Curious limbo of Apex Silver
By: David McKay
Posted: 2003/04/15 Tue 20:39 ZE2 | © Mineweb 1997-2003
ZURICH – One of the more fascinating stories among emergent mining companies must be that of Apex Silver Mines, an Amex-listed company that owns the world’s largest open-pit silver mine, and a wealth of potential zinc output, but declares a stubborn resistance to pulling the trigger on its mining operations.
According to president, Thomas Kaplan, the company declines to subsidise the weak silver market where the metal its comfortably trading within its recent historical range of between $4.00 to $5.00 per ounce. Only when the metal breaches about $5.25 per ounce will the company press the button on San Christobal, a silver mine in the south western Bolivia with planned annual output of 27 million ounces and some 570 million pounds of zinc.
Yet more controversially, if silver were to meet Apex’s price target – a move deemed inevitable by the company if gold continues to appreciate – the company is prepared to sell its metal forward until the two-year lead time on production is complete. “If one is a bull in the silver market, you cannot sell at $4.50 per ounce,” Kaplan said. “We won’t give away our metal until people are demanding it,” he added.
Interestingly, Apex can make good money at the current silver price but it appears to be the company’s leverage to the price which keeps its directors hanging on. “Every $1.00 per ounce movement in the silver price is equal to about $20 million in net earnings,” Kaplan said. The company can reward shareholders at today’s prices, but it is a mandate to get the best possible rewards that is keeping the company in its unusual operational limbo.
Analysts are quizzical. The problem with Apex is that the company remains risky without an operational track record. The attractiveness of its share is also predicated on its market view: “We will be as silver does,” Kaplan said. He adds, however, that he can afford to be wrong for another eight years. Apex has financing of about $43 million which at a burn rate of $5 million a year, can support the company well into the future.
On paper, Apex’s San Christobal looks like a beauty. Roughly 850 million ounces of the property’s metal is classified in the reserve category and annual production is estimated at an initial 25 million ounces averaging into 20 million ounces of its 15 year life. These reserves can also be doubled as the orebody remains open even at depth, Kaplan said.
According to the company, the political and social risk of operating in Bolivia is limited. Mining law is also enlightened in stark contrast to the difficulties experienced by mining companies operating in North America. “You can mine anywhere (in Bolivia) except under a town or a graveyard and even then you can get permission,” Kaplan said.
Kaplan believes disinvestment in the silver market is now over and that its leverage relative to gold is by a factor of three or four. Owing to the size of the company’s reserves at San Christobal, and a number of other exploration targets elsewhere in Bolivia and in Mexico, the company is considered by some shareholders as a warrant on the silver market.
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