Apex in non-binding deal for sale of mine interest, to restructure convertibles via bankruptcy

By Caroline Salls

Pittsburgh, Nov. 14 - Apex Silver Mines Ltd. has entered into a non-binding letter of intent with Sumitomo Corp. for the proposed $22.5 million sale of Apex Silver's interest in the San Cristobal mine to Sumitomo, according to a news release.

The company said the non-binding letter of intent is subject to significant conditions, including completion by Sumitomo of due diligence, the preparation of definitive documentation, the approval by the board of directors of each company and the restructuring of the mine's project finance facility and metal derivatives positions and Apex Silver's convertible notes in a Chapter 11 bankruptcy.

Apex Silver said it would continue to manage the mine following the sale.

According to the release, Sumitomo currently owns a 35% indirect interest in the mine through Apex Silver subsidiary Minera San Cristobal, SA.

Sumitomo also has the right to convert outstanding borrowings under a $100 million line of credit into additional Minera equity interests.

Apex said Minera has borrowed $82 million under this facility, and, if those borrowings were fully converted, Sumitomo would have a 53.6% indirect interest in the San Cristobal mine.

"We are pleased that Apex Silver will continue to partner with Sumitomo at this world-class mine, and 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," Apex Silver president and chief executive officer Jeffrey G. Clevenger said in the release.

Under the letter of intent, Sumitomo or an affiliate will purchase Apex's and its affiliates' remaining equity interests in Minera, shareholder loans to Minera and other assets for a cash purchase price of $22.5 million.

Sumitomo will also assume the liabilities related to the San Cristobal mine, including borrowings under the project finance facility for the mine and related liabilities under metal derivatives positions, net of $91 million restricted cash at Apex Silver that has been pledged as collateral for the derivatives positions.

Apex Silver Mines Corp., a wholly owned subsidiary of Apex Silver, will manage Minera for a minimum $6 million annual fee.

Apex Silver Mines Corp. will also be entitled to an annual incentive fee of up to $1.5 million, based on achievement of benchmarks for operating efficiency.

Apex said the management agreement will have a minimum term of 12 months, after which Sumitomo may end the agreement on six-months' notice and Apex Silver Mines Corp. may terminate on 12-months' notice.

Apex Silver will guarantee the subsidiary's performance, according to the release.

Apex Silver Mines is a Caymans Islands-based mining company developing silver properties in Latin America.

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