Apex out, Sumitomo in at San Cristobal

Apex Silver Mines (SIL-X) is selling its stake in the massive San Cristobal zinc and silver mine to Japan-based Sumitomo for US$22.5 million.

While the amount seems shockingly low for an in-production world class silver deposit, Apex needed cash in its fight to stay solvent.

Enter Sumitomo.

As part of the deal Sumitomo is taking on a portion of the huge liabilities associated with the mine.

Apex’s balance sheet for the third quarter of this year shows current liabilities (debts and obligations to be paid within a year) to amount to a staggering US$847 million.

Sumitomo will take over liabilities associated with project financing and certain related liabilities under metal derivatives positions. That commitment from Sumitomo will be net of the US$91 million cash Apex pledged as collateral for its derivatives positions.

Prior to the deal Sumitomo had a 35% interest in the mine, with the option to move up to a 53.6% stake. That increased stake was made possible by its ability to turn a US$82 million loan Apex into equity.

The current offer from Sumitomo calls for Apex to stay on as manager of the mine for an as yet to be determined annual fee. Apex did offer that the sum will not be less than $6 million and will be sufficient to cover its costs.

But massive liabilities aren’t the only dent in Apex’s financial statements. The company also reported a loss on its income statement of US$331.8 million — just three months after posting a profit of US$177 million.

That loss came along side poor cash flows. Cash flows from operations came in at negative US$60.8 million. The company blamed rapidly declining metals prices and continued high operating costs during the third quarter for the poor showing.

Apex is clearly hoping that the Sumitomo deal will begin to resolve its tenuous position. 

The deal is subject to Apex restructuring project financing and metal derivatives positions in a voluntary reorganization under chapter 11 of the U.S. bankruptcy code.

“We look forward to a comprehensive resolution of the issues that the company has faced as a result of the current volatility in the commodity and financial markets,” Jeff Clevenger, president and chief executive of Apex said in a statement.

San Cristobal lies on Bolivia’s Alto Plano, roughly 100 km from the town of Uyuni. The deposit has 450 million oz of silver, 8 billion lbs of zinc and 3 billion lbs of lead contained in 231 million tonnes of open-pittable proven and probable reserves.