PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars)
(Unaudited)

March 31,
2007

December 31,
2006

(in thousands, except share data)

Assets

Current assets

Cash and cash equivalents

$
147,792

$
49,840

Restricted cash

10,192

31,942

Investments

223,198

325,536

Restricted investments

35,850

65,343

Ore inventories

6,609

3,183

Material and supply inventories

3,025

3,149

Prepaid expenses and other assets

11,002

9,984

Total current assets

437,668

488,977

Property, plant and equipment, net

746,425

641,758

Ore inventories

26,797

21,341

Deferred financing costs

18,150

19,485

Value added tax recoverable

63,614

54,158

Investments

32,980

42,255

Deferred tax asset

1,596

—

Other

143

2,122

Total assets

$
1,327,373

$
1,270,096

Liabilities and Shareholders’ Equity (Deficit)

Current liabilities

Accounts payable and other accrued liabilities

$
52,272

$
47,979

Accrued interest payable

1,151

3,405

Derivatives at fair value

88,046

39,080

Current portion of long term debt

6,688

4,408

Total current liabilities

148,157

94,872

Long term debt

538,489

492,195

Derivatives at fair value

621,846

779,118

Deferred gain on sale of asset

945

1,400

Uncertain tax positions

1,596

—

Asset retirement obligation

6,053

5,761

Total liabilities

1,317,086

1,373,346

Minority interest in subsidiaries

395

40

Commitments and contingencies (Note 13)

Shareholders’ equity (deficit)

Ordinary Shares, $.01 par value, 175,000,000 shares authorized; 58,628,150 and 58,577,700 shares issued and outstanding at respective dates

586

586

Additional paid in capital

670,922

669,487

Accumulated deficit during development stage

(661,360
)
(773,339
)
Accumulated other comprehensive income (loss)

(256
)
(24
)
Total shareholders’ equity (deficit)

9,892

(103,290
)
Total liabilities and shareholders’ equity

$
1,327,373

$
1,270,096

The accompanying notes form an integral part of these consolidated financial statements.

APEX SILVER MINES LIMITED
An Exploration and Development Stage Company

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in United States dollars)
(Unaudited)

September 30,

December 31,

2006

2005

(in thousands, except share data)

Assets

Current assets

Cash and cash equivalents

$
138,097

$
4,808

Restricted cash

15,172

135,182

Investments

290,743

132,000

Restricted investments

101,133

67,491

Ore inventories

444

—

Materials and supply inventory

4,124

—

Prepaid expenses and other assets

11,444

5,824

Total current assets

561,157

345,305

Property, plant and equipment, net

583,168

379,138

Ore inventories

16,498

—

Deferred financing costs

19,988

21,604

Value added tax recoverable

45,537

20,052

Investments

4,000

—

Restricted investments

—

12,392

Other

2,109

2,020

Total assets

$
1,232,457

$
780,511

Liabilities and Shareholders’ Equity

Current liabilities

Accounts payable and other accrued liabilities

$
66,048

$
74,487

Accrued interest payable

799

3,096

Derivatives

14,101

5,652

Current portion of long term debt

2,993

2,270

Total current liabilities

83,941

85,505

Long term debt

434,117

320,021

Derivatives

168,140

50,621

Deferred gain on sale of asset

1,400

—

Asset retirement obligation

5,394

2,003

Total liabilities

692,992

458,150

Minority interest in subsidiaries

88,403

34

Commitments and contingencies (Note 12)

Shareholders’ equity

Ordinary Shares, $.01 par value, 175,000,000 shares authorized; 58,435,200 and 50,444,890 shares issued and outstanding at respective dates

584

504

Accumulated other comprehensive income (loss)

160

(243
)
Additional paid in capital

666,291

486,762

Accumulated deficit during development stage

(215,973
)
(164,696
)
Total shareholders’ equity

451,062

322,327

Total liabilities and shareholders’ equity

$
1,232,457

$
780,511

	Three Months Ended March 31,						For the Period from December 22, 1994 (inception) through
	2007			2006			March 31, 2007
	(in thousands, except share data)
Operating income and expenses:
Exploration	$	(2,731	)	$	(1,450	)	$	(84,478	)
Administrative	(6,290		)	(5,313		)	(97,395		)
Gain (loss) on commodity derivatives	108,306			(172,818		)	(757,362		)
Gain (loss) on foreign currency derivatives and transactions	984			113			2,597
Asset retirement accretion expense	(139		)	(48		)	(545		)
Amortization and depreciation	(114		)	(95		)	(1,913		)
Total operating expenses	100,016			(179,611		)	(939,096		)
Other income and expenses:
Interest and other income	6,786			2,904			61,136
Royalty income	294			—			1,913
Gain on sale of interest in subsidiary	—			—			199,600
Gain on extinguishment of debt	—			2,875			9,640
Interest expense and other borrowing costs (1)	—			(519		)	(11,696		)
Total other income and expense	7,080			5,260			260,593
Income (loss) before minority interest and income taxes	107,096			(174,351		)	(678,503		)
Income taxes	(47		)	(54		)	(1,175		)
Minority interest in (income) loss of consolidated subsidiaries	4,930			(7		)	18,318
Net income (loss)	$	111,979		$	(174,412	)	$	(661,360	)
Other comprehensive income:
Unrealized gain (loss) on securities	$	(232	)	$	390		$	(499	)
Reclassification for loss on securities included in net income	—			495			243
Other comprehensive income (loss)	(232		)	885			(256		)
Comprehensive income (loss)	$	111,747		$	(173,527	)	$	(661,616	)
Net Income (loss) per Ordinary Share — basic	$	1.91		$	(3.39	)
Net Income (loss) per Ordinary Share — diluted	$	1.90		$	(3.39	)
Weighted average Ordinary Shares outstanding - basic	58,610,698			51,420,587
Weighted average Ordinary Shares outstanding - diluted	58,898,719			51,420,587

(1) Interest expense and other borrowing costs are net of $10.8 million and $4.3 million capitalized for the three month periods ended March 31, 2007 and 2006, respectively and $46.3 million for the inception to date period ended March 31, 2007.

The accompanying notes form an integral part of these consolidated financial statements.

APEX SILVER MINES LIMITED
An Exploration and Development Stage Company

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSCASH FLOWS
(Expressed in United States dollars)
(Unaudited)

Three Months Ended

Nine Months Ended

For the Period from
December 22, 1994
(inception)

September 30,

September 30,

through

2006

2005

2006

2005

Sept. 30, 2006

(in thousands, except share data)

Operating income and expenses:

Exploration

$
(2,155
)
$
(1,097
)
$
(5,162
)
$
(3,858
)
$
(78,593
)
Administrative

(4,123
)
(4,814
)
(15,122
)
(13,660
)
(84,980
)
Gain (loss) on commodity derivatives

(45,432
)
(9,640
)
(165,487
)
(7,584
)
(220,937
)
Gain (loss) on foreign currency derivatives and transactions

203

474

439

(810
)
1,167

Other operating expense (1)

(134
)
—

(276
)
—

(276
)
Amortization and depreciation

(100
)
(81
)
(296
)
(114
)
(1,692
)
Total operating expenses

(51,741
)
(15,158
)
(185,904
)
(26,026
)
(385,311
)

Other income and expenses:

Interest and other income

4,469

5,700

12,637

12,743

47,309

Gain on sale of interest in subsidiary

119,800

—

119,800

—

119,800

Gain on extinguishment of debt

—

—

2,875

—

9,640

Interest expense and other borrowing costs (2)

—

(2,639
)
(774
)
(6,501
)
(11,696
)
Total other income and expense

124,269

3,061

134,538

6,242

165,053

Income (loss) before minority interest and income taxes

72,528

(12,097
)
(51,366
)
(19,784
)
(220,258
)
Income taxes

(54
)
—

(161
)
—

(540
)
Minority interest in (income) loss of consolidated subsidiaries

257

1

250

12

4,825

Net income (loss)

$
72,731

$
(12,096
)
$
(51,277
)
$
(19,772
)
$
(215,973
)
Other comprehensive income:

Unrealized gain (loss) on securities

$
(42
)
$
30

$
160

$
(127
)
$
(83
)
Reclassification for loss on securities included in net income

(518
)
—

243

—

243

Other comprehensive income (loss)

(560
)
30

403

(127
)
160

Comprehensive income (loss)

$
72,171

$
(12,066
)
$
(50,874
)
$
(19,899
)
$
(215,813
)
Net Income (loss) per Ordinary Share – basic

$
1.25

$
(0.25
)
$
(0.92
)
$
(0.41
)

Net Income (loss) per Ordinary Share – diluted

$
1.23

$
(0.25
)
$
(0.92
)
$
(0.41
)

Weighted average Ordinary Shares outstanding - basic

58,417,387

48,781,621

55,816,488

48,047,071

Weighted average Ordinary Shares outstanding - diluted

58,989,561

48,781,621

55,816,488

48,047,071

(1) Other operating expense is accretion expense associated with our asset retirement obligation at San Cristobal.
(2) Interest expense and other borrowing costs are net of $7.7 million and $18.7 million capitalized for the three and nine month periods ended September 30, 2006, respectively and $1.8 million and $4.3 million for the three and nine month periods ended September 30, 2005, respectively and $28.1 million for the inception to date period ended September 30, 2006.
The accompanying notes form an integral part of these consolidated financial statements.

APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)
(Unaudited)

Nine Months Ended

For the period from
December 22, 1994
(inception)

September 30,

through

2006

2005

September 30, 2006

(in thousands)

Cash flows from operating activities:

Net cash used in operating activities

$
(58,417
)
$
(16,491
)
$
(165,294
)
Cash flows from investing activities:

Purchase of available for sale investments

(385,104
)
(404,500
)
(1,578,296
)
Sale of available for sale investments

183,172

521,798

1,247,124

Purchase of held-to-maturity investments

(24,662
)
(17,524
)
(263,869
)
Sale of held-to-maturity investments

8,000

95,770

195,007

Purchase of available for sale restricted investments

(233,200
)
—

(248,150
)
Sale of available for sale restricted investments

246,400

—

246,400

Purchase of held-to-maturity restricted investments

(22,199
)
—

(49,542
)
Sale of held-to-maturity restricted investments

45,882

4,668

60,658

Payment of derivative premiums & settlements, net

(39,519
)
(1,889
)
(39,620
)
Advances for construction of port facility

—

—

(2,000
)
Advances to suppliers and contractors

(1,480
)
(1,296
)
(5,355
)
Released from (transfer to) restricted cash to collateralize credit facility, letters of credit and interest payments, net

120,010

(96,892
)
(18,134
)
Proceeds from the sale of interest in subsidiary

224,000

—

224,000

Capitalized costs and acquisitions of property, plant and equipment

(207,283
)
(101,301
)
(490,213
)
Net cash used in investing activities

(85,983
)
(1,166
)
(721,990
)
Cash flows from financing activities:

Proceeds from issuance of Ordinary Shares (net of offering costs of $4.8 million in 2006)

156,795

16,639

580,358

Proceeds from issuance of convertible notes

—

—

339,987

Payment of debt issuance costs

(671
)
(3,778
)
(24,992
)
Payments of notes payable and long term debt

(1,607
)
(2,142
)
(4,883
)
Proceeds from note to power line contractor

1,407

—

1,407

Borrowings under project finance facility

120,000

—

120,000

Proceeds from exercise of stock options and warrants

1,765

107

13,504

Net cash provided by financing activities

277,689

10,826

1,025,381

Net increase (decrease) in cash and cash equivalents

133,289

(6,831
)
138,097

Cash and cash equivalents - beginning of period

4,808

27,740

—

Cash and cash equivalents - end of period

$
138,097

$
20,909

$
138,097

	Three Months Ended March 31,						For the period from December 22, 1994 (inception) through
	2007			2006			March 31, 2007
	(in thousands)
Cash flows from operating activities:
Net cash used in operating activities	$	(16,473	)	$	(12,111	)	$	(194,077	)
Cash flows from investing activities:
Purchase of available for sale investments	(254,309		)	(34,000		)	(2,074,821		)
Sale of available for sale investments	351,632			84,191			1,740,426
Purchase of held-to-maturity investments	—			—			(263,869		)
Maturities of held-to-maturity investments	5,000			1,000			227,620
Purchase of available for sale restricted investments	(29,800		)	(191,612		)	(296,250		)
Sale of available for sale restricted investments	65,600			104,869			345,835
Purchase of held-to-maturity restricted investments	—			—			(49,877		)
Maturity of held-to-maturity restricted investments	2,800			—			84,252
Payment of derivative premiums & settlements, net	—			(3,168		)	(48,394		)
Advances for construction of port facility	—			—			(2,000		)
Advances to suppliers and contractors	—			(3,405		)	—
Released from (transfer to) restricted cash to collateralize credit facility, letters of credit and interest payments, net	21,750			88,568			(13,155		)
Proceeds from the sale of interest in subsidiary	—			—			224,000
Payment of selling costs related to sale of interest in subsidiary	—			—			(6,384		)
Capitalized costs and acquisitions of property, plant and equipment	(68,851		)	(76,186		)	(632,580		)
Net cash provided by (used) in investing activities	93,822			(29,743		)	(765,197		)
Cash flows from financing activities:
Proceeds from issuance of Ordinary Shares	—			5,728			580,357
Proceeds from issuance of convertible notes	—			—			339,987
Payment of debt issuance costs	—			(209		)	(24,992		)
Payments of notes payable and long term debt	(4,463		)	(569		)	(9,915		)
Proceeds from note to power line contractor	—			—			1,415
Borrowings under project finance facility	20,000			40,000			200,000
Minority interest contributions	4,585			—			4,585
Proceeds from exercise of stock options and warrants	481			1,414			15,629
Net cash provided by financing activities	20,603			46,364			1,107,066
Net increase (decrease) in cash and cash equivalents	97,952			4,510			147,792
Cash and cash equivalents - beginning of period	49,840			4,808			—
Cash and cash equivalents - end of period	$	147,792		$	9,318		$	147,792

See Note 1415 for supplemental cash flow information.

The accompanying notes form an integral part of these consolidated financial statements.

These unaudited interim consolidated financial statements of Apex Silver Mines Limited (the “Company”) and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America, so long as such omissions do not render the financial statements misleading. Certain prior period amounts have been reclassified to conform to the current period presentation.

In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair statement of the results for the periods presented. All adjustments were of a normal recurring nature. These interim financial statements should be read in conjunction with the annual financial statements of the Company included in its ~~2005~~2006 Annual Report on Form ~~10-K as amended.~~10-K.

The Company is a mining exploration and development company that holds a portfolio of exploration and development properties primarily in South America and Central America. The Company currently focuses its resources primarily on the development of its San Cristobal Project in Bolivia. At present, none of the Company’s properties are in production and, consequently, the Company does not have current operating income.

On September 25, 2006 the Company sold a 35% interest in the subsidiaries holding its San Cristobal Project to Sumitomo Corporation (“Sumitomo”) for $224 million in cash and the retention of certain interests in future silver and zinc production. Pursuant to the Company’s principles of consolidation under which it consolidates more-than-50%-owned subsidiaries that it controls and entities over which control is achieved through means other than voting rights, the Company fully consolidates the results of operations of its San Cristobal Project and reports Sumitomo’s participation as a minority interest. (See Note 11 for further details of the transaction).

Effective January 1, ~~2006~~2007, the Company adopted Financial Accounting Standards No. 123R, “Share-Based Payment” (“FAS No. 123R”), using the modified prospective approach, which revised Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS No. 123”), and superseded Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. The Company is currently evaluating whether it will adopt the short-cut method for calculating the pool of windfall tax benefits as allowed by FAS No. 123R-3. The Company had previously adopted FAS No. 123 effective January 1, 2004. FAS No. 123R requires measurement and recording in the financial statements of the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for the award. Additionally, FAS No. 123R requires companies that did not previously include the effects of estimated forfeitures in the FAS No. 123 expenses they reported, to record a cumulative adjustment to the income statements presented in the period of adoption of FAS No. 123R in order to reflect the effect of the estimated forfeitures. The forfeiture rate used by the Company prior and subsequent to the adoption of FAS No. 123R has not changed and, therefore, the Company did not record a cumulative effect adjustment related to prior period estimated forfeitures. The adoption of FAS No. 123R did not have a material impact on the Company’s financial position or results of operations (see Note 10).

During March 2005, a committee of the Emerging Issues Task Force (“EITF”) reached a consensus (EITF Issue No. 04-6) that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of inventory produced during the period that the

stripping costs are incurred. The Financial Accounting Standards Board (“FASB”) ratified the EITF consensus. The EITF consensus is effective for the first reporting period in fiscal years beginning after December 15, 2005. In January 2006, the EITF issued additional guidance defining the commencement of production as the period when saleable minerals are first extracted in greater than ~~de minimis~~ amounts. During the first quarter 2006, the Company began mining significant amounts of oxide ore reserves at its San Cristobal project, and placed the ore in stockpiles for future processing. The quantity and value of the minerals mined were sufficient to declare the start of ore production according to the EITF consensus. The Company has commenced the mining and stockpiling of significant amounts of ore at its San Cristobal Project and has included the associated costs as ore inventories on its financial statements.

The Company records costs related to production activities as inventory held for sale in the ordinary course of business or work in process for such sale. Work-in-process inventories include ore produced and stockpiled for which further processing is necessary before a product is ready for sale. The Company uses the average cost method to assign costs to the units of ore stockpiled during the period. Inventories are carried at the lower of cost or the current net realizable value. If costs held in inventory exceed their net realizable value, the excess cost is recognized as a loss in the current period. Net realizable value reflects the gross realizable value (“estimated selling price”) reduced by estimated costs of completion and disposal as of the balance sheet date. Gross realizable value reflects the anticipated average realization that the inventory will generate when it is sold.

In March 2006 the EITF reached a tentative consensus (EITF Issue No. 05-1) that the issuance of equity securities to settle an instrument that becomes convertible upon the issuer’s exercise of a call option should be accounted for as a conversion (as opposed to an extinguishment) if, at issuance, the debt instrument contains a substantive conversion feature other than the issuer’s call option. The EITF concluded that if an instrument is deemed convertible at issuance, then a subsequent conversion of the instrument is in accordance with a “conversion privilege that existed at issuance” and is, therefore, outside the scope of APB Opinion No. 26, “Early Extinguishment of Debt.” Therefore, the issuance of shares to settle debt pursuant to the original terms of the debt instrument should be afforded conversion treatment. If the instrument does not contain a substantive conversion feature at issuance, the issuance of equity securities to settle the instrument should be recognized as a debt extinguishment. EITF Issue No. 05-1 became effective for interim or annual reporting periods beginning after June 28, 2006, following its ratification during June 2006. The Company previously accounted for two transactions involving the buy-back of its convertible debt as an extinguishment under APB Opinion No. 26. Ratification of EITF Issue No. 05-1 will require similar future transactions be accounted for as conversions.

Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“FAS No. 154”), is effective for years beginning after December 15, 2005. FAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle. The statement, which applies to voluntary changes as well as changes required by accounting pronouncements that do not otherwise provide specific transition provisions, requires retrospective application to prior period’s financial statements where practical. FAS No. 154 did not have a material impact on the Company’s financial position or results of operations for the period and is not expected to have a material impact in the future.

~~In June 2006, the FASB issued~~ Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), an interpretation of Financial Accounting Standards Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation requires that the Company recognize in its financial statements the impact of auncertain tax ~~position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position.~~positions. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The ~~provisions~~adoption of FIN 48 ~~are effective beginning January 1,~~did not have a material impact on the Company’s financial position or results of operations (see Note 10).

During February 2007 ~~with~~ the ~~cumulative effect~~Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (“FAS No. 159”). FAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the ~~change~~provisions of FAS No. 159 apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, Accounting for Certain Investments in ~~accounting principle recorded~~Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. FAS No. 159 is effective as ~~an adjustment to~~of the ~~opening balance~~beginning of ~~retained earnings.~~the first fiscal year that begins after November 15, 2007 (fiscal year 2008 for the Company). The Company ~~is currently evaluating the impact of adopting FIN 48 but~~ does not ~~believe it will~~expect the adoption of FAS No. 159 to have a material impact on its financial position or results of operations.

During September 2006 the FASB issued Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS No. 157”). FAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Standard addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under U.S. GAAP. Accordingly, this Standard does not require any new fair value measurements. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those

fiscal ~~years.~~years (fiscal year 2008 for the Company). The Company does not expect the adoption of FAS No. 157 to have a material ~~impact on its financial position or results of operations.~~

During September 2006 the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) which establishes an approach to the quantification of unadjusted financial statement errors based on the effects of the error on each of the company’s financial statements and the related financial statement disclosures. This model is commonly referred to as a “dual approach” because it essentially requires quantification of unadjusted errors under both the iron-curtain and the roll-over methods. SAB 108 permits companies to record the cumulative effect of initially applying the “dual approach” in the first year ending after November 15, 2006 by recording the necessary “correcting” adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. The Company has no unadjusted errors and therefore does not expect the adoption of SAB 108 to have an impact on its financial position or results of operations.

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company accounts for its investments in auction rate securities in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” such that if the underlying security of an auction rate security has a stated or contractual maturity date in excess of 90 days, regardless of the frequency of the interest rate reset date, the security is classified as a current available-for-sale investment. Short-term investments include investments with maturities greater than three months, but not exceeding twelve months and available for sale auction rate securities. Long-term investments include investments with maturities greater than twelve months.

The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and re-evaluates classifications at each balance sheet date. Debt securities are classified as held to maturity when the Company has the intent and ability to hold the securities to maturity. Held to maturity debt securities are stated at amortized cost and include government agency and corporate obligations. Available for sale investments are marked to market at each reporting period with changes in value recorded as a component of other comprehensive income. If declines in value are deemed other than temporary, a charge is made to net loss for the period.

The Company invests only in government and corporate securities rated “investment grade” or better. The following tables, based on quoted market prices, summarize the Company’s investments at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005:~~2006:

December 31, 2005	Cost		Market		Balance
March 31, 2007							Cost		Fair Value		Carrying Value
	(in Thousands)						(in Thousands)
Short-term investments
Investments:
Short-term
Available for sale
Auction rate securities							$	207,810	$	207,810	$	207,810
Corporate notes							998		998		998
Government bonds							11,868		11,885		11,885
Common stock	$	434	$	686	$	686	761		505		505
Bond funds	3,381		2,885		2,885
Auction rate securities	127,426		127,426		127,426
Total available for sale	131,241		130,997		130,997		221,437		221,198		221,198
Held to maturity
Corporate notes	1,003		998		1,003
Government bonds							2,000		1,998		2,000
Total held to maturity	1,003		998		1,003		2,000		1,998		2,000
Total short term	$	132,244	$	131,995	$	132,000	$	223,437	$	223,196	$	223,198

Long-term
Available for sale
Corporate notes							$	6,990	$	6,958	$	6,958
Government bonds							26,049		26,022		26,022
Total available for sale							33,039		32,980		32,980
Total long term							$	33,039	$	32,980	$	32,980

Restricted Investments:
Short-term
Available for sale
Auction rate securities	$	14,950	$	14,950	$	14,950	$	33,100	$	33,100	$	33,100
Total available for sale	14,950		14,950		14,950		33,100		33,100		33,100
Held to maturity
Corporate notes	2,003		2,004		2,003
Government bonds	50,538		50,191		50,538		2,771		2,750		2,750
Total held to maturity	52,541		52,195		52,541		2,771		2,750		2,750
Total short term	$	67,491	$	67,145	$	67,491	$	35,871	$	35,850	$	35,850
Long-term
Held to maturity
Government bonds	$	12,392	$	12,173	$	12,392

~~To fulfill~~Quoted market prices at March 31, 2007 and December 31, 2006 were used to determine the ~~requirements~~fair values of the ~~San Cristobal Project finance facility,~~above investments.

The Company maintains the majority of its investments in auction rate securities (“ARS”) which provide acceptable interest rates with high liquidity allowing the Company ~~liquidated prior~~ to ~~their maturity dates approximately $34.0 million of investments in~~convert the fourth quarter of 2005 and $12.0 million of investments in the first quarter of 2006, which were previously recorded as held-to-maturity (“HTM”) securities. The Company recognized a $0.2 million and $0.1 million losssecurities to cash every 7 to 35 days depending on ~~the liquidation for the fourth quarter of 2005 and first quarter of 2006, respectively. The liquidation was necessitated by~~ the terms of the ~~project finance facility which required~~specific ARS. Auction rate securities are floating rate securities with long-term nominal maturities of 25 to 30 years but are marketed by financial institutions with maturity and interest rate reset dates at 7, 28, or 35 day intervals. The result is that the ~~Company to transfer substantially all~~market always has large quantities of its cash and/or investments to collateral accounts to restrict funds necessary to complete the San Cristobal project. Certain covenants related to the project finance facility restricted the maturity dates of investments heldsecurities resetting their interest rates every week resulting in ~~the collateral accounts to less than one year. A portion~~high liquidity. Most of the Company’s ~~HTM portfolio had maturity~~ARS at March 31, 2007 have reset dates ~~slightly beyond~~of either 7 days or 28 days and annual yields ranging from 2.83% to 5.58%.

Credit risk is the ~~one year limitation. As~~risk that a ~~result, prior~~third party might fail to ~~transferring~~fulfill its performance obligations under the terms of a financial instrument. For cash and equivalents and investments, credit risk represents the carrying amount on the balance sheet. We mitigate credit risk for cash and equivalents and investments by placing our funds and investments with high credit-quality financial institutions, limiting the amount of exposure to each of the financial institutions, monitoring the financial condition of the financial institutions and investing only in government and corporate securities ~~to the project finance collateral accounts, those HTM securities~~rated “investment grade” or better.

The Company invests with ~~maturities greater than one year were liquidated and reinvested in instruments with maturities~~financial institutions that maintain a net worth of not less than ~~one year. During~~$1 billion and are members in good standing of the full year 2005 and for the nine month period ended September 30, 2006, the Company recorded as an investing cash inflow an additional $126.3 million and $41.5 million respectively related to HTM securities that matured on their maturity dates. The Company believes the project financing requirements which caused the Company to liquidate a portion of its HTM investments prior to their maturity dates represent an isolated, unanticipated event that did not changeSecurities Investor Protection Corporation. Of the Company’s ~~ability or intent to hold its remaining HTM~~$450.0 million total of cash and cash equivalents, restricted cash, short and long term investments ~~until their maturity dates.~~and restricted investments at March 31, 2007, $444.8 million was held at twelve large multinational banks.

The prepaid consulting and contractor fees consist primarily of advance payments made to contractors for work being performed for the San Cristobal Project.

The Company has recorded value added tax (“VAT”) paid in Bolivia and related to the San Cristobal project as a recoverable asset. ~~Current~~ Bolivian ~~tax~~ law states that VAT paid prior to production is recoverable as a credit against Bolivian taxes arising from production, including income tax. The VAT ~~paid in Bolivia~~ is expected to be recovered through future production from the ~~proven and probable reserves at the~~ San Cristobal ~~Project that the Company is developing.~~project. Future changes to Bolivian tax law ~~should they occur,~~ could have an adverse effect on the Company’s ability to recover ~~these taxes.~~the VAT paid in Bolivia. At ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006, the VAT recoverable ~~VAT recorded for Bolivia is $45.5~~was $63.6 million and ~~$20.1~~$54.2 million, respectively. The VAT recoverable amounts include $6.2 million and $5.3 million of recoverable Bolivian import duties for the periods ended March 31, 2007 and December 31, 2006, respectively.

~~In addition, the~~The Company ~~incurred~~has also paid VAT in Bolivia as well as other countries, primarily related to ~~various~~ exploration ~~activities outside of the San Cristobal project in Bolivia and in other countries. Because~~projects, which has been charged to expense as incurred because of the uncertainty of the ~~recoverability of these taxes they are charged to expense as incurred.~~recoverability.

For the ~~nine month periods~~three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ the Company recorded depreciation expense of ~~$296,000~~$114,000 and ~~$114,000,~~$95,000, respectively. Also, for the ~~nine month periods~~three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ the Company capitalized depreciation associated with the San Cristobal Project in the amounts of ~~$3.6~~$2.0 million and ~~$1.8~~$1.1 million respectively.

The ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006 construction in progress balances include ~~$28.1~~$46.3 and ~~$9.4~~$35.5 million of capitalized interest respectively. The capitalized interest amounts are related to the Convertible Senior Subordinated Notes, the project finance facility and equipment under capital lease (see Note 7).

At March 31, 2007 the Company had recorded a lease obligation of $36.1 million related to outstanding capital leases (see Note 7).

Both the 2.875% Notes and the 4.0% Notes are convertible into the Company’s Ordinary Shares at a conversion rate of 34.9406 shares per $1,000 principal amount of the Notes (equal to an initial conversion price of approximately $28.62 per share), subject to adjustment in certain circumstances. Holders may convert their Notes only if: (i) the price of Apex Silver Ordinary Shares reaches a specified threshold; (ii) the trading price for the Notes falls below certain thresholds; (iii) the Notes have been called for redemption; or (iv) specified corporate transactions occur. Full conversion of the Notes would result in the issuance of approximately 10.1 million of the Company’s Ordinary Shares. Accumulated interest on the Notes is paid twice a year in March and September.

During 2006 the Company issued 1,086,653 of its Ordinary Shares, valued at $17.1 million, and repurchased $20.0 million of its outstanding 4.0% Notes. The transaction represented an early extinguishment of debt and the Company recorded a gain of $2.9 million and recognized accelerated amortization of deferred issuance costs of $0.5 million related to the transaction. The Notes purchased in the transactions have been cancelled.

Costs incurred in connection with the issuance of the Notes were deferred and are being amortized to interest expense over ten years which corresponds to the related call provisions. At March 31, 2007 the unamortized balance of deferred financing costs related to the Notes was approximately $7.3 million.

The indenture relating to the 4.0% Notes requires the Company to maintain restricted investments to cover the payment of interest through 2007. The amount invested will at maturity equal the interest payments due. As of March 31, 2007, $2.8 million of restricted investments were designated for this purpose.

In December 2005 the Company closed on a $225 million project finance facility (the “Facility”), arranged by BNP Paribas and Barclays Capital, and funded by a group of international financial institutions including banks, export credit agencies and the Andean Development Corporation, a multilateral financial agency that promotes sustainable development in South America. Borrowings from the ~~facility~~Facility are being used to complete the development of the Company’s San Cristobal Project. ~~During the nine months ended September 30, 2006~~At March 31, 2007 the Company had borrowed ~~$120.0~~$200.0 million under the ~~facility.~~Facility. The Company is required to pay a 1.0% annual commitment fee on the undrawn amount of the ~~facility.~~Facility. Interest on the outstanding amounts drawn under the ~~facility~~Facility is based on LIBOR plus a credit spread. ~~Covenants related~~The first principal payment under the Facility is due in December 2008, and the Facility must be fully repaid in December 2012.

In connection with the sale to Sumitomo Corporation (“Sumitomo”) of a 35% interest in the subsidiaries that own and will operate the San Cristobal project, Sumitomo has guaranteed the repayment of 35% of the project finance facility debt through completion of the project (which is no later than December 2008).

The Facility contains covenants that require the Company to, among other things, maintain certain security interests, financial ratios after project completion, insurance coverage, minimum sales contracts and metals price protection contracts as well as other requirements. ~~The first principal payment~~Failure to comply with these covenants or to cure related violations within specified periods could result in an event of default, pursuant to which the project lenders could require immediate repayment of all amounts outstanding under the ~~facility~~Facility and immediate cash settlement of the outstanding derivative positions associated with the San Cristobal Project.

Pursuant to the debt covenants contained in the Facility, the Company is ~~due in December 2008,~~required annually to submit a revised Construction Budget, Operating Plan, and Financial Model (collectively the “Updated Plan”) for the San Cristobal Project. The covenants require that the Updated Plan reflect certain set metals prices that are substantially less than current metals prices. As such, representatives of the lenders and the ~~facility must~~Company have been engaged in discussions to agree upon mutually acceptable prices and other terms for the Updated Plan. The representatives of the lenders have proposed higher metals prices than those contained in the original agreement that will allow the Company to present an Updated Plan that will meet the Facility’s

financial requirements. The representatives of the lenders have also proposed an adjustment to the Facility’s repayment schedule to require a larger percentage of principal to be ~~fully~~ repaid in ~~December 2012.~~

earlier years and an increase in the mandatory cash flow sweep from 35% to 45% of excess cash flow. In connection with these proposed amendments to the ~~sale~~terms of the Facility, the Company and Sumitomo have agreed to purchase put options to protect additional cash flow needed for the accelerated loan schedule. The Company will also fund a $91 million margin account with the two banks holding the derivative positions and Sumitomo will provide a post-completion guarantee of ~~a 35% interest~~the derivative positions in the ~~subsidiaries that own our San Cristobal Project, Sumitomo has guaranteed~~amount of $49 million. This support will be decreased by 33% at the ~~repayment~~end of ~~35%~~each of the ~~project finance facility debt. Also, in conjunction with~~years from 2008 through 2010.

At the ~~sale,~~date of this filing, formal approval of the ~~project finance facility~~amendments to the agreements ~~were amended to provide for~~and the ~~release~~Updated Plan by the requisite majority of ~~$70.0 million~~lenders has not yet been obtained. While there can be no assurances that lender approval will be obtained, management believes the necessary amendments and the Updated Plan will be approved by the requisite majority of ~~overrun financing previously held in accounts controlled~~lenders.

If the amendments and the Updated Plan are not approved by the lenders, ~~and approximately $5.7 million previously escrowed to meet interest payments on our subordinated notes. This $75.7 million~~until such time as approval is ~~now unrestricted and available for general corporate purposes (see Note 11 for detail of sale of 35% interest in San Cristobal).~~

~~During the nine months ended September 30, 2006~~obtained, the Company ~~placed~~would be required to operate in ~~service $8.1 million of additional mining equipment~~all material respects, as defined by the Facility, in compliance with the Initial Plan. If the Company’s operations fail to ~~be used~~comply with the Initial Plan in ~~stripping~~all material respects, the lenders could declare a default and ~~mine production, and recorded the transaction as a capital lease, resulting in total capital lease obligations of $17.9 million. During the nine months ended September 30, 2006~~require the Company to settle all amounts outstanding under the Facility and derivatives liability. Because the Company’s current projections indicate that cash flows and operating ratios will exceed those in the Initial Plan, the Company believes that operations will comply in all material respects with the Initial Plan. However, the Company cannot predict what actions the lenders might take if they deem that the Company is not in material compliance with the Initial Plan.

If an event of default occurs, the lenders could require immediate payment of amounts outstanding under the Facility and settlement of the derivatives liability. If such a demand were successfully made, ~~payments of $1.7 million related~~the Company would require additional debt or equity financing in order to ~~capital lease obligations~~satisfy its obligations. There is no assurance that the Company would be able to obtain additional financing on acceptable terms, or at all.

Direct costs incurred in obtaining the Facility were deferred and will be ~~required~~amortized to ~~make additional payments~~interest expense over the term of ~~$0.8 million for~~ the ~~remainder~~facility. At March 31, 2007 the unamortized balance of ~~2006, $3.0 million during each of 2007 and 2008, $2.4 million during 2009, $1.9 million during 2010 and $6.8 million thereafter.~~deferred financing costs related to the Facility was approximately $10.8 million.

The Company has loaned funds to San Cristobal Transportadora de Electricidad, S.A. (“SC Tesa”), the contractor that ~~is building~~has costructed the power line for the San Cristobal Project and holds a note receivable from ~~the contractor~~SC Tesa in the amount of $22.3 million. The Company expects to receive repayment of the note from ~~the power company~~SC Tesa in the form of credits against charges for the delivery of power. In connection with the sale of 35% of the San Cristobal Project to Sumitomo, the Company assigned 35% of the $22.3 million note to Sumitomo. As the Company receives payments from ~~the power company~~SC Tesa it must pay Sumitomo its 35% share of such payments. As a result, the Company has recorded a note payable to Sumitomo in the amount of ~~$7.8 million.~~$8.0 million, including accrued interest.

~~During the third quarter of 2006 the contractor that is building the power line for the San Cristobal Project~~SC Tesa borrowed approximately ~~$1.4~~$1.2 million from its parent company, Ingelec, to complete the construction of the power line. Per the guidance of FASB Interpretation No. 46R “Variable Interest Entities” (“FIN 46R”) the Company consolidates the accounts of ~~the contractor~~SC Tesa and recorded the note payable of ~~$1.4~~$1.2 million on its consolidated books.

During ~~2006~~the three months ended March 31, 2007 the Company ~~issued approximately 1.1 million Ordinary Shares valued at $17.1 million and $0.3~~placed in service $23.0 million of ~~cash~~additional mining equipment to be used in stripping and mine production, and recorded the transaction as a capital lease, resulting in total capital lease obligations of $36.1 million at March 31, 2007. During the three months ended March 31, 2007 the Company made payments of approximately $4.3 million related to capital lease obligations including $3.2 million of upfront mobilization fees.

The Company has a 17-year contract with a third party to provide port services following construction of port facilities in Mejillones, Chile. Certain assets being constructed at the port will be made available for ~~unpaid interest to complete~~ the ~~purchase of $20.0 million principal amount~~exclusive use of the Company’s 4.0% Convertible Senior Subordinated Notes due 2024 in a privately negotiated exchange transaction. The transaction resulted in the recognition of a $2.9 million gain on extinguishment of debt.Company, including concentrate reception, unloading, and storage facilities. The Company ~~canceled~~has evaluated its contractual agreement with the ~~notes purchased in the transaction.~~

~~Pursuant~~company and has determined that such agreement contains a leasing arrangement with respect to the ~~agreement related to~~assets that will be operated exclusively for the ~~4% Notes and certain provisions~~use of the Company. Following the guidance of EITF 97-10 the Company is deemed the owner of the project ~~finance facility,~~during construction. Accordingly, for the period ended March 31, 2007, the Company recorded on its balance sheet $12.1 million to construction in progress and a financing obligation of $9.9 million, which is ~~required to maintain restricted investments to cover the payment~~net of ~~interest on the Notes through 2007. The amount invested will at maturity equal the interest payments due. As of September 30, 2006, $5.5~~$2.2 million of ~~restricted investments were designated for this purpose.~~funds previously advanced to the port contractor including interest.

Certain covenants related to the project finance facility ~~require~~required the Company to provide price protection for a portion of its planned production of metals from San Cristobal. During the third quarter of 2005, the Company entered into ~~contracts~~certain derivative positions utilizing primarily forward sales but also puts and calls to comply with ~~these~~the project finance facility covenants. In order to maintain leverage to silver market prices, the Company entered into proportionally

more zinc and lead ~~contracts~~positions than ~~silver.~~silver positions. Non-cash mark-to-market gains and losses from ~~these outstanding metal~~the open derivative positions may fluctuate substantially from period to period based on spot and forward prices and option volatilities.

In addition, in the past the Company made limited investments in shorter duration put and call options and other metals derivatives not required by the project financing facility. ~~These discretionary derivative positions typically have settlement dates less than one year and management has the option to settle these positions in cash or roll them forward to a future date.~~ During 2006, the Company ~~made $36.9 million~~liquidated all of ~~net cash payments to settle the majority of these~~its discretionary derivative contracts. ~~The remaining liability for these discretionary~~At March 31, 2007 the Company did not hold any derivative ~~positions on a mark-to-market basis as of September 30, 2006 was approximately $5.0 million.~~contracts other than those required by the project finance facility.

The Company marks its open derivative positions to fair value at the end of each accounting period with the related change in fair value recorded ~~losses~~to earnings. The Company recorded a gain of ~~$45.4~~$108.3 million ~~and $165.5 million related~~as a result of marking to market its ~~total~~open derivative position for the quarter ~~and nine month periods~~ ended ~~September 30, 2006, respectively.~~March 31, 2007 compared to a mark to market derivative loss of $172.8 million for the same quarter of 2006. The ~~losses are~~gain is primarily the result of ~~continuing high~~lower spot and forward prices for silver and zinc at March 31, 2007 as compared to spot and ~~lead.~~forward prices at December 31, 2006. The actual final financial impact of the required project financing facility derivative positions will not be known until the positions are closed on their future settlement dates. The Company does not intend to use cash to settle the open derivatives position contracts relating to the project financing facility prior to their settlement dates beginning in September of 2007. At the time of final settlement, the gain or loss recorded will exclude previously recognized non-cash mark-to-market gains or losses.

The following table sets forth the Company’s open contracts at September 30, 2006. The contracts with open maturity dates of less than one year represent the discretionary derivatives while those with maturities greater than one year are all related to the requirements of the project financing.

The Company marks its open derivative positions to fair value at the end of each accounting period with the related change in fair value recorded to earnings in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS No. 133”). For the quarter and year to date periods ended September 30, 2006 the Company recorded

derivative losses of $45.4 million and $165.5 million, respectively, compared to derivative losses of $9.6 million and $7.6 million recorded for the respective quarter and year to date periods ended September 30, 2005. As the result of the sale of a 35% interest in the ~~San Cristobal Project~~subsidiary that holds the derivative positions to Sumitomo, Sumitomo has guaranteed the payment of 35% of the hedge positions required by the project finance facility ~~(see Note 11)~~through completion (which is no later than December 2008).

~~In connection with~~The following table sets forth the ~~sale to Sumitomo of a 35% interest in~~Company’s open derivative positions at March 31, 2007.

The Company determines the subsidiaries that own the San Cristobal Project, Sumitomo also purchased a 35% interest in the subsidiary that holds the metals hedge positions required by the project finance facility and assumed 35% of the derivative liability. At September 30, 2006 the Company reported 100% of the derivative liability in its financial statements and included Sumitomo’s share of the liability in minority interest.

~~To arrive at~~ fair value ~~for~~of its open derivative positions by applying market values obtained from the counterparties holding the Company’s derivative positions. The Company ~~utilizes publicly available current and historical market data, including~~independently verifies that the values received from the counterparties are based on major commodities price indices such as the LME and COMEX in combination with independently derived third party projections to derive future forward metal prices. Many of the Company’s open derivative positions expire on dates that are beyond the periods covered by the LME or COMEX indices, or expire in the future periods covered by those indices with respect to which little or no trading activity has occurred. In these instances, where an activeand other available market does not exist, the Company uses price projections provided by an independent third party employing statistical analysis as the best indication of fair value. The Company obtains advice from outside consultants knowledgeable in the valuation of commodities to establish the major assumptions used in the fair value calculation, including discount rates, historical price trends and forward price projections.

Longer dated forward and option positions are valued using the Black option pricing model which is a recognized mean-reversion commodities pricing model that uses a single volatility factor. Mean-reversion models assume that prices eventually revert to a longer-term historical price trend. Forward prices derived from the mean-reversion model are lower than current spot market prices due to the recent sharp increase in prices during the past year. If current spot prices continue into future periods that include the settlement dates of the Company’s open derivative positions, the Company will report further mark-to-market losses in subsequent periods. As of September 30, 2006, the fair value of the Company’s open commodities derivatives position was recorded as a $182.2 million liability. Of that amount, $14.1 million was recorded as a current liability with $9.1 million being related to the hedge positions required by the project finance facility.

During the nine months ended September 30, 2005 the Company incurred a mark-to-market loss of $0.9 million with respect to certain foreign currency derivative positions related to certain equipment being purchased for San Cristobal that was denominated in Euros. At September 30, 2006 the Company did not hold any foreign currency derivative positions.

The following table sets forth the ~~realizable~~ fair value of the Company’s open derivative positions based on indices such as the LME and COMEX and valuations from counterparties holding the Company’s derivative positions at March 31, 2007 and December 31, ~~2005~~2006 and the change for the ~~nine months~~quarter ended ~~September 30, 2006.~~March 31, 2007.

The Company has developed an asset retirement plan for its San Cristobal Project which is currently under construction and is expected to begin producing in the third quarter of 2007. The plan includes estimated reclamation, remediation and closure requirements based on Bolivian government requirements, World Bank financing requirements and the Company’s policies. Beginning in the third quarter of 2005 the Company has been conducting activities at its San Cristobal Project including earthworks, plant construction and mining activities that fall within the scope of the asset retirement plan and as such will require future reclamation and closure expenditures.

~~Per~~The Company prepares estimates of the ~~guidance~~timing and amount of ~~Statement~~expected cash flows when an asset retirement obligation (“ARO”) is incurred. The fair value of ~~Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“FAS No. 143”),~~the ARO is measured by discounting the expected cash flows using a discount factor that reflects the credit-adjusted risk-free rate of interest. The

Company records the fair value of an ARO when it is incurred and changes in the fair value of the ARO are recorded as an adjustment to the corresponding asset ~~retirement obligation (“ARO”) associated with~~carrying amounts. The ARO is adjusted to reflect the ~~San Cristobal Project is~~passage of time (accretion cost) calculated by ~~first estimating~~applying the ~~cash flows required~~discount factor implicit in the initial fair-value measurement to ~~settle an estimated $28.5 million ARO obligation in future periods using an inflation rate~~the beginning-of-period carrying amount of ~~1.6 percent and then discounting~~ the ~~future cash flows using the Company’s credit-adjusted risk-free rate of 9.8 percent.~~ARO. The Company records accretion costs to expense as incurred.

The following table reconciles the beginning and ending balance for the Company’s asset retirement ~~obligations (in thousands):~~obligations:

The Company and certain of its subsidiaries operating in the Cayman Islands do not file income tax returns as the Cayman Islands currently does not impose any income taxes. The Company files Bolivian, United States and certain other foreign country income tax returns. These tax returns and the amount of taxable income or loss reported are subject to examination by the relevant taxing authorities. The Company and subsidiaries have not generated taxable income since inception. For the first quarter 2007 and 2006 the Company recorded approximately $0.1 million and $0.1 million of income tax expense related to withholding taxes on certain services provided to one of our Bolivian subsidiaries.

In January 2007, the Company adopted Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), an interpretation of Financial Accounting Standards Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company recognize in its financial statements the impact of uncertain tax positions. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

Because the Company has primarily engaged in exploration and development activities, relatively few uncertain tax positions have arisen. As of March 31, 2007, the Company had $1.8 million of total gross unrecognized tax benefits. Certain of the unrecognized tax benefits resulted in a reduction of the Company’s operating loss carryforwards by approximately $0.2 million. The Company has recorded a non-current tax payable and corresponding non-current deferred tax asset of approximately $1.6 million for all remaining unrecognized tax benefits. There is no impact to retained earnings as a result of the adoption of FIN 48.

Tax years as early as 2001 remain open and are subject to examination in the Company’s principal tax jurisdictions. Management has estimated that unrecognized tax benefits will not significantly increase or decrease within the next twelve months. There is no interest or penalties estimated on the underpayment of income taxes as a result of these unrecognized tax benefits. The Company’s policy is to classify tax related interest and penalties as income tax expense.

The following table sets forth the changes in shareholders’ equity during the first ~~nine~~three months of ~~2006:~~2007:

~~Ordinary Share Issuances~~ – During January 2006, the Company issued 369,033 of its Ordinary Shares, valued at $5.7 million, as the last of four agreed upon advances to SC TESA for the construction of the power line to the San Cristobal project. The Company had previously issued 1,134,799 of its Ordinary Shares, valued at $16.6 million, during 2005, as the first three advances to SC TESA. Proceeds in excess of construction costs of approximately $0.1 million received by SC TESA from the sale of the shares will be added to the advances to be repaid to the Company with interest through credits against charges for future delivery of power.

In January and February 2006 the Company issued approximately 1.1 million Ordinary Shares valued at $17.1 million and paid $0.3 million for interest to complete the purchase of $20.0 million principal amount of the Company’s 4.0% Convertible Senior Subordinated Notes due 2024 in a privately negotiated exchange transaction. The Company canceled the notes purchased in the transaction.

During the second quarter of 2006, the Company completed the public offering of 6,375,000 of its Ordinary Shares at $24.45 per share ($23.70 per share net of commissions) registered under its shelf registration statement. The Company intends to use the net proceeds of approximately $151.1 million to continue further evaluation, exploration, advancement and expansion of its portfolio of exploration properties and for other general corporate purposes.

Stock Option Plans –— The Company established a plan to issue share options and other share awards for officers, employees, consultants and agents of the Company and its subsidiaries (the “Plan”). Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options typically vest ratably over periods of up to four years with the first tranche vesting on the date of grant or the first anniversary of the date of grant. Unexercised options expire typically ten years after the date of grant. The options and other awards provide for accelerated vesting if there is a change in control as ~~defined in the Plan.~~

~~The Company also established~~well as a share option plan for its non-employee directors (the ~~“Director Plan”~~‘‘Plans’’). ~~Options granted~~

The Company recognizes stock based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award. The Company recognized stock based compensation costs, including amounts capitalized of $1.0 million and $0.7 million for the three month periods ended March 31, 2007 and 2006 respectively.

A summary of the Company’s stock options issued under the ~~Director Plan vest on~~Plans at March 31, 2007 and changes during the ~~date of~~three months then ended is presented in the grant and expire ten years after the date of the grant or three years after the date that a non-employee director ceases to be a director of the Company. Options granted under the Director Plan are transferable only in limited circumstances.following table:

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the entity’s stock. The Company uses historical data to estimate option exercise and employee termination within the Black-Scholes model. The expected term of options granted represents the period of time that options granted are expected to be outstanding, based on past experience and future estimates and includes data from both the Plan and the Directors Plan. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

For purposes of calculating the fair value of options, volatility for the periods presented is based on the historical volatility of the Company’s Ordinary Shares. The Company currently does not foresee the payment of dividends in the near term. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

~~A summary of the Company’s stock options at September 30, 2006 and changes during the nine months then ended is presented in the following table:~~

During the nine months ended September 30, 2006 and September 30, 2005, the Company granted equity awards with weighted average grant date fair values of $0.7 million and $0.8 million, respectively; options were exercised with total intrinsic values of $1.1 million and $0.1 million, respectively; and the total fair value of shares vested during the nine months was $1.7 million and $0.4 million, respectively.

As of September 30, 2006, total unrecognized compensation cost related to the non-vested stock options granted pursuant to the Plan was $1.8 million which the Company expects will be recognized over a weighted average period of 1.0 year.

A summary of the status of the Company’s non-vested restricted stock grants issued under the plans at ~~September 30, 2006~~March 31, 2007 and changes during the ~~nine~~three months then ended is presented in the following table:

The fair value of each restricted stock grant is based on the closing price of the Company’s shares on the date of grant.

~~As of September 30, 2006, total unrecognized compensation cost related to the non-vested restricted shares granted pursuant to the Plan was $1.9 million.~~ The Company ~~expects that the total unrecognized cost will be recognized over a weighted average period of 1.5 years.~~

~~During 2005 the Company~~has granted stock-based performance bonuses under the Plan to certain employees, related to ~~certain~~ cost targets and completion date targets for the construction of the San Cristobal Project. The ~~following table summarizes~~Company may be required to issue up to 26,000 shares with a grant date fair market value of $15.21 per share upon completion of the ~~stock-based~~San Cristobal project. The fair value of each performance bonus ~~plan at September 30, 2006 and changes during~~grant was based on the ~~first nine months~~closing price of ~~2006:~~

Asthe Company’s shares on the date of September 30, 2006, total unrecognized compensation cost related to the non-vested performance bonuses granted pursuant to the Plan was $0.1 million. The Company expects that the total unrecognized cost will be recognized over a weighted average period of 0.7 years.

Total compensation costs recognized for all stock-based employee compensation awards, including amounts capitalized, were $3.6 million and $2.0 million for the nine months ended September 30, 2006 and 2005, respectively.grant.

~~On September 25, 2006, pursuant to a Purchase and Sale Agreement among the Company, certain of its wholly owned subsidiaries and~~ Sumitomo Corporation ~~(“Sumitomo”),~~

During 2006 the Company sold to Sumitomo a 35% interest in three of the Company’s subsidiaries that own its San Cristobal Project, market Project concentrates and hold the metals hedge positions required by the Project ~~lenders, in exchange for $224 million in cash and certain deferred payments based on silver and zinc production from the Project.~~lenders. The Company continues to own 65% of these three subsidiaries. ~~The Company also agreed~~

Subsequent to ~~assign~~the close of the transaction with Sumitomo, ~~a 35% interest in the $22.3 million note receivable~~ the Company ~~holds from the Project power line construction and transmission contractor.~~

Pursuant to the Purchase and Sale Agreement, the Company agreed to indemnify Sumitomo generally for breaches of representations and warranties discovered within one year of closing resulting in damages to Sumitomo exceeding $3 million, up to a cap of $40 million, provided that for breachesincurred certain losses during 2006, primarily related to ~~title~~marking to shares of the acquired companies, subordinated debt, certain transferred agreements and real and personal property required for the San Cristobal Project discovered within six years of closing, the cap is $224 million.

Sumitomo agreed to indemnify the Company generally for breaches of representations and warranties that are discovered within one year of closing, resulting in damages to the Company exceeding $3 million, up to a cap of $40 million.

Pursuant to a Deferred Payments Agreement dated September 25, 2006 Sumitomo will make the following deferred payments to the Company in respect of production from the San Cristobal Project and future expansions: (i) quarterly payments equal to 22.86% of Sumitomo’s share of payable silver production from the San Cristobal Project, or approximately 8% of total payable silver production, payable in cash or silver at Sumitomo’s option, and (ii) quarterly cash payments equal to 20% of Sumitomo’s share of payable zinc production from the San Cristobal Project, or approximately 7% of total payable zinc production, multiplied by the zinc price in excess of $1,800 per tonne.

The Minera San Cristobal (“MSC”) Shareholders Agreement dated September 25, 2006 provides that the majority shareholder will control the MSC Board and appoint the Board Chairman. MSC is the subsidiary that owns and operates the San Cristobal Project. As long as the minority shareholder holds more than 25% of MSC, certain significant matters require the approval of the minority shareholder director including approval of annual programs and budgets, increases of 15% or more over budgeted capital expenditures or operating expenses (with customary exceptions for emergencies and compliance), merger or liquidation, permanent cessation or suspension for more than 180 days of mining at or abandonment of the San Cristobal Project. If a deadlock with respect to adoption or amendment in excess of 15% of a program and budget continues for 180 days, the majority shareholder’s directors are then entitled to approve the program and budget.

Under the MSC Shareholder Agreement, the Company and Sumitomo are required to provide their respective proportionate shares of shareholder debt or equity funding required for MSC to achieve commercial operations, or be diluted on a two for one basis. Following commercial operations, the Company and Sumitomo may choose to provide their proportionate share of required external funding or dilute on a one for one basis. Dilution by the Company or Sumitomo ofmarket its ownership interest in MSC will result in transfers of shares in the other two subsidiaries, so that the parties’ ownership interests in the three companies remain identical. If Sumitomo were to dilute below 25% solely as a result of its failure to provide future funding, and were to refuse to approve a program and budget proposed by the Company for more than 180 days, Sumitomo would have the right to sell to the Company all (but not less than all) of its remaining interest in MSC for $224 million, reduced pro rata by the percentage of year-end 2005 reserves produced from the San Cristobal Project.

Each of the Company and Sumitomo has a right of first refusal to acquire any interests in MSC that the other wishes to sell or, if the party wishing to sell has less than a 25% interest in MSC, a right of first offer. In the event of a change of control of the Company, Sumitomo would be relieved of its right of first refusal and first offer obligations for two years. Any party that acquires an interest in MSC must acquire a pro rata interest in the other two subsidiaries.

The MSC Shareholders Agreement provides that available cash will be distributed quarterly, first to pay the $5.4 million annual management fee due from MSC to the Company, then to shareholders that have advanced loans on behalf of a non-funding shareholder, then to shareholders who have advanced shareholder loans pro rata to their ownership interests, and then as cash dividends. An additional aggregate $0.3 million annual management fee is jointly payable to the Company by the other two jointly owned subsidiaries.

The Company and Sumitomo have also entered into a two year Option Agreement dated September 25, 2006, pursuant to which Sumitomo may acquire a 20 percent to 35 percent interest in each of certain active exploration properties at historical cost, and in each of certain of the Company’s inactive exploration properties at historical cost once the Company has spent $200,000 in exploration costs on the property. Sumitomo must exercise its option on each active property within 60 days of receiving complete information regarding the property and on each inactive property within 60 days of the Company spending $200,000 on the property. At September 30, 2006 Sumitomo had not exercised its options to acquire any exploration properties.

The Company also amended the San Cristobal project finance facility in connection with the sale to Sumitomo, as follows: (i) the Company and Sumitomo provide severally pro rata to their respective 65%

and 35% ownership interests in MSC, and not jointly, San Cristobal Project completion and cost overrun support; (ii) the Company and Sumitomo guarantee severally pro rata to their MSC ownership interests, and not jointly, the performance of the metals hedge positions; (iii) the Company is permitted to withdraw from accounts controlled by the lenders $70 million of contingent overrun financing previously required by the Project lenders; (iv) Sumitomo guarantees up to $45.5 million of overrun funding by the Company; (v) the Company was permitted to remove from escrow approximately $5.7 million previously deposited to meet interest payments on its subordinated notes, and is no longer required to escrow an additional $10.4 million; and (vi) additional cure periods for certain representation and covenant defaults and certain defaults related to completion of the Project are permitted, as is the substitution of a replacement sponsor in the event of certain defaults, bankruptcy or expropriation events.

The Company recorded a minority interest in the assets and liabilities sold of $88.6 million and recognized a gain of $119.8 million related to the transaction. The gain is net of approximately $6.4 million of selling costs incurred by the Company related to the transaction. The $119.8 million gain is calculated as the difference between the cash proceeds (net of selling costs) and the book value of the interests sold. The book value includes the mark-to-market liability on the open ~~metals hedge~~derivative positions required by the project finance ~~facility, excludes pre-feasibility exploration and other costs previously expensed, and was reduced~~facility. Such losses would normally be shared by Sumitomo in proportion to its 35% interest in the ~~book value allocated~~subsidiary recording the losses. However, generally accepted accounting principles do not permit the allocation of losses to the ~~retained interests~~minority interest in ~~future silver~~excess of the minority owner’s recorded interest in the subsidiary, unless the minority interest has a primary obligation to fund such losses. The Company and ~~zinc production. The payments~~Sumitomo have each guaranteed their respective share of the project finance obligations and the related metals derivative positions through the completion of the San Cristobal Project at which time the guarantees will terminate and the lenders’ recourse will be solely to the ~~retained interests in~~project. Since the derivative positions are expected to be funded through future ~~production~~earnings from the San Cristobal project, the Company does not anticipate that Sumitomo will ~~be recorded as a reduction of minority interest as they become receivable by the Company.~~

~~The Company may~~ be required to ~~pay up to an estimated $4.0 million bonus~~fund their proportionate interest in the mark-to-market losses prior to the ~~Project construction management contractor contingent upon certain project~~ completion ~~parameters. Sumitomo is deemed to have already paid its 35% share~~ of the ~~bonus as part of~~San Cristobal project. Accordingly, at December 31, 2006 the ~~initial cash payment. Therefore, Apex Silver has agreed~~Company reduced the minority interest balance on its consolidated balance sheets related to ~~reimburse~~ Sumitomo ~~its $1.4 million share of the bonus if it is paid. Apex Silver will defer $1.4~~to $0 and absorbed approximately $98.8 million of non-cash losses that normally would have been allocated to Sumitomo.

During the ~~gain until such time as~~first quarter 2007 the ~~payment is made or determined not to be payable.~~

~~The~~ Company ~~recognized a $0.3~~recorded net income of $112.0 million ~~minority interest benefit related to Sumitomo’s share of certain losses incurred subsequent to the close of the transaction. The losses were~~ primarily related to the ~~mark-to-market losses~~mark to market gain recorded on the open ~~hedge~~derivative positions required by the project finance ~~facility~~facility. The net income includes a $42.2 million portion of the gain that ~~were incurred~~would normally be allocated to Sumitomo’s minority interest position. In addition Sumitomo contributed $4.6 million during the quarter ended March 31, 2007 to fund its share of certain excess costs related the San Cristobal project. Sumitomo’s additional funding, interest receivable from the ~~date~~Company and share of the ~~Sumitomo transaction through the end of the period.~~

~~Letters of Credit~~ ~~– At September 30, 2006,~~gain retained by the Company ~~had outstanding irrevocable standby letters~~reduced the $98.8 million of ~~credit~~losses previously absorbed by the Company to $52.0 million at March 31, 2007. The Company anticipates recovering the remaining $52.0 million of losses it absorbed, and any additional losses it may absorb related to Sumitomo’s minority interest, from future earnings prior to the allocation of earnings to Sumitomo or from future contributions by Sumitomo.

During 2005 the Company entered into a long-term contract with SC Tesa to construct a power line and transport power to the San Cristobal ~~Project in~~project from the ~~aggregate amount of $7.6 million.~~Bolivian power grid. The ~~letters of credit include $4.5~~Company has loaned SC Tesa $22.3 million ~~associated with the rail contract~~ to ~~transport metal concentrates to the port facilities, $2.0 million associated with the construction management contract and $1.1 million associated with~~construct the power line ~~construction contract.~~which will be repaid through credits against charges for the delivery of power (see Note 7). Per the guidance of FIN 46R the Company fully consolidates the accounts of SC Tesa.

During the fourth quarter 2006, the San Cristobal project began receiving limited amounts of power from the grid resulting in SC Tesa earning a transmission fee and recorded earnings. Because SC Tesa is treated as a consolidated entity, the inter company profit earned by SC Tesa is eliminated and the Company recognizes a minority interest offset to net income equal to SC Tesa’s share of the transmission fee earnings representing 100% of such earnings. For the quarter ended March 31, 2007 the Company recorded $0.4 million as SC Tesa’s minority interest in the earnings.

Escrow Amounts — At ~~September 30, 2006~~March 31, 2007 the Company had ~~deposited $7.6~~$4.0 million to collateralize the letters of credit and has recorded $0.5 million to restricted cash and $7.1 million to restricted investments. Per the terms of the letters of credit the required amounts may be reduced from time to time under certain circumstances.

~~Escrow and Other Restricted Amounts –~~ ~~At September 30, 2006, $4.1 million remained~~ in an escrow account to provide for certain requirements related to the development of the port facility for the San Cristobal ~~Project. At September 30, 2006~~project and recorded the amount ~~was recorded to~~as restricted cash.

Project Financing –— Per the terms and conditions of the San Cristobal ~~Project~~project finance facility the Company was required to deposit cash and investments in an account the use of which is restricted to the development of the San Cristobal ~~Project.~~project. At ~~September 30, 2006~~March 31, 2007 the remaining balance in the account was ~~$99.1~~$29.0 million of which ~~$10.6~~$6.2 million was recorded to restricted cash and ~~$88.5~~$22.8 million recorded to restricted investments.

Capital Commitments –— The Company ~~entered into agreements with certain service providers and placed orders for certain long-lead equipment and~~will be required to spend approximately $120 million to complete construction ~~materials for~~of its San Cristobal project ~~resulting~~which is scheduled to begin production in ~~open commitments totaling approximately $77.6 million at September 30, 2006. If~~ the ~~Company had cancelled all~~third quarter of ~~these agreements or orders at September 30, 2006, it would have incurred cancellation fees totaling approximately $18.6 million.~~

Taxes –— The Company is receiving certain tax and duty benefits on a portion of the equipment it is importing for its San Cristobal ~~Project.~~project. The benefits are contingent upon fulfilling certain expenditure commitments within a specified period of time and returning certain equipment off shore within a specified period of time. Failing to comply with these commitments would obligate the Company to refund ~~all or a portion of~~ the benefits received.

Performance ~~Bonus –~~Bonus — The Company may be required to pay up to an estimated $4.0 million bonus to the San Cristobal Project construction management contractor contingent upon certain project completion ~~parameters.~~parameters and a $2.3 million bonus to the company constructing the port facilities for early completion of the facilities. Based on the ~~current~~ project status at March 31, 2007 the Company believes it is probable that it will be required to pay the construction management contractor a portion of the bonus up to $1.3 million and the company ~~does not consider~~constructing the ~~payment probable~~port facilities a bonus amount up to $2.3 million and has accrued those amounts at ~~September 30, 2006 no amounts have been accrued.~~March 31, 2007 with the offset recorded to construction in progress.

~~Other~~Political Contingencies – The Company reported in its 10-K filing for the period ended December 31, 2005 that it had concluded an internal investigation regarding impermissible payments made to government officials by several senior employees of one of its South American subsidiaries during 2003 and 2004. The Company reported at that time that the SEC had commenced an investigation with respect to these matters including possible violations of the Foreign Corrupt Practices Act. The Company is cooperating fully with the SEC investigation and will cooperate with any investigation by the U. S. Department of Justice. The Company cannot predict with any certainty at this time the final outcome of any investigations that may take place including any fines or penalties that may be imposed.

— The Company continues to monitor the political uncertainties in Bolivia resulting from the Bolivian ~~government's~~government’s renegotiation of agreements with oil and gas producers and statements regarding possible changes in current policies affecting the mining industry. If the San Cristobal Project were nationalized, or if taxes were substantially increased or significant royalty payments imposed, the Company might be unable to recover its investment in the ~~Project~~project and could have substantial liabilities ~~for~~including liabilities to the lenders under the project finance facility and liabilities to counterparties holding the metals derivative positions required by the ~~Project~~project lenders. In addition, changes in Bolivian law may have an adverse effect on the Company’s ability to recover the VAT receivable ~~(See~~(see Note 5).

In May 2006, the Constitutional Court of Bolivia issued a ruling declaring certain articles of the 1997 Mining Code unconstitutional. The Court’s ruling is not effective until May 2008 and the Court urged the Bolivian Congress to enact legislation during that time which may supersede the ruling. Although the

Court’s ruling is not expected to impact our ability to operate the San Cristobal project, the ruling may limit the transferability of our mining concessions and restrict our ability to mortgage our San Cristobal mining concessions as collateral to the lenders providing financing for the project.

Other Contingencies — As previously disclosed, the Company has concluded, based on the results of an internal investigation conducted under the direction of our Audit Committee, that certain senior employees of one of our South American subsidiaries were involved in making impermissible payments of approximately $125,000 to government officials in 2003 and 2004 in connection with an inactive, early stage exploration property that is not related to any of our active exploration or development properties. Based on findings to date, no changes to our previously filed financial statements are warranted as a result of these matters. We have contacted the Department of Justice (“DOJ”) and SEC and reported the results of our internal investigation. We have been informed that the SEC and DOJ have commenced an investigation with respect to these matters, including possible violations of the Foreign Corrupt Practices Act. We are cooperating fully with the SEC and DOJ investigations. We cannot predict with any certainty the final outcome of the investigations, including any fines or penalties that may be imposed.

Gains and losses on foreign currency derivatives and ~~translation~~transactions consist of the following:

The re-measurement of monetary assets is related to certain taxes receivable and other accounts denominated in Bolivia’s local currency.

The loss on the Euro derivatives during 2005 is related to the marking to market of open Euro derivative positions held by the Company related to certain capital equipment purchased for San Cristobal for which the price was denominated in Euros. The Company held no such derivative positions during 2006.

The following table sets forth supplemental cash flow information and non-cash transactions:

In April 2007 the Company advanced $4.0 million as previously agreed, to the company constructing and operating the port facilities from which the San Cristobal mine concentrates will be shipped. The advance brought to $6.0 million the total advances made to the port. The Company expects to be repaid for the advances plus interest in the form of reduced port charges once San Cristobal begins shipping product. Construction of the port facilities was substantially completed during April 2007.

During ~~October 2006~~May 2007 the Company borrowed an additional $20 million against the $225 million San Cristobal project finance facility, bringing to ~~$140~~$220 million the total borrowings against the facility. The funds are restricted to the development of the San Cristobal Project.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis summarizes the results of operations of Apex Silver Mines Limited (“Apex Silver” or “we”) for the three month ~~and nine month periods~~period ended ~~September 30, 2006~~March 31, 2007 and changes in our financial condition from December 31, ~~2005.~~2006. This discussion should be read in conjunction with the Management’s Discussion and Analysis included in our Annual Report on Form 10-K ~~as amended~~ for the period ended December 31, ~~2005.~~2006.

Apex Silver is a mining exploration and development company that holds a portfolio of exploration and development properties primarily in South America and Central America. We currently focus our resources primarily on the development of our San Cristobal Project in Bolivia. At present, none of our properties are in production and, consequently, we have no current operating income.

Overview

Development of San Cristobal

~~During the first nine months of 2006 we continued to make significant progress on the construction~~Construction of our San Cristobal Project in southwestern Bolivia ~~with expenditures~~is substantially complete. All of ~~approximately $71 million~~the engineering has been completed and all of the major mechanical equipment has been installed. We are in the process of commissioning and testing the processing plant including the crushing, conveying, grinding and flotation circuits. The rail spur and the port facilities are substantially completed and we expect they will be available to handle concentrates which we anticipate to begin shipping from San Cristobal in the third quarter ~~and $207 million in~~2007 with the first nine months on equipment procurement, plant construction, infrastructure development, engineering and other costs. The concrete work, steel erection and power line construction was essentially completed at September 30, 2006. During the first nine monthssale of 2006 significant progress was made on the installation of the mills and construction of the primary crusher and the associated conveyor system with construction beginning on the rail spur during the third quarter. We expect to have access to the power grid by the end of 2006 and construction of the rail and port facilities are expected to be completed in the second quarter of 2007. At September 30, 2006 the project was estimated to be approximately 80% completed. We anticipate commencement of production at the project inconcentrates also scheduled for the third quarter of 2007.

~~During the year we began~~We continue mining ore at the San Cristobal Project and at ~~September 30, 2006~~March 31, 2007 we had stockpiled approximately ~~3.5~~9.9 million tonnes of work-in-process ore inventories recorded at a cost of approximately ~~$16.9~~$33.4 million. Work-in-process inventories include ore produced and stockpiled for which further processing is necessary before a product is ready for sale. ~~During September 2006 we began mining and stockpiling sulfide ore and~~Work-in-process inventories at ~~September 30, 2006 approximately 0.1~~March 31, 2007, are comprised of 2.6 million tonnes of ~~the total stockpiled ore was~~ sulfide ~~ore.~~ores and 7.3 million tonnes of oxide ores. The sulfide ores will be processed through the San Cristobal mill first with the oxide ores scheduled for processing later in the mine life. Final processing of work-in-process ore inventories to a saleable product is scheduled to begin during the third quarter of 2007.

~~Sale of 35% of San Cristobal to Sumitomo~~

On September 25, 2006, we sold to Sumitomo Corporation (“Sumitomo”), a 35% interest in three subsidiaries that own and operate our San Cristobal Project, market Project concentrates and hold the metals hedge positions required by the Project lenders, and certain other Project-related assets. We continue to own 65% of these three subsidiaries. The purchase price paid by Sumitomo was $224 million in cash and certain deferred payments based on silver and zinc production from the Project and future expansions as follows: (i) quarterly payments equal to 22.86% of Sumitomo’s share of payable silver production from the San Cristobal Project, or approximately 8% of total payable silver production, payable in cash or silver at Sumitomo’s option, and (ii) quarterly cash payments equal to 20% of Sumitomo’s share of payable zinc production from the San Cristobal Project, or approximately 7% of total payable zinc production, multiplied by the zinc price in excess of $1,800 per tonne.

The Minera San Cristobal (“MSC”) Shareholders Agreement entered into in connection with the sale to Sumitomo provides that the majority shareholder will control the MSC Board and appoint the Board Chairman. MSC is the subsidiary that owns and operates the San Cristobal Project. As long as the

minority shareholder holds more than 25% of the outstanding stock of MSC, certain significant matters require the approval of the minority shareholder director including approval of annual programs and budgets, increases of 15% or more over budgeted capital expenditures or operating expenses (with customary exceptions for emergencies and compliance), merger or liquidation, permanent cessation or suspension for more than 180 days of mining at or abandonment of the San Cristobal Project. If a deadlock with respect to adoption or amendment in excess of 15% of a program and budget continues for 180 days, the majority shareholder’s directors are then entitled to approve the program and budget.

Under the MSC Shareholder Agreement, we and Sumitomo are required to provide our respective proportionate shares of shareholder debt or equity funding required for MSC to achieve commercial operations, or be diluted on a two for one basis. Following commercial operations, we and Sumitomo may choose to provide our proportionate share of required external funding or dilute on a one for one basis. Dilution by us or Sumitomo of ownership interest in MSC would result in transfers of shares in the other two subsidiaries, so that the parties’ ownership interests in the three companies would remain identical. If Sumitomo were to dilute below 25% ownership of MSC solely as a result of its failure to provide future funding, and were to refuse to approve a program and budget proposed by us for more than 180 days, Sumitomo could elect to sell to us all (but not less than all) of its remaining interest in MSC for $224 million, reduced pro rata by the percentage of year-end 2005 reserves produced from the San Cristobal Project.

We and Sumitomo have also entered into a two year Option Agreement pursuant to which Sumitomo may acquire a 20 percent to 35 percent interest in each of certain of our active exploration properties at historical cost, and in each of certain inactive exploration properties at historical cost once we have spent $200,000 in exploration costs. Sumitomo must exercise its option on each active property within 60 days of receiving complete information regarding the property and on each inactive property within 60 days of the Company spending $200,000 on the property. At September 30, 2006 Sumitomo had not exercised its options to acquire any exploration properties.

In connection with the sale to Sumitomo, we also amended the San Cristobal project finance facility, as follows: (i) we and Sumitomo provide severally pro rata to our respective 65% and 35% ownership interests in MSC, and not jointly, San Cristobal Project completion and cost overrun support; (ii) we and Sumitomo guarantee severally pro rata to our MSC ownership interests, and not jointly, the performance of the metals hedge positions; (iii) we were permitted to withdraw from accounts controlled by the Project lenders $70 million of contingent overrun financing previously required by the lenders; (iv) Sumitomo guarantees up to $45.5 million of overrun funding by the Company; (v) we were permitted to remove from escrow approximately $5.7 million previously deposited to meet interest payments on its subordinated notes, and are no longer required to escrow an additional $10.4 million; and (vi) additional cure periods for certain representation and covenant defaults and certain defaults related to completion of the Project are permitted, as is the substitution of a replacement sponsor in the event of certain defaults, bankruptcy or expropriation events.

We recorded a minority interest in the assets and liabilities sold of $88.6 million and recognized a gain of $119.8 million related to the transaction. The gain is net of approximately $6.4 million of selling costs we incurred related to the transaction.

~~Updated San Cristobal Funding Requirements, Production and Operating Costs~~

During October 2006, we completed our review of the San Cristobal development plan commenced during the third quarter 2006, based on the advancement of construction and mining activities. As a result, we have increased our estimate for the total amount of project funding, increased our estimates of zinc production and reduced our estimates of silver production for the first five years of operation, and increased our estimates of average cash operating costs for the first five years of operation. These changes result primarily from record high commodity prices and the required stockpiling of increased amounts of oxide ore for future processing. Record high commodities prices have had a direct impact on the cost of supplies such as fuel, tires, and reagents, contributing to increased funding requirements for the project and higher estimated operating costs once production begins. Recent pre-stripping activity has provided additional information regarding the ore body, which indicates that the boundary between the surface silver-rich oxide ore that will be stockpiled for future processing and the sulfide ore that will be the first to be processed through the San Cristobal mill is lower than previously believed. This has increased the amount of oxide ore stockpiled for future processing and has required that increased amounts of material be moved to access the sulfide ore. Based on the increased amounts of silver-rich oxide ore, we have begun to analyze

~~the feasibility of various alternative methods to process the oxide ore earlier in the mine life than originally planned.~~

With more than 80% of the construction complete, our estimate for the total amount of project funding required from January 1, 2004 through the beginning of production in 2007 has increased from approximately $600 million to approximately $650 million or an 8% increase over the original estimate developed in 2004. This amount includes all estimated costs required to commence production at San Cristobal, including all engineering, procurement and construction costs, as well as estimates for constant dollar escalation and contingencies. The increase includes approximately $23 million of additional mining costs related to the stockpiling of additional oxide ore, $15 million in additional capital, and $9 million of additional contingency. As previously indicated, this estimate excludes $22 million advanced to the company constructing the power line, $6 million advanced to the company constructing the port facilities, and $43 million of working capital. The working capital estimate has been increased by approximately $16 million to $43 million due to higher operating costs incurred prior to the commencement of receipt of revenues from production.

Based on additional information developed during pre-stripping and a 40,000-tonne-per-day ore throughput, in the first five years of operation San Cristobal is now expected to produce annually approximately 16.9 million ounces of payable silver (at an average cash operating cost of approximately $1.97 per ounce), 225,000 tonnes of payable zinc (at an average cash operating cost of approximately $0.51 per pound) and 82,000 tonnes of payable lead (lead is credited as a by-product to silver production costs). The higher operating costs result primarily from the increases in the cost of supplies due to higher commodity prices described above, and also from increases in estimated man power requirements over those anticipated in the original development plan. The term “average cash operating cost” is a non-GAAP financial measure (see “Non-GAAP Financial Measures”). During its projected 16-year life, San Cristobal is expected to produce annually approximately 15.7 million ounces of payable silver, 166,000 tonnes of payable zinc and 59,000 tonnes of payable lead.

We are updating our San Cristobal reserve estimates to reflect the new information about the boundary between oxide and sulfide ore and updated operating costs and metals prices. We expect to complete this updated estimate prior to filing our report on Form 10-K for the year ended December 31, 2006.

Financing and Commodity Derivatives Matters

During the first quarter of ~~2006~~2007 we ~~issued approximately 1.1~~borrowed $20 million Ordinary Shares valued at $17.1 million and paid $0.3 million for interest to complete the purchase of $20.0 million principal amount of our 4.0% Convertible Senior Subordinated Notes due 2024 in a privately negotiated exchange transaction. The transaction resulted in the recognition of a $2.9 million gain on extinguishment of debt. We cancelled the notes purchased in the transaction.

~~During the first quarter of 2006 we initiated borrowing~~ under the $225 million San Cristobal project finance facility ~~that we closed~~(the “Facility”) and during ~~December 2005. At September 30, 2006 we had borrowed $120 million under the facility. During October 2006~~May 2007 we borrowed an additional $20 million bringing the total borrowings against the facility to ~~$140~~$220 million. Pursuant to the covenants contained in the facility, we are required annually to submit a revised Construction Budget, Operating Plan, and Financial Model (collectively the “Updated Plan”) for the San Cristobal project by November 1. We are currently operating under the Construction Budget, Operating Plan, and Financial Model initially approved by the lenders when the facility was entered into (the “Initial Plan”) which remains in effect until the Updated Plan is approved. We submitted our Updated Plan for 2007 in a timely manner. The Updated Plan required the use of prices for silver, zinc and lead that are lower than recent spot prices. The Updated Plan also reflected higher operating costs than previously assumed primarily as a result of the impact of record high commodity prices including costs for diesel fuel, reagents, and tires. The low metals prices required by the facility coupled with higher current operating costs resulted in projected cash flow that would be insufficient to meet certain other Facility requirements, including minimum cash flows and debt service coverage ratios required after completion. In January 2007, the lenders rejected the Updated Plan.

~~During~~We continue to work with the ~~second quarter of 2006 we completed~~Facility lenders to arrive at mutually agreeable terms to amend the ~~sale of 6,375,000 of our Ordinary Shares at $24.45 per share ($23.70 per share net of commissions). We intend~~agreements and allow us to use higher metals prices in the ~~net proceeds~~Updated Plan. The lenders have proposed higher metals prices than those contained in the terms of ~~approximately $151.1~~the Facility. The higher prices will allow us to present an Updated Plan that will meet the Facility’s financial requirements. The lenders have also

proposed an adjustment to the Facility’s repayment schedule to require a larger percentage of principal to be repaid in earlier years and an increase in the mandatory cash flow sweep from 35% to 45% of excess cash flow. In connection with these proposed amendments to the terms of the Facility, we and Sumitomo have agreed to purchase put options to protect additional cash flow needed for the accelerated loan schedule. We will also fund a $91 million margin account with the two banks holding the derivative positions and Sumitomo will provide a post-completion guarantee of the derivative positions in the amount of $49 million. This support will be decreased by 33% at the end of each of the years from 2008 through 2010.

We and Sumitomo have accepted these proposals and amendments to ~~continue further evaluation, exploration, advancement~~the facility agreements and ~~expansion~~an Updated Plan for submission to the lenders are being prepared. Once the amendments to the agreements and Updated Plan are complete, an affirmative vote by the lenders is required for final approval. At the date of ~~our portfolio~~this filing, formal approval of ~~exploration properties and for other general corporate purposes. With this additional available funding we have accelerated~~ the ~~evaluation of our current exploration portfolio~~amendments to the agreements and the ~~expansion~~Update Plan by the requisite number of ~~new exploration opportunities.~~lenders has not yet been obtained. While there can be no assurances that lender approval will be obtained, we believe the necessary amendments and the Updated Plan will be approved by the requisite number of lenders.

~~Certain covenants related~~If the amendments and the Updated Plan are not approved by the lenders, or until such time as approval is obtained, we would be required to operate in all material respects, as defined by the ~~project finance facility required us to provide price protection for a portion of~~Facility, in compliance with the Initial Plan. If our ~~planned production of metals from San Cristobal. During the third quarter 2005, we entered into contracts utilizing forward sales, puts and calls~~operations fail to comply with the ~~project finance facility covenants. In order to maintain leverage to silver market prices, we entered into proportionally more zinc~~Initial Plan in all material respects, the lenders could declare a default and ~~lead contracts than silver.~~

In addition, we have made limited investments in shorter duration put and call options and other metals derivatives not required by the project financing. These discretionary derivative positions typically have settlement dates less than one year and we have the optionrequire us to settle ~~these positions~~all amounts outstanding under the Facility including the derivatives liability. Because our current projections indicate that cash flows and operating ratios will exceed those in ~~cash or roll them forward to~~the Initial Plan, we believe that operations will comply in all material respects with the Initial Plan. However, we cannot predict what actions the lenders might take if they deem that we are not in material compliance with the Initial Plan.

For the quarter ended March 31, 2007, we recorded a ~~future date. During 2006 we made $36.9~~$108.3 million of net cash payments to settle the majority of these discretionary derivative contracts not required by the project financing. The remaining liability for these discretionary derivative positions on a mark-to-market basis as of September 30, 2006 was $5.0 million.

~~We continue to recognize losses on our total derivative position~~gain as a result of ~~continuing high~~marking-to-market our open derivative positions established pursuant to the requirements of the project financing facility. The gain is the result of lower spot and forward prices for silver, zinc and ~~lead.~~lead at March 31, 2007 as compared to spot and forward prices at December 31, 2006. During the ~~first nine months of 2006 we recorded~~periods that the metals derivative positions are outstanding, gains and losses ~~of $165.5 million. During the same~~may fluctuate substantially from period ~~we made net cash payments of $36.9 million~~ to ~~settle the majority of our discretionary positions not required by the project financing facility. While the~~period based on spot prices, forward prices and quoted option volatilities. The actual final financial impact of the required ~~price protection program related to the~~ project financing facility derivative positions will not be known until the positions are closed on their future settlement ~~dates, we~~dates. We do not intend to use cash to settle ~~those~~the open derivatives positions ~~with cash~~ prior to ~~the~~their settlement dates beginning in September of 2007. At the time of final settlement, the gain or loss recorded will exclude previously recognized non-cash mark-to-market gains or losses.

Political Matters in Bolivia

At various times since his election, President Morales and others in his administration have made public statements regarding their desire to exert greater state control over natural resource production in Bolivia. In addition, if the ~~increased~~Bolivian government is currently considering various changes to applicable mining taxes, which would have the effect of increasing the overall tax burden on the San Cristobal project. At present, various ideas have been proposed by government officials and others, but there is no legislation pending. Should these changes occur, the profitability of the San Cristobal project may be adversely effected.

On May 1, 2007 President Morales issued a Supreme Decree declaring a Mining Fiscal Reserve over the entire Bolivian national territory to include all mineral resources, granting the Bolivian Mining Corporation (COMIBOL) the authority and right to administer and exploit the Fiscal Reserve. The Supreme Decree provides that mining concessions granted prior to enacting the Supreme Decree, which includes the San Cristobal mining concessions, will be respected and will remain in effect.

Results of Operations

Three Months Ended March 31, 2007

Exploration. Exploration expense was $2.7 million for the first quarter 2007 compared to $1.5 million for the first quarter 2006. Exploration expense is incurred primarily in Argentina, Mexico, Bolivia, and Peru. During 2007 we have begun extensive drilling programs and other geologic testing to increase the rate of evaluation of many of our properties in order to take them to the point that decisions can be made to either advance them or divest them.

Administrative. Administrative expense of $6.3 million for the first quarter 2007 is comparable to $5.3 million for the first quarter 2006. Administrative expenses are incurred primarily by our corporate headquarters and consist primarily of compensation costs, professional fees paid for accounting and legal services, office and equipment lease costs and other general costs. Administrative costs are incurred supporting the areas of finance, compliance, marketing and other administrative requirements including the indirect support of the financing, development and other requirements of our San Cristobal Project.

Gains and Losses - Commodity Derivatives. For the first quarter of 2007 we recorded a gain related to our metals derivative positions in the amount of $108.3 million compared to a loss of $172.8 million on our derivative positions for the first quarter of 2006. The 2007 gain is the result of marking-to-market our open derivative positions based on lower spot and forward prices for silver, zinc and lead at March 31, 2007 as compared to spot and forward prices ~~were~~at December 31, 2006. The 2006 loss is the result of marking-to-market our open derivative positions based on higher spot and forward prices for silver, zinc and lead at March 31, 2006 as compared to continue into the production phase of the San Cristobal Project, the increased revenue from metals sales for which price protection was not required would generate a significant benefit to future earningsspot and ~~cash flows.~~forward prices at December 31, 2005. During the periods that the ~~metal~~metals derivative positions are outstanding, gains and losses may fluctuate substantially from period to period ~~in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”),~~ based on spot prices, forward prices and quoted option volatilities. ~~If current spot prices continue into future periods that include the settlement dates of our open derivative positions, we will report further mark-to-market losses in subsequent periods.~~

~~Political Matters in Bolivia~~

We continue to monitor the political uncertainties in Bolivia that may affect our San Cristobal Project. To date, there have been no formal proposals by the Bolivian government to nationalize the mining industry but it is possible that the government may alter its current policies with respect to the mining industry in the future.

~~Results of Operations~~

~~Three Months Ended September 30, 2006~~

~~Exploration.~~ Exploration expense was $2.2 million for the third quarter 2006 compared to $1.1 million for the third quarter 2005. Exploration expense was incurred primarily in Bolivia, Peru, Argentina and Mexico during the third quarter 2006 with the increased expense resulting primarily from a drilling program in Argentina.

~~Administrative.~~ Administrative expense of $4.1 million for the third quarter 2006 is comparable to $4.8 million for the third quarter 2005. The additional administrative expense incurred during the third quarter of 2005 as compared to the same period of 2006 is primarily related to indirect legal and consulting fees associated with the project finance facility that we closed in December 2005.

~~Gains and Losses - Commodity Derivatives~~. For the third quarter of 2006 we recorded losses related to our metals derivative positions in the amount of $45.4 million compared to a loss of $9.6 million on our derivative positions for the third quarter of 2005. During the same period of 2006 we made net cash payments of $8.8 million to settle the majority of our discretionary derivative positions not required by the project financing facility. Continuing high spot and forward prices for silver, zinc and lead resulted in the losses for the 2006 period, which are primarily related to the hedge positions required by the project finance facility. Our open metals derivative position for the second quarter 2005 was substantially smaller, prior to the project financing facility requirements, as reflected in the smaller non-cash mark-to-market loss. (See “Overview” for additional discussion of the ~~third~~first quarter ~~2006~~2007 derivative ~~loss)~~gain).

~~Gain on sale of interest in subsidiary.~~ During the third quarter 2006 we sold a 35% equity interest in the subsidiaries that own and operate our San Cristobal Project to Sumitomo for $224 million in cash and the retention of certain interests in future silver and zinc production. We recognized a gain of $119.8 million on the transaction. There was no similar activity during the third quarter of 2005.

Interest and other income. We recorded interest and other income of ~~$4.5~~$6.8 million for the ~~third~~first quarter ~~2006~~2007 as compared to ~~$5.7~~$2.9 million recorded during the ~~third~~first quarter ~~2005.~~2006. The ~~decrease~~2007 increase in interest and other income, ~~during~~as compared to 2006 ~~is primarily related to lower~~was the result of the increased interest we earned on the higher average cash and investment balances that we held during the ~~third~~quarter resulting from the proceeds received from the Ordinary Share offering completed during the second quarter 2006 and the proceeds from the sale of a 35% interest in our San Cristobal project in September 2006. Available interest rates were also higher for the first quarter 2007 as compared to the same period of ~~2005, resulting~~2006.

Royalty Income. During the first quarter 2007, we received $0.3 million of royalty income from a property in ~~lower interest earned. Amounts spent~~Mexico on ~~our San Cristobal Project resulted in~~which we retained a net smelter return royalty. The property is being test mined by a joint venture partner and we received royalties for product sold from the ~~lower average cash and investment balances during~~test mining operation. We did not receive any such royalties for the quarter ended March 31, 2006.

Interest expense and other borrowing costs. We recognized no interest expense and other borrowing costs during the ~~third~~first quarter ~~2006~~2007 as the total ~~related~~$10.8 million of those costs ~~of $7.1 million were~~was capitalized. During the ~~third~~first quarter ~~2005~~2006 we recognized ~~$2.6~~$0.5 million of interest expense and other borrowing costs which were net of approximately ~~$1.8~~$4.3 million capitalized. Interest costs for ~~2006~~both periods are primarily related to the Convertible Senior Subordinated Notes Due 2024 and the project finance ~~facility while the 2005 interest costs are primarily related to the Convertible Senior Subordinated Notes Due 2024.~~facility.

Income Taxes. For both the ~~third~~first quarter 2007 and 2006 we recorded ~~approximately $0.1 million~~nominal amounts of income tax expense ~~related to~~consisting solely of withholding taxes on ~~certain services we provided to~~inter-company investment income and administrative charges associated with one of our Bolivian subsidiaries. ~~No such taxes were incurred during the third quarter 2005.~~

~~Nine Months Ended September 30, 2006~~

~~Exploration.~~ Exploration expense was $5.2 million for the first nine months of 2006 compared to $3.9 million for the first nine months of 2005. Exploration expense was incurred primarily in Bolivia, Peru, Argentina and Mexico during the first half of 2006 with the increased expense resulting primarily from a drilling program in Argentina.

~~Administrative.~~ Administrative expense was $15.1 million for the first nine months of 2006, compared to $13.7 million for the first nine months of 2005. The increase in administrative expense during 2006 is primarily the result of additional personnel and related indirect support costs associated with the advancement of our San Cristobal Project and certain legal fees and other costs associated with the investigation of a possible violation of the Foreign Corrupt Practices Act as previously reported.

~~Gains and Losses - Commodity Derivatives~~. For the first nine months of 2006 we recorded losses related to our metals derivative positions in the amount of $165.5 million compared to a loss of $7.6 million on our derivative positions for the first nine months of 2005. During the same period of 2006 we made net cash payments of $36.9 million to settle the majority of our discretionary derivative positions not required by the project financing facility. Continuing high spot and forward prices for silver, zinc and lead resulted in the losses for the 2006 period, which are primarily related to the hedge positions required by the project finance facility. Our open metals derivative position for the first nine months of 2005 was substantially smaller prior to the project financing requirements, as reflected in the smaller non-cash mark-to-market gain. (See “Overview” for additional discussion of the 2006 derivative loss)

~~Interest and other income.~~ ~~Interest and other income of $12.6 million for the first nine months of 2006 comparable to $12.7 million recorded during the first nine months of 2005.~~

~~Interest expense and other borrowing costs.~~ Interest and other borrowing costs were $0.8 and $6.5 million, net of approximately $16.9 million and $4.3 million capitalized, for the first nine months of 2006 and 2005, respectively. The 2006 interest expense includes a $0.5 million write-off of deferred issuance costs related to the extinguishment of debt. The interest expense for 2006 is primarily related to the Convertible Senior Subordinated Notes Due 2024 and the project finance facility while the 2005 interest expense is primarily related to the Convertible Senior Subordinated Notes Due 2024.

~~Income Taxes~~. For the first nine months of 2006 we recorded approximately $0.2 million of income tax expense related to withholding taxes on certain services we provided to one of our Bolivian subsidiaries. No such taxes were incurred during the first nine months of 2005.

Liquidity and Capital Resources

At ~~September 30, 2006~~March 31, 2007, our aggregate cash, restricted cash, short and ~~long term~~long-term investments and restricted investments totaled ~~$549.1~~$450.0 million compared to an aggregate of ~~$351.9~~$514.9 million in cash, restricted cash, short and ~~long term~~long-term investments and restricted investments at December 31, ~~2005.~~2006. The amounts held at ~~September 30, 2006~~March 31, 2007 include ~~$138.1~~$147.8 million in cash and cash equivalents, ~~$294.7~~$256.2 million in investments, ~~$15.2~~$6.2 million of cash ~~that has been restricted to cover outstanding letters of credit~~ and ~~other purposes, $95.6~~$22.8 million of investments that are restricted to fund development at our San Cristobal ~~Project~~project, $4.0 million of cash restricted to develop the port facility, $10.4 million of investments to collateralize certain letters of credit and ~~$5.5~~$2.8 million of investments that are restricted and at maturity will provide the amounts necessary to pay interest through September 2007 on the 4.0% Convertible Senior Subordinated Notes Due 2024.

As of ~~September 30, 2006,~~March 31, 2007, we had cash and cash equivalents of ~~$138.1~~$147.8 million, compared to ~~$4.8~~$49.8 million at December 31, ~~2005.~~2006. The increase in our cash balance at ~~September 30, 2006~~March 31, 2007 is primarily the result of ~~$151.1 million of net proceeds from an equity offering, $120.0~~$20.0 million of borrowings against the project finance facility, and $224.0 million of proceeds from the sale of a 35% interest in our San Cristobal Project. In addition, cash and cash equivalents increased as a result of $5.7 million of net proceeds from the sale of Ordinary Shares to fund the power line construction, $1.8$0.5 million of proceeds from employee stock options exercised, ~~$1.4~~$4.6 million contributed by Sumitomo as their share of a funding requirement for the San Cristobal Project, $21.8 million of ~~proceeds received from a loan from the power line contractor’s parent,~~restricted cash released and a net ~~decrease in restricted cash~~$141.0 million of ~~$120.0 million.~~investments liquidated during the period. The increases in our cash balances were all partially offset by ~~$207.3~~$69.0 million invested in property, plant and equipment related to the development of the San Cristobal Project, ~~$58.4~~$16.4 million used to fund operations, property holding costs and administrative costs, net of interest and other income the net purchase of $181.7 million of investments, $39.5 million of net premiums and liquidation payments made related to our discretionary derivative positions, $1.5 million paid to suppliers and contractors related to our San Cristobal Project, $0.7 million paid to the banks related to the credit facility and payments on long term debt ~~(capital~~(primarily capital lease payments) of ~~$1.6~~$4.5 million.

In conjunction with the sale of the 35% equity interest in the subsidiaries that own our San Cristobal Project to Sumitomo, the project finance facility agreements were amended to provide for the release to us of $70.0 million of overrun financing previously held in accounts controlled by the lenders and approximately $5.7 million previously escrowed to meet interest payments on our subordinated notes. This $75.7 million (which was included in the $120.0 million of net decrease in restricted cash described above) is now unrestricted and available to us for general corporate purposes. At September 30, 2006 the amounts were recorded as investments as discussed above.

During the third quarter 2006 we revised our estimate for the total amount of project funding required for the San Cristobal Project from January 1, 2004 through the beginning of production scheduled for the third quarterremainder of 2007, to approximately $650 million or an 8% increase over the original estimate developed in December 2004. This amount includes all estimated costs required to commence production at San Cristobal, including all engineering, procurementwe and construction costs, as well as estimates for constant-dollar escalation and contingencies. The estimate excludes $22 million advanced through the issuance of Ordinary Shares to the company constructing the power line, $6 million advanced to or escrowed for the company constructing the port facilities and approximately $43 million of working capital. Advances to the power line and port facility providers are expected to be recouped through credits applied against payments for the contracted services. Excluding the power line and port advances, we have spent approximately $420 million on the Project through September 30, 2006 including $226 million spent during the first nine months of 2006. In addition to the amounts above, we expect to incur interest and other financing costs related to the project finance facility of approximately $30 million prior to the start up of operations.

~~During the next twelve months we~~Sumitomo expect to spend ~~about $230~~approximately $120 million on the San Cristobal Project, representing the remainder of the approximately $650 million total project cost estimate, plus an additional ~~$43~~$40 million of working capital and $16 million of project financing interest costs prior to start up of operations. The preceding amounts include $50 million in total project costs and $16 million in working capital in excess of the original estimates. We expect to fund thesecapital. These cash requirements ~~by liquidating~~will be funded from the restricted cash and the liquidation of restricted investments ~~already~~held by the project and set aside for this purpose and drawing the remaining funds available from the project financing ~~facility, and using~~facility. We anticipate funding our 65% share of any additional requirements from our existing cash and investments ~~to fund our 65%~~with Sumitomo funding the remaining 35%. In addition, for the remainder of the ~~requirements in excess of the original estimates. In addition, during the next twelve months~~year we expect to spend approximately ~~$14~~

$12 million on general corporate costs, $11 million on exploration efforts and approximately $10 million on interest payments related to the outstanding convertible debt. ~~Our current plans call for expenditures of approximately $12 million on exploration efforts during the next twelve months.~~ We plan to fund these expenditures from our existing cash and investment balances and from interest and other income. ~~At September 30, 2006 our aggregate cash, restricted cash, short and long term investments and restricted investments totaled $549 million.~~ In addition, as a result of our negotiations with the project finance facility lenders discussed above, we may be required to deposit approximately $91 million in a restricted fixed margin account during the second quarter of 2007 as security for the metals derivative positions. We expect operating cash flows to begin during the third quarter of 2007.

Because we were unable to timely file our December 31, 2006 annual report on Form 10-K our existing shelf registration statements will not be available as a source of equity or debt financing for at least one year.

Significant Accounting Policies

Effective January 1, ~~2006~~2007, we adopted Financial Accounting Standards Interpretation No. ~~123R, “Share-Based Payment”~~48, “Accounting for Uncertainty in Income Taxes,” (“~~FAS No. 123R”~~FIN 48”), ~~using the modified prospective approach, which revised Statement~~an interpretation of Financial Accounting Standards Statement No. ~~123,~~109, “Accounting for ~~Stock-Based Compensation”~~Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Fin 48 requires that we recognize in our financial statements the impact of uncertain tax positions. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The adoption of FIN 48 did not have a material impact on our financial position or results of operations.

New Accounting Standards

During February 2007 the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (“FAS No. ~~123”~~159”)~~, and superseded Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. We had previously adopted~~. FAS No. ~~123~~159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of FAS No. 159 apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. FAS No. 159 is effective ~~January 1, 2004 and consequently~~as of the beginning of the first fiscal year that begins after November 15, 2007, or fiscal year 2008 for us. We do not expect the adoption of FAS No. ~~123R did not~~159 to have a ~~significant~~material impact on ~~the comparability~~our financial position or results of ~~stock compensation costs recognized in 2006 as compared to 2005. We recognized $3.6 million of stock based compensation costs for the nine months ended~~operations.

During September 30, 2006 including amounts capitalized compared to $2.0 million of stock based compensation for the same period of 2005 including amounts capitalized. The increased cost is primarily related to stock option grants made in December of 2005 and vesting over a four year period. (See Item 1 Note 10 for further detail of stock based compensation.)

~~Effective January 1, 2006 we adopted Emerging Issues Task Force Issue No. 04-06 (“EITF 04-06”), “Accounting for Stripping Costs Incurred during Production in the Mining Industry.” In January~~ 2006 the ~~EITF~~FASB issued ~~additional guidance defining~~Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS No. 157”). FAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Standard addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under U.S. GAAP. Accordingly, this Standard does not require any new fair value measurements. FAS No. 157 is effective for financial

statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not expect the ~~commencement~~adoption of ~~production as the period when saleable minerals are first extracted in greater than de minimis amounts. During the first quarter~~FAS No. 157 to have a material impact on its financial position or results of 2006, we began mining significant amounts of oxide ore reserves at our San Cristobal Project, which have been placed in stockpiles for future processing. The quantity and value of the minerals mined were sufficient to declare the start of ore production according to the EITF consensus. At September 30, 2006 we had recorded ore inventories valued at $16.9 million.

~~See Item 1, Note 2 for additional discussion of significant accounting policies and new accounting standards.~~operations.

Contractual Obligations

~~We have entered into agreements with certain service providers and placed orders for certain equipment and construction materials for~~As discussed above, at March 31, 2007 we will be required to spend an additional approximately $120 million to bring our San Cristobal ~~Project resulting~~project into production which we expect to begin in ~~commitments totaling approximately $77.6 million at September 30, 2006. If we had cancelled all~~the third quarter of ~~these agreements or orders at September 30, 2006, we would have incurred cancellation fees totaling approximately $18.6 million.~~2007.

During the ~~nine~~three months ended ~~September 30, 2006~~March 31, 2007 we ~~had a net increase in long term debt of $114.8 million consisting of $120.0 million of~~increased our borrowings against the $225 million project finance facility ~~$14.8~~by $20 million ~~of other long term~~and subsequent to March 31, 2007 we borrowed an additional $20 million bringing to $220 million total borrowings ~~and a $20.0 reduction of long term debt resulting from~~under the ~~buy back of a portion of the 4.0% Convertible Senior Subordinated Notes due 2024.~~facility. In addition during the ~~nine~~three months ended ~~September 30, 2006~~March 31, 2007 we placed in service ~~$8.1~~$23.0 million of equipment recorded as capital leases resulting in total capital lease obligations of ~~$17.9~~$36.1 million at ~~September 30, 2006.~~

In conjunction with the sale of a 35% interest in our San Cristobal Project to Sumitomo the Company recorded a note payable of $7.8 million as the result of assigning Sumitomo a 35% interest in a $22.3 million note receivable the Company holds from the power line contractor at the San Cristobal Project. The Company also recorded a $1.4 million deferred gain that is contingent upon the payment of a performance bonus to the construction contractor at the San Cristobal Project and the reimbursement to Sumitomo of its $1.4 million share of the bonus by the Company should the bonus be paid. In addition, as a result of the sale the project finance facility agreements were amended to provide for the release of $70.0 million of overrun financing previously held in accounts controlled by the lenders and approximately $5.7 million previously escrowed to meet interest payments on our subordinated notes. This $75.7 million is now unrestricted and available for general corporate purposes.

~~Non-GAAP Financial Measures~~

~~The~~ ~~non-GAAP financial measure~~ term “cash operating costs” is used on a per-ounce of payable silver and per-pound of payable zinc basis. Our estimated cash operating costs include estimated mining, milling and other mine related overhead costs. The per-ounce of silver cost also includes off-site costs related to projected silver refining charges. The per-pound of zinc cost also includes charges related to transportation of zinc concentrates and their projected treatment and smelting charges. All cash operating costs exclude taxes, depreciation, amortization and provisions for reclamation. The average cash operating cost per ounce of silver is equal to the pro-rata share of estimated average operating costs for the period reduced by the estimated value of lead by-product credits for the period and divided by the number of “payable ounces”. The lead by-product credits are net of charges related to transportation of lead concentrates and their projected treatment and smelting charges. The “payable ounces” are the estimated number of ounces of silver to be produced during the period reduced by the ounces required to cover estimated refining, treatment and transportation charges for the period. Average cash operating cost per pound of zinc is equal to the pro-rata share of estimated average operating costs for the period divided by the number of “payable pounds”. The “payable pounds” are the estimated number of pounds of zinc to be produced during the period reduced by the number of pounds required to cover estimated refining, treatment and transportation charges for the period. We have included estimated average cash operating cost information to provide investors with information about the cash generating capabilities of the San Cristobal Project. This information will differ from measures of performance determined in accordance with generally accepted accounting principles (GAAP) and should not be considered in isolation or as a substitute for measures of performance that will be prepared in accordance with GAAP. These measures are not necessarily indicative of operating profit or cash flow from operations to be determined under GAAP and may not be comparable to similarly titled measures of other companies.March 31, 2007.

Forward-Looking Statements

Some information contained in or incorporated by reference into this report may contain forward-looking statements. These statements include comments regarding San Cristobal development and construction plans, capital and other costs, funding and timing; the timing of completion of San Cristobal construction, start-up and commencement of operations; anticipated spending during ~~2006 and~~ 2007; increased funding requirements, capital costs and working capital requirements for the San Cristobal Project; Contractual arrangements with Sumitomo, including Sumitomo’s obligations with respect to ~~deferred payments and~~ funding commitments; the likely increased volatility in future earnings due to forward sales, derivative positions and metals trading activity; compliance with and anticipated amendments to the San Cristobal Project finance facility; anticipated San Cristobal production ~~and operating costs~~ and the timing and amounts of spending on the evaluation and expansion of our exploration portfolio. The use of any of the words “anticipate,” “continues,” “estimate,” “expect,” “may,” “will,” “project,” “should,” “believe” and similar expressions are intended to identify uncertainties. We believe the expectations reflected in those forward-looking statements are reasonable. However, we cannot assure that these expectations will prove to be correct. Actual results could differ materially from those anticipated in these forward-looking statements as a result of the factors set forth below and other factors set forth in, or incorporated by reference into this report:

· worldwide economic and political events affecting the supply of and demand for silver, zinc and lead;

· political unrest and economic instability in Bolivia including the communities located near the San Cristobal Project and other countries in which we conduct business;

· future actions of the Bolivian government with respect to nationalization of ~~gas and~~natural resources or other ~~natural resources;~~

· changes in the mining or taxation policies of the Bolivian government;

· volatility in market prices for silver, zinc and lead;

· financial market conditions;

· uncertainties associated with developing a new mine, including potential cost overruns and the unreliability of production and cost 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, terms, conditions and timing of required government permits and approvals;~~

·failure to comply with obligations under the San Cristobal project finance facility;

· ~~disagreements~~failure to reach agreement with Sumitomo Corporation regarding future development or operation of San Cristobal, or failure to comply with agreements with Sumitomo related to the San Cristobal Project;

· uncertainties regarding future changes in applicable law or implementation of existing law, including Bolivian laws related to tax, mining, environmental matters and exploration; and

· the factors discussed under “Risk Factors” in our Form 10-K for the period ended December 31, ~~2005.~~2006.

Many of those factors are beyond our ability to control or predict. You should not unduly rely on these forward-looking statements. These statements speak only as of the date of this report on Form 10-Q. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect future events or developments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk and Hedging Activities

Interest Rate Risk

Our outstanding debt consists primarily of our 4.0% and 2.875% Convertible Senior Subordinated Notes due 2024 and amounts borrowed under our San Cristobal project finance facility. The Convertible Senior Subordinated Notes bear interest at a fixed rate and thus do not have exposure to interest rate changes. The project finance facility bears interest at the LIBOR rate plus a credit spread. As of ~~September 30, 2006,~~the date of this filing, we had borrowed ~~$120~~$220 million under the ~~facility and expect to borrow the full amount of the $225 million facility before the completion of the San Cristobal project in 2007.~~facility. Assuming the full $225 million was borrowed under the facility, a 1% increase in the LIBOR rate would result in an annual increase in interest expense of $2.25 million. We have not entered into any agreements to hedge against unfavorable changes in interest rates, but may in the future manage our exposure to interest rate risk.

We invest excess cash in U.S. government and debt securities rated “investment grade” or better. The rates received on such investments may fluctuate with changes in economic conditions. As a result, our investment income may fall short of expectations during periods of lower interest rates. Based on the average cash, restricted cash, investments and restricted investment balances outstanding during the first ~~nine~~three months of ~~2006,~~2007, a 1% decrease in interest rates would have resulted in a reduction in interest income for the period of approximately $3$1.2 million.

Foreign Currency Exchange Risk

Although most of our expenditures are in U.S. dollars, certain purchases of labor, operating supplies and capital assets are denominated in Bolivianos, Euros or other currencies. As a result, currency exchange fluctuations may impact the costs of our operations. Specifically, the appreciation of Bolivianos against the U.S. dollar may result in an increase in operating expenses and capital costs at the San Cristobal project in U.S. dollar terms. To reduce this risk, we maintain minimum cash balances in all foreign currencies, including Bolivianos, and complete most of our purchases, including purchases relating to the San Cristobal project, in U.S. dollars.

We have previously engaged in a limited amount of currency hedging activities primarily related to an equipment order for the San Cristobal project that was denominated in Euros. At ~~September 30, 2006~~March 31, 2007 we did not hold any foreign currency derivative positions.

Commodity Price Risk

None of our properties are in production and, consequently, we do not have any current revenue from sales. When the San Cristobal project begins production, our primary source of income will be from sales

of concentrates containing silver, zinc and lead. As a result, changes in the price of any of these commodities could significantly affect our results of operations and cash flows.

To complete the San Cristobal project finance facility, we were required to ~~hedge~~implement price protection for a portion of our planned silver, zinc and lead production from San Cristobal. We have entered into contracts utilizing forward sales, puts and calls. Non-cash mark-to-market gains and losses from these and other ~~outstanding metals~~ derivative positions may fluctuate substantially from period to period based on spot and forward prices and option volatilities. The actual final financial impact of the derivative positions required by the project financing facility ~~derivative positions~~ will not be known until the positions are closed on their future settlement dates. Our outstanding derivative positions represent 4%, ~~14%~~13% and 17% of planned life-of-mine payable production of silver, zinc and lead at San ~~Cristobal.~~

AsCristobal but represent a ~~result~~significantly higher proportion of ~~rising commodity prices,~~our planned production during the six years in which the derivative positions are in place. For the first six years of production, we have hedged approximately 10%, 24% and 32% of planned production of silver, zinc and lead, respectively.

During the first quarter of 2007 we recorded a non-cash mark-to-market gain on our open derivative positions in the amount of $108.3 million. For the year ended December 31, 2006 we recorded non-cash mark-to-market losses of ~~$165.5~~$672.5 million on our open derivative positions for the nine months ended September 30, 2006. During the same period, we made net cash payments of $36.9 million to settle the majority of certain discretionary hedge positions that were not required by the project financing facility.positions. As of ~~September 30, 2006,~~March 31, 2007 the fair value of our open ~~commodities derivatives position was recorded as~~derivative positions reflected a ~~$182.2~~$709.9 million liability. ~~If current spot prices continue into future periods that include~~Non-cash mark-to-market gains and losses from the ~~settlement dates of our~~ open derivative positions wehave fluctuated substantially from period to period based on spot and forward prices and option volatilities and will ~~report further mark-to-market losses in subsequent periods.~~most likely continue to do so as long as the derivative positions are outstanding. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations –— Results of ~~Operations.”~~Operations”.

Related to certain pending amendments to the project finance facility agreement as discussed above, we and Sumitomo have agreed to purchase put options to protect additional cash flow needed for the accelerated loan schedule.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Apex Silver’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Disclosure Committee and management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness ~~and~~of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) under the Securities Exchange Act of 1934. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as a result of the unremediated material weakness related to loan covenant compliance discussed below, our disclosure controls and procedures were not effective as of the end of the period covered by this report.

(b) Change in Internal Control over Financial Reporting

Apex Silver’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Management issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2006. In making its assessment, management used criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment concluded that, as of December 31, 2006, we did not maintain effective controls over the valuation of the metals derivatives positions and the monitoring of our compliance with certain covenants related to its project finance facility. As disclosed in management’s report, these control deficiencies constituted material weaknesses as of December 31, 2006 and resulted in the following adjustments to our financial statements:

· Restatement of the our 2005 annual consolidated financial statements; interim consolidated financial statements for the quarter ended September 30, 2005 and for each of the first three quarters of 2006 as a result of adjusts to the balances of our derivative liabilities, gain on the sale of an interest in subsidiaries, minority interest in subsidiaries, minority interest in loss of

consolidated subsidiaries and the accumulated deficit accounts as a result of reassessing available market data in the valuation of its metals derivatives.

· An audit adjustment to our 2006 annual consolidated financial statements to properly reflect the balances of our derivative liabilities, gain on sale of an interest in subsidiaries, minority interest in subsidiaries, minority interest loss of consolidated subsidiaries and the accumulated deficit accounts as a result of reassessing available market data in the valuation of its metals derivatives.

Throughout the first quarter of 2007, we have been actively engaged in the implementation of remediation efforts to address the two material weaknesses described above. As of March 31, 2007, the material weakness relating to the controls over the valuation of the metals derivatives positions had been remediated, but the material weakness relating to the controls over the monitoring of compliance with certain covenants related to our project finance facility had not been remediated.

We have implemented the following controls and procedures to remediate the material weakness relating to the valuation of our metals derivatives positions:

· We have implemented controls to accurately determine the fair value of its open derivative positions by applying market values obtained from the counterparties holding our derivative positions. We use independent valuation experts to verify that the values received from the counterparties are based on major commodities price indices such as the LME and COMEX and other available market data.

Based upon the action taken and evaluation of the effectiveness of the controls, we have concluded that remediation of the material weakness in the controls over the valuation of the metals derivative positions have been achieved as of March 31, 2007.

Our remediation efforts are not complete and we do not have sufficient evidence of the operational effectiveness of the controls undergoing remediation to conclude that such actions have been successful in addressing the material weakness relating to the controls over the monitoring of compliance with certain covenants related to our project finance facility, as described above. Remediation efforts completed or to be completed include:

· We have hired a Senior Treasury Analyst, with experience commensurate with the complexity of our loan compliance requirements and we are designing and implementing effective controls to ensure the Senior Treasury Analyst will closely monitor compliance of our project finance facility and other financing arrangements. Training will also be provided to all key personnel involved in the loan compliance processes and procedures.

We will continue to assign the highest priority to the remediation efforts in this area, with the goal of remediating this material weakness by the end of the second quarter of 2007.

There has been no other change in ~~the Company’s~~our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

~~We reported~~There were no material developments to proceedings previously discussed in our Form 10-K ~~filing~~ for the ~~period~~year ended December 31, 2005 that the SEC has commenced an investigation into possible violations of the Foreign Corrupt Practices Act by one of our South American subsidiaries following our voluntary report to the SEC and Department of Justice of the results of our internal investigation. We are cooperating fully with the SEC investigation and will cooperate with any investigation by the U. S. Department of Justice. We cannot predict with any certainty at this time the final outcome of any investigations that may take place including any fines or penalties that may be imposed.2006.

Item 1A. Risk Factors

~~Other than as set forth below, there~~There were no material changes from the risk factors as previously discussed in our Form 10-K ~~as amended~~ for the year ended December 31, ~~2005.~~2006.

~~We depend on a single mining project which is not 100% owned by us.~~

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 Cristobal Project. Therefore, if we are unable to complete and successfully mine the San Cristobal Project, our ability to generate revenue and profits would be materially adversely affected.

In September 2006 we sold 35% of the San Cristobal Project to Sumitomo Corporation. As a result of this transaction, Sumitomo obtained certain rights with respect to the management and operation of the project. For example, certain significant matters for the project require the approval of Sumitomo, including approval of annual programs and budgets, and increases of 15% or more in capital expenditures or operating expenses and mergers or liquidations. If Sumitomo does not approve our proposals with respect to these matters, we may face significant delays in completing the project or improving its operations and may be unable to operate the project in the manner we believe to be in the best interests of our shareholders.

We and Sumitomo are required to provide our proportionate shares of funding for the project if necessary in order to complete construction and begin commercial operations. If additional funding is necessary and Sumitomo does not pay its 35% share of such additional amounts, there can be no assurance that we would have sufficient capital to fund the amounts required.

Sumitomo is also required to comply with certain provisions of the San Cristobal project financing agreements. If Sumitomo fails to comply with its obligations, the failure could result in a default under those agreements, and in the subsequent acceleration of the San Cristobal project loans and settlement obligations under the commodity derivative obligations required by the project lenders, and enforcement of the lender’s liens against the San Cristobal Project. See --- “We may be unable to comply with the terms and covenants of the debt financing for our San Cristobal Project.”

~~Our San Cristobal Project may be adversely affected by changes in government policies toward the mining industry.~~

On May 1, 2006, President Evo Morales of Bolivia, who took office in January 2006, signed a decree to nationalize Bolivia’s hydrocarbon industry, in order to take control of companies involved in the production, transport, refining or distribution of oil and gas. Although the oil and gas companies were permitted to continue operating, the nationalization decree provides that a larger share of the revenues derived from the production and sale of hydrocarbons in Bolivia will go to the government. The government is negotiating new arrangements separately with each of the oil and gas producers operating in Bolivia. President Morales and others in his administration have made public statements regarding their desire to recover natural resource production in Bolivia, including mining.

To date, there have been no formal proposals to nationalize the mining industry. The government may, however, alter its current policies with respect to the mining industry. If the San Cristobal project were nationalized, we might be unable to recover any significant portion of our investment in the project. The government could also substantially increase mining taxes or require significant royalty payments, which could have a material adverse effect on the profitability of the San Cristobal project. If as a result of changes in government policy, we did not complete construction of the San Cristobal project, we could have substantial liabilities in connection with our hedge positions. We do not maintain political risk insurance to cover losses that we may incur as a result of nationalization, expropriation or similar events in Bolivia. The lenders, other than Corporacion Andina de Fomento, do, however maintain political risk insurance to cover their loan and hedge position exposures. Amounts payable with respect to such insurance would be payable directly to the lenders or hedge counterparties and would not cover any portion of our investment in the project.

In addition, in May 2006, the Constitutional Court of Bolivia issued a ruling declaring certain articles of the Mining Code unconstitutional. The Court’s ruling is not effective until May 2008 and the ruling urges the Bolivian Congress to enact legislation during that time which may supersede the ruling. Among other things, the ruling may limit the transferability of mining concessions and restrict our ability to transfer or mortgage our mining concessions including the San Cristobal concessions that we have mortgaged as collateral to the lenders providing financing for the San Cristobal Project. There can be no assurance that the Bolivian Congress will enact legislation to permit the transfer or mortgage of concessions prior to the May 2008 implementation and if implemented, what the impact of the Court’s ruling will be. If the Court’s ruling is implemented and causes a negative effect on the validity of our existing San Cristobal mortgages that situation could result in a default under the San Cristobal Project finance facility, which could result in acceleration of the loan and hedge liabilities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits ~~Exhibits~~

10.1 ~~Purchase~~ Non-Employee Directors Deferred Compensation and ~~Sale Agreement, dated September 25, 2006 among the Company, Apex Luxembourg S.A.R.L., Apex Silver Mines Sweden AB and Sumitomo Corporation.~~Equity Award Plan

~~10.2~~ ~~Deferred Payments Agreement, dated September 25, 2006 between Apex Silver Mines Sweden AB and Sumitomo Corporation.~~

~~10.3~~ ~~MSC Shareholders Agreement, dated September 25, 2006 among Apex Luxembourg S.A.R.L., Apex Silver Mines Sweden AB, Gotlex Lageraktiebolag nr. 451 AB and Minera San Cristobal, S.A.~~

~~10.4~~ ~~Option Agreement, dated September 25, 2006 between the Company and Sumitomo Corporation.~~

~~10.5~~ Omnibus Amendment Agreement, dated September 25, 2006 among Minera San Cristobal S.A., the Company, Apex Silver Mines Sweden AB, Apex Luxembourg S.A.R.L., Apex Metals GmbH, Apex Silver Finance LTD., Apex Metals Marketing GmbH, Gotlex Lageraktiebolag nr. 451 AB, Comercial Metales Blancos AB, BNP Paribas, Barclays Capital, JP

~~Morgan Chase Bank, N.A., Corporacion Andina de Fomento and the senior lenders and hedge banks party thereto.~~

~~10.6~~ ~~Form of Change of Control Agreement~~

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized.

x	xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	~~EXCHANGE ACT OF 1934~~

~~FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006.~~

OR

o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

CAYMAN ISLANDS, BRITISH WEST INDIES		NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF		~~(I.R.S. EMPLOYER~~
INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NO.)

WALKER HOUSE MARY STREET GEORGE TOWN, GRAND CAYMAN CAYMAN ISLANDS, BRITISH WEST INDIES		NOT APPLICABLE
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)


PART I –— FINANCIAL INFORMATION

	~~ITEM 1.~~	~~FINANCIAL STATEMENTS~~

ITEM 1.		FINANCIAL STATEMENTS

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ~~AND HEDGING ACTIVITIES~~


ITEM 4.		CONTROLS AND PROCEDURES

~~PART II – OTHER INFORMATION~~


~~ITEM 1.~~PART II — OTHER INFORMATION			~~LEGAL PROCEEDINGS~~

ITEM 1.		~~ITEM 1A.~~LEGAL PROCEEDINGS	~~RISK FACTORS~~

ITEM 1A.		RISK FACTORS

ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

	ITEM 3.		DEFAULTS UPON SENIOR SECURITIES


ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	ITEM 5.		OTHER INFORMATION


ITEM 6.		EXHIBITS

SIGNATURES

	September 30, 2006		December 31, 2005
	(in thousands)
Prepaid insurance	$	2,704	$	824
Prepaid bank fees	83		—
Accrued interest receivable	752		758
Prepaid consulting & contractor fees	5,345		3,874
Receivables, travel advances and other	715		118
Prepaid import taxes and duties receivable	1,333		—
Withholding taxes receivable	512		250
	$	11,444	$	5,824

	March 31, 2007		December 31, 2006
	(in thousands)
Prepaid insurance	$	3,121	$	1,949
Accrued interest receivable	1,104		1,348
Prepaid consulting & contractor fees	4,877		3,507
Prepaid import taxes and duties receivable	344		1,637
Other	1,556		1,543
	$	11,002	$	9,984

	September 30,			December 31,
	2006			2005
	(in thousands, except share data)
Assets
Current assets
Cash and cash equivalents	$	138,097		$	4,808
Restricted cash	15,172			135,182
Investments	290,743			132,000
Restricted investments	101,133			67,491
Ore inventories	444			—
Materials and supply inventory	4,124			—
Prepaid expenses and other assets	11,444			5,824
Total current assets	561,157			345,305

Property, plant and equipment, net	583,168			379,138
Ore inventories	16,498			—
Deferred financing costs	19,988			21,604
Value added tax recoverable	45,537			20,052
Investments	4,000			—
Restricted investments	—			12,392
Other	2,109			2,020
Total assets	$	1,232,457		$	780,511

Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and other accrued liabilities	$	66,048		$	74,487
Accrued interest payable	799			3,096
Derivatives	14,101			5,652
Current portion of long term debt	2,993			2,270
Total current liabilities	83,941			85,505
Long term debt	434,117			320,021
Derivatives	168,140			50,621
Deferred gain on sale of asset	1,400			—
Asset retirement obligation	5,394			2,003
Total liabilities	692,992			458,150
Minority interest in subsidiaries	88,403			34
Commitments and contingencies (Note 12)

Shareholders’ equity
Ordinary Shares, $.01 par value, 175,000,000 shares authorized; 58,435,200 and 50,444,890 shares issued and outstanding at respective dates	584			504
Accumulated other comprehensive income (loss)	160			(243		)
Additional paid in capital	666,291			486,762
Accumulated deficit during development stage	(215,973		)	(164,696		)
Total shareholders’ equity	451,062			322,327
Total liabilities and shareholders’ equity	$	1,232,457		$	780,511

	Three Months Ended						Nine Months Ended						For the Period from December 22, 1994 (inception)
	September 30,						September 30,						through
	2006			2005			2006			2005			Sept. 30, 2006
	(in thousands, except share data)
Operating income and expenses:
Exploration	$	(2,155	)	$	(1,097	)	$	(5,162	)	$	(3,858	)	$	(78,593	)
Administrative	(4,123		)	(4,814		)	(15,122		)	(13,660		)	(84,980		)
Gain (loss) on commodity derivatives	(45,432		)	(9,640		)	(165,487		)	(7,584		)	(220,937		)
Gain (loss) on foreign currency derivatives and transactions	203			474			439			(810		)	1,167
Other operating expense (1)	(134		)	—			(276		)	—			(276		)
Amortization and depreciation	(100		)	(81		)	(296		)	(114		)	(1,692		)
Total operating expenses	(51,741		)	(15,158		)	(185,904		)	(26,026		)	(385,311		)

Other income and expenses:
Interest and other income	4,469			5,700			12,637			12,743			47,309
Gain on sale of interest in subsidiary	119,800			—			119,800			—			119,800
Gain on extinguishment of debt	—			—			2,875			—			9,640
Interest expense and other borrowing costs (2)	—			(2,639		)	(774		)	(6,501		)	(11,696		)
Total other income and expense	124,269			3,061			134,538			6,242			165,053
Income (loss) before minority interest and income taxes	72,528			(12,097		)	(51,366		)	(19,784		)	(220,258		)
Income taxes	(54		)	—			(161		)	—			(540		)
Minority interest in (income) loss of consolidated subsidiaries	257			1			250			12			4,825
Net income (loss)	$	72,731		$	(12,096	)	$	(51,277	)	$	(19,772	)	$	(215,973	)
Other comprehensive income:
Unrealized gain (loss) on securities	$	(42	)	$	30		$	160		$	(127	)	$	(83	)
Reclassification for loss on securities included in net income	(518		)	—			243			—			243
Other comprehensive income (loss)	(560		)	30			403			(127		)	160
Comprehensive income (loss)	$	72,171		$	(12,066	)	$	(50,874	)	$	(19,899	)	$	(215,813	)
Net Income (loss) per Ordinary Share – basic	$	1.25		$	(0.25	)	$	(0.92	)	$	(0.41	)
Net Income (loss) per Ordinary Share – diluted	$	1.23		$	(0.25	)	$	(0.92	)	$	(0.41	)
Weighted average Ordinary Shares outstanding - basic	58,417,387			48,781,621			55,816,488			48,047,071
Weighted average Ordinary Shares outstanding - diluted	58,989,561			48,781,621			55,816,488			48,047,071

September 30, 2006	Cost		Market		Balance
	(in Thousands)
Investments:
Short-term
Available for sale
Auction rate securities	$	246,080	$	246,094	$	246,094
Corporate notes	4,873		5,000		5,000
Government bonds	6,440		6,442		6,442
Common stock	761		842		842
Total available for sale	258,155		258,378		258,378
Held to maturity
Corporate notes	3,601		3,597		3,601
Government bonds	28,764		28,764		28,764
Total held to maturity	32,365		32,361		32,365
Total short term	$	290,520	$	290,739	$	290,743
Long-term
Available for sale
Corporate notes	2,000		2,000		2,000
Total available for sale	2,000		2,000		2,000
Held to maturity
Government bonds	2,000		2,000		2,000
Total held to maturity	2,000		2,000		2,000
Total long term	$	4,000	$	4,000	$	4,000

Restricted Investments:
Short-term
Available for sale
Auction rate securities	$	75,000	$	75,000	$	75,000
Total available for sale	75,000		75,000		75,000
Held to maturity
Government bonds	26,133		26,039		26,133
Total held to maturity	26,133		26,039		26,133
Total short term	$	101,133	$	101,039	$	101,133

December 31, 2006	Cost		Fair Value		Carrying Value
	(in Thousands)
Short-term investments
Available for sale
Common stock	$	761	$	779	$	779
Corporate notes	5,935		5,995		5,995
Bond funds	6,972		6,973		6,973
Auction rate securities	306,785		306,789		306,789
Total available for sale	320,453		320,536		320,536
Held to maturity
Government bonds	5,000		4,991		5,000
Total held to maturity	5,000		4,991		5,000
Total short term	$	325,453	$	325,527	$	325,536

Long-term investments
Available for sale
Corporate notes	6,988		6,960		6,960
Government bonds	33,374		33,295		33,295
Total available for sale	40,362		40,255		40,255
Held to maturity
Government bonds	2,000		1,996		2,000
Total held to maturity	2,000		1,996		2,000
Total short term	$	42,362	$	42,251	$	42,255

Restricted Investments:
Short-term
Available for sale
Auction rate securities	$	59,800	$	59,800	$	59,800
Total available for sale	59,800		59,800		59,800
Held to maturity
Government bonds	5,543		5,500		5,543
Total held to maturity	5,543		5,500		5,543
Total short term	$	65,343	$	65,300	$	65,343

	September 30, 2006				December 31, 2005				March 31, 2007				December 31, 2006
	Current		Long term		Current		Long term		Current		Long term		Current		Long term
	(in thousands)								(in thousands)
2.875% Convertible Senior Subordinated Notes due 2024	$	—	$	180,000	$	—	$	180,000	$	—	$	180,000	$	—	$	180,000
4.0% Convertible Senior Subordinated Notes due 2024	—		109,987		—		129,987		—		109,987		—		109,987
Project finance facility	—		120,000		—		—		—		200,000		—		180,000
Note payable to Ingelec	—		1,407		—		—
Note payable to Ingelec for power line									1,216		—		1,415		—
Note assigned to Sumitomo	—		7,798		—		—		—		8,013		—		7,853
Capital lease obligations	2,993		14,925		2,270		10,034
Capital lease and other obligations									5,459		30,594		2,993		14,355
Other obligations									13		9,895		—		—
	$	2,993	$	434,117	$	2,270	$	320,021	$	6,688	$	538,489	$	4,408	$	492,195

	Current Maturity Date
	Year 1		Years 2 and 3		Years 4 and 5		Thereafter		Total
Forward Contracts
Silver (000 ounces)	—		230		185		200		615
Average price (per ounce)	$	—	$	7.27	$	7.21	$	7.13	$	7.21

Zinc (000 pounds)	9,177		411,431		335,348		19,841		775,797
Average price (per pound)	$	0.59	$	0.48	$	0.48	$	0.48	$	0.48

Lead (000 pounds)	17,085		241,511		64,374		—		322,970
Average price (per pound)	$	0.30	$	0.30	$	0.29	$	—	$	0.30

Put Option Contracts Owned
Silver (000 ounces)	100		1,325		3,102		4,573		9,100
Average price (per ounce)	$	5.25	$	5.49	$	5.71	$	5.91	$	5.78

Zinc (000 pounds)	24,251		—		—		—		24,251
Average price (per pound)	$	0.57	$	—	$	—	$	—	$	0.57

Call Option Contracts Written
Silver (000 ounces)	1,885		6,200		3,255		345		11,685
Average price (per ounce)	$	15.24	$	8.25	$	8.37	$	9.14	$	9.44

Zinc (000 pounds)	57,871		12,126		1,653		—		71,650
Average price (per pound)	$	1.06	$	0.57	$	0.57	$	—	$	0.97

Lead (000 pounds)	4,409		24,251		3,307		—		31,967
Average price (per pound)	$	0.70	$	0.39	$	0.39	$	—	$	0.43

Call Option Contracts Owned
Silver (000 ounces)	1,240		—		—		—		1,240
Average price (per ounce)	$	13.55	$	—	$	—	$	—	$	13.55

Zinc (000 pounds)	57,871		—		—		—		57,871
Average price (per pound)	$	1.23	$	—	$	—	$	—	$	1.23

		Amount To Be Realized In
Valuation Technique	Period Ended	Year 1			Years 2 & 3			Years 4 & 5			Thereafter			Total
		(in thousands)

Based on quoted prices in active markets:	12/31/2005	$	(5,652	)	$	—		$	—		$	—		$	(5,652	)
	9/30/2006	$	(5,018	)	$	—		$	—		$	—		$	(5,018	)
	2006 Change	$	634		$	—		$	—		$	—		$	634

Based on Black option pricing model and other valuation methods:	12/31/2005	$	—		$	(25,785	)	$	(25,580	)	$	744		$	(50,621	)
	9/30/2006	$	(9,083	)	$	(132,452	)	$	(35,407	)	$	(282	)	$	(177,224	)
	2006 Change	$	(9,083	)	$	(106,667	)	$	(9,827	)	$	(1,026	)	$	(126,603	)

Totals:	12/31/2005	$	(5,652	)	$	(25,785	)	$	(25,580	)	$	744		$	(56,273	)
	9/30/2006	$	(14,101	)	$	(132,452	)	$	(35,407	)	$	(282	)	$	(182,242	)
	2006 Change	$	(8,449	)	$	(106,667	)	$	(9,827	)	$	(1,026	)	$	(125,969	)

	Amount To Be Realized In
Period Ended	Less Than 1 Year		2 to 3 Years			4 to 5 Years			Thereafter		Total
	(in thousands)
12/31/06	$	39,080	$	570,982		$	207,696		$	440	$	818,198
03/31/07	$	88,046	$	484,871		$	135,917		$	1,058	$	709,892
2007 Change	$	48,966	$	(86,111	)	$	(71,779	)	$	618	$	(108,306	)

Balance at December 31, 2005	$	2,003
			The Three Months Ended March 31, 2007		The Year Ended December 31, 2006
Additions	3,115
			(in thousands)
Beginning balance			$	5,761	$	2,003
ARO arising in the period			153		3,367
Changes in estimates, and other	—		—		—
Liabilities settled	—		—		—
Accretion expense	276		139		391

Balance at September 30, 2006	$	5,394
Ending balance			$	6,053	$	5,761

									Accumulated
				Additional					Other			Total
	Common Stock			Paid-in		Accumulated			Comprehensive			Shareholders’
	Shares	Amount		Capital		Deficit			income			Equity
	(in thousands except share data)
Balance, December 31, 2005	50,444,890	$	504.4	$	486,762	$	(164,696	)	$	(243	)	$	322,327
Stock to finance construction of the power line ($15.09 per share)	369,033	3.7		5,724		—			—			5,728
Shares issued to retire debt, ($15.77 per share)	1,086,653	10.9		17,114		—			—			17,125
Stock to consultants ($15.90 per share)	1,699	—		27		—			—			27
Stock compensation accrued	—	—		3,897		—			—			3,897
Stock options exercised ($12.52 per share)	140,925	1.4		1,764		—			—			1,765
Stock granted as compensation ($19.30 per share)	17,000	0.2		—		—			—			—
Sale of Ordinary Shares, net ($23.70 per share)	6,375,000	63.8		151,003		—			—			151,067
Unrealized gain on marketable equity securities	—	—		—		—			403			403
Net loss	—	—		—		(51,277		)	—			(51,277		)
Balance, September 30, 2006	58,435,200	$	584.4	$	666,291	$	(215,973	)	$	160		$	451,062

	March 31, 2007			December 31, 2006
	(in thousands)
Mineral properties	$	117,533		$	117,390
Construction in progress	564,894			482,979
Buildings	13,590			13,590
Mining equipment and machinery	14,928			13,580
Other furniture and equipment	3,629			3,166
	714,574			630,705
Less: Accumulated depreciation	(7,785		)	(6,962		)
	706,789			623,743
Equipment under capital lease	45,150			22,183
Less: Accumulated depreciation	(5,514		)	(4,168		)
	39,636			18,015
	$	746,425		$	641,758

Options	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at beginning of period	2,859,781		$	14.42	6.4 Years	$	6,664,178
Granted during period	123,888		$	15.97	9.6 Years	$	—
Forfeited or expired during period	(47,901	)	$	16.64		$	289,983
Exercised during period	(140,925	)	$	12.53		$	1,145,515
Outstanding at end of period	2,794,843		$	14.54	5.8 Years	$	7,460,540
Exercisable at end of period	1,938,293		$	13.33	4.7 Years	$	7,027,492
Expected to vest at the end of the period	856,550		$	17.28	8.3 Years	$	433,047

Non-vested Shares	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Non-vested at beginning of period	170,700		$	18.41	223,575		$	17.30
Granted during period	25,000		$	13.75	37,200		$	12.98
Vested during period	(14,500	)	$	17.70	(16,025	)	$	18.05
Forfeited during period	(3,000	)	$	16.03	(4,050	)	$	17.18
Nonvested at end of period	178,200		$	17.85	240,700		$	16.60

	Ordinary Shares			Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Shareholders’
	Shares	Amount		Capital		Deficit			income (loss)			Equity
	(in thousands except share data)
Balance, December 31, 2006	58,577,700	$	585.8	$	669,487	$	(773,339	)	$	(24	)	$	(103,290	)
Stock compensation accrued	—	—		954		—			—			954
Stock options exercised ($10.54 per share)	45,650	0.5		481		—			—			481
Stock granted as compensation ($16.40 per share)	4,800	—		—		—			—			—
Unrealized loss on marketable equity securities	—	—		—		—			(232		)	(232		)
Net Income	—	—		—		111,979			—			111,979
Balance, March 31, 2007	58,628,150	$	586.3	$	670,922	$	(661,360	)	$	(256	)	$	9,892

Options	Number of Shares		Weighted Average Exercise Price Per Share
Outstanding at beginning of period	2,992,572		$	14.90
Granted during period	57,335		$	15.28
Forfeited or expired during period	(141,750	)	$	16.97
Exercised during period	(45,650	)	$	10.54
Outstanding at end of period	2,862,507		$	14.87
Exercisable at end of period	2,160,834		$	14.24
Expected to vest at the end of the period	667,624		$	16.84

	Nine Months Ended September 30,
	2006		2005

Expected volatility	43.8% - 45.4%		42.6% - 43.8%
Weighted average volatility	44.9	%	43.3	%
Expected dividend yield	—		—
Expected term (in years)	3.06		3.78
Risk-free rate	4.89	%	3.72	%

	Three Months Ended March 31,
	2007		2006
	(in thousands)
Gain (loss) on re-measurement of monetary assets denominated in other than US dollars	$	984	$	113
Total	$	984	$	113

	Three Months Ended March 31
	2007		2006
	(in thousands)
Supplemental disclosure:
Interest paid, net of amounts capitalized	$	—	$	5,477

Supplemental disclosure of non-cash transactions:
Capitalized stock based compensation costs	$	247	$	267
Payment of debt with Ordinary Shares	$	—	$	17,125
Capitalized consulting services paid with ordinary Shares	$	—	$	45
Depreciation expense capitalized	$	2,028	$	1,145
Initial measurment of asset retirement obligation	$	153	$	1,882
Equipment acquired through capital lease	$	22,967	$	1,270

		APEX SILVER MINES LIMITED


Date:	~~November 6, 2006~~ May 9, 2007	By:	\s\ Jeffrey G. Clevenger
			Jeffrey G. Clevenger
			President and Chief Executive Officer


Date:	~~November 6, 2006~~ May 9, 2007	By:	\s\ Gerald J. Malys
			Gerald J. Malys
			Senior Vice President and Chief Financial Officer

FORM 10-Q

APEX SILVER MINES LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(Expressed in United States dollars)(Unaudited)

Contractual Obligations

Forward-Looking Statements

Item 3. Quantitative and Qualitative Disclosures About Market Risk and Hedging Activities

Interest Rate Risk

Foreign Currency Exchange Risk

Commodity Price Risk

Item 4. Controls and Procedures

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in United States dollars)
(Unaudited)