to-market election (described below) in respect of its ordinary
shares.
Apart
from any portion of a distribution that constitutes an “excess distribution,”
distributions paid by us will be taxable as ordinary foreign source dividend
income upon receipt to the extent of our current or accumulated earnings
and
profits, as determined for U.S. federal income tax purposes. If we are a
PFIC,
such distributions will not be eligible for the reduced rates of tax applicable
to qualified dividend income. Distributions paid by us will not be eligible
for
the dividends-received deduction generally allowed to U.S. corporations.
Dividends paid by us generally will be treated as “passive income” or, in the
case of certain holders for taxable years beginning before January 1,
2007,
“financial services income” for U.S. foreign tax credit purposes.
Taxation
of Gains on Sale or Other Disposition
If
a U.S. Holder’s holding period for its ordinary shares (including its holding
period for warrants that were used to acquire the ordinary shares) includes
any
portion of a taxable year for which we were a PFIC, any gain realized by
the
U.S. Holder on a sale or other disposition of the ordinary shares will be
taxed
as an “excess distribution” under the PFIC rules, unless the U.S. Holder makes a
QEF election or a mark-to-market election (described below) with respect
to the
ordinary shares.
If
we are not treated as a PFIC at any time during which a U.S. Holder owns
ordinary shares or warrants, the U.S. Holder will recognize capital gain
or loss
on a sale or other disposition of the ordinary shares, which will constitute
long-term capital gain or loss if the holding period for the ordinary shares
(including the holding period warrants that were used to acquire ordinary
shares) exceeds one year at the time of disposition. Such gain or loss will
generally be U.S. source gain or loss.
Qualified
Electing Fund Election
The
special PFIC rules described above for “excess distributions” will not apply to
a U.S. Holder if the U.S. Holder makes a qualified electing fund or “QEF”
election for the first taxable year of the U.S. Holder’s holding period for the
ordinary shares during which we are a PFIC and we comply with specified
reporting requirements. However, a U.S. Holder may not make a QEF election
with
respect to warrants to acquire ordinary shares. As a result, if we are treated
as a PFIC at any time during which a U.S. Holder owns warrants, the U.S.
Holder
will not be able to make a normal QEF election with respect to ordinary shares
acquired upon exercise of the warrants. Such a U.S. Holder could, however,
make
a special QEF election with respect to the ordinary shares under which the
U.S.
Holder would recognize inherent gain in the ordinary shares as an “excess
distribution” at the time of the election.
A
U.S. Holder that makes a QEF election with respect to us will be currently
taxable on its pro rata share of our ordinary earnings and net capital gain
for
each of our taxable years in which we qualify as a PFIC and as to which the
QEF
election is effective, regardless of whether the U.S. Holder receives any
distributions from us. The U.S. Holder’s basis in its ordinary shares will be
increased to reflect the U.S. Holder’s taxed but undistributed income.
Distributions of income that previously have been taxed will result in a
corresponding reduction of basis in the ordinary shares and will not be taxed
again as a distribution to the U.S. Holder.
Upon
request, we will endeavor to provide to a U.S. Holder no later than ninety
days
after the request the information that is required to make a QEF election.
A
U.S. Holder who makes a QEF election must provide to the IRS an annual
information statement which, upon request from a U.S. Holder, we will furnish
within ninety days after the request. A QEF election applies to all future
years
of an electing U.S. Holder, unless revoked with the IRS’s consent.
Mark-to-Market
Election
If
we are a PFIC, a U.S. Holder of ordinary shares may elect under the PFIC
rules
to recognize any gain or loss on its ordinary shares on a mark-to-market
basis
at the end of each taxable year, so long as the ordinary shares are regularly
traded on a qualifying exchange. The mark-to-market election under the PFIC
rules is an alternative to the QEF election. The mark-to-market election
under
the PFIC rules may not be made with respect to warrants to acquire ordinary
shares. A U.S. Holder may make a mark-to-market election under the PFIC rules
with respect to ordinary shares acquired upon an exercise of warrants; however,
this election would require the U.S. Holder to recognize inherent gain in
the
ordinary shares as an “excess distribution” at the time of the
election.
If
a mark-to-market election under the PFIC rules is made, the “excess
distribution” rules will not apply to amounts received with respect to the
ordinary shares from and after the effective time of the election, and any
mark-to-market gains or gains on disposition will be treated as ordinary
income
for any year in which we are a PFIC. Mark-to-market losses and losses on
disposition will be treated as ordinary losses to the extent of the U.S.
Holder’s prior net mark-to-market gains. Losses in excess of prior net
mark-to-market gains will generally not be recognized.
A
mark-to-market election under the PFIC rules applies to all future years
of an
electing U.S. Holder during which the stock is regularly traded on a qualifying
exchange, unless revoked with the IRS’s consent.
Lower-Tier
PFICs
If
we are a PFIC and, at any time, have a non-U.S. subsidiary that is classified
as
a PFIC, U.S. Holders of ordinary shares generally would be deemed to own,
and
also would be subject to the PFIC rules with respect to, their indirect
ownership interests in that lower-tier PFIC. If we are a PFIC and a U.S.
Holder
of ordinary shares does not make a QEF election in respect of a lower-tier
PFIC,
the U.S. Holder could incur liability for the deferred tax and interest charge
described above if either (1) we receive a distribution from, or dispose
of
all or part of our interest in, the lower-tier PFIC or (2) the U.S.
Holder
disposes of all or part of its ordinary shares. Upon request, we will endeavor
to cause any lower-tier PFIC to provide to a U.S. Holder no later than ninety
days after the request the information that may be required to make a QEF
election with respect to the lower-tier PFIC. A mark-to-market election under
the PFIC rules with respect to ordinary shares would not apply to a lower-tier
PFIC, and a U.S. Holder would not be able to make such a mark-to-market election
in respect of its indirect ownership interest in that lower-tier PFIC.
Consequently, U.S. Holders of ordinary shares could be subject to the PFIC
rules
with respect to income of the lower-tier PFIC the value of which already
had
been taken into account indirectly via mark-to-market adjustments. Similarly,
if
a U.S. Holder made a mark-to-market election under the PFIC rules in respect
of
the ordinary shares and made a QEF election in respect of a lower-tier PFIC,
that U.S. Holder could be subject to current taxation in respect of income
from
the lower-tier PFIC the value of which already had been taken into account
indirectly via mark-to-market adjustments. U.S. Holders are urged to consult
their own tax advisers regarding the issues raised by lower-tier
PFICs.
We
believe that certain of our non-U.S. lower-tier subsidiaries, including the
subsidiary that contains the principal assets associated with the San Cristobal
project, were corporations for U.S. tax purposes that constituted PFICs in
certain prior years. For the current and all subsequent taxable years, we
believe that the potential for our lower-tier subsidiaries to be classified
as
PFICs with respect to new investors can be substantially eliminated without
adverse tax consequences, and we will endeavor to cause our lower-tier
subsidiaries not to be classified as PFICs with respect to such years.
Nonetheless, we can provide no assurance that one or more of our lower-tier
subsidiaries will not be classified as a PFIC in respect of any
year.
Reporting
A
U.S. Holder who owns ordinary shares during any year that we are a PFIC must
file an IRS Form 8621 in respect of such ordinary shares.
Non-U.S.
Holders
An
investor who is not a U.S. Holder will not be subject to U.S. federal income
tax
on any dividends received on ordinary shares unless (1) the investor
has an
office or other fixed place of business in the United States to which the
dividends are attributable and the dividends are either derived in the active
conduct of a banking, finance or similar business in the United States or
the
investor is a non-U.S. corporation the principal business of which consists
of
trading in stocks or securities for its own account, or (2) the investor
is
a foreign insurance company that conducts business in the United States and
the
dividends are attributable to that business.
An
investor who is not a U.S. Holder will not be subject to U.S. federal income
tax
on any gain realized on a sale or other disposition of ordinary shares or
warrants unless (1) the investor is engaged in the conduct of a trade
or
business in the United States and the gain is effectively connected with
that
trade or business, or (2) the investor is an individual who is present
in
the U.S. for 183 days or more during the taxable year in which the
gain is
realized and other specified conditions are met.
United
States Information Reporting and Backup Withholding
Dividend
payments made to a U.S. Holder of ordinary shares and proceeds of a sale
or
other disposition of ordinary shares or warrants may be subject to information
reporting to the IRS and possible U.S. federal backup withholding. Backup
withholding will not apply to a holder who furnishes a correct taxpayer
identification number or certificate of foreign status and makes any other
required certification, or who is otherwise exempt from backup withholding.
U.S.
Holders who are required to establish their exempt status generally must
provide
IRS Form W-9 (Request for Taxpayer Identification Number and
Certification).
Non-U.S.
Holders generally will not be subject to U.S. information reporting or backup
withholding. However, such holders may be required to provide certification
of
non-U.S. status (generally, on IRS Form W-8BEN) in connection with
payments
received in the United States or through certain U.S.-related financial
intermediaries.
Backup
withholding is not an additional tax. Any amounts withheld from a payment
to a
holder under the backup withholding rules may be credited against the holder’s
U.S. federal income tax liability, and a holder may obtain a refund of any
excess amounts withheld by filing the appropriate claim for refund with the
IRS
in a timely manner and furnishing any required information.
LEGAL
MATTERS
Certain
Cayman Islands legal matters, including the validity of the securities offered
by this prospectus, will be passed upon for us by Walkers, Grand Cayman,
Cayman
Islands.
EXPERTS
The
financial statements incorporated in this prospectus by reference to the
Annual
Report on Form 10-K for the fiscal year ended December 31, 2004, have
been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
an
Independent Registered Public Accounting Firm, given on the authority of
said
firm as experts in accounting and auditing.
Reserves
for the San Cristobal project were calculated by Mine Reserves Associates,
Inc.
All such figures are included herein in reliance upon the authority of that
firm
as experts in such matters.
You
should rely only on the information incorporated by reference or provided
in
this prospectus or any supplement to this prospectus. We have authorized
no one
to provide you with different information. We are not making an offer of
these
securities in any state where the offer is not permitted. You should not
assume
that the information in this prospectus is accurate as of any date other
than
the date on the front of this prospectus.
$20,000,000
ORDINARY
SHARES
WARRANTS
______________________
PROSPECTUS
______________________