**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

##### **FORM10-Q**

**(MARKONE)**

**x****        QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES**

**EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIODENDED**

**MARCH 31, 2007.**

**OR**

**o****                                ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITIONPERIOD FROM            TO          .**

COMMISSION FILE NUMBER **1-13627**

###### **APEX SILVER MINES LIMITED**

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

| **CAYMAN ISLANDS, BRITISH WEST INDIES**                                                       | ** ** | **NOT APPLICABLE**                   |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------------|
| (STATE OR OTHER JURISDICTION OF 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)                           |

**(345) 949-0050**

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

INDICATE BY CHECKMARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BYSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILESUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THEPAST 90 DAYS:  YES  x    NO  o

INDICATE BY CHECKMARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER,OR A NON-ACCELERATED FILER:

LARGE ACCELERATED FILER  x    ACCELERATEDFILER  o    NON-ACCELERATEDFILER  o

INDICATE BY CHECKMARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THEEXCHANGE ACT):  YES  o    NO  x

AT MAY 9, 2007,58,637,525 ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, WERE ISSUED ANDOUTSTANDING.

 

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APEX SILVER MINESLIMITEDFORM 10-QQUARTER ENDED MARCH 31, 2007

INDEX
|                                      | ** ** | ** **                                                                                  | ** ** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------|
| PART  I — FINANCIAL INFORMATION |       |                                                                                        |
|                                 |       |                                                                                        |       |       |
| 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                                 |       |       |
|                                 |       |                                                                                        |       |       |
| ITEM 4.                              |       | CONTROLS AND PROCEDURES                                                                     |       |       |
|                                 |       |                                                                                        |       |       |
| PART  II — OTHER INFORMATION    |       |                                                                                        |
|                                 |       |                                                                                        |       |       |
| 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                                         |       |       |
|                                 |       |                                                                                        |       |       |
| ITEM  5.                             |       | OTHER  INFORMATION                                                                          |       |       |
|                                 |       |                                                                                        |       |       |
| ITEM 6.                              |       | EXHIBITS                                                                                    |       |       |
|                                 |       |                                                                                        |       |       |
| SIGNATURES                           |       |                                                                                        |       |       |

 

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**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 accompanyingnotes form an integral part of these consolidated financial statements.

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**APEX SILVER MINES LIMITED****An Exploration and Development Stage Company**

# **CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE LOSS(Expressed in United States dollars)(Unaudited)**

| ** **                                                       | ** ** | **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                                                                            |       |   |   |

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(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 and2006, respectively and $46.3 million for the inception to date period endedMarch 31, 2007.

The accompanying notes form an integral part of theseconsolidated financial statements.

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**APEXSILVER MINES LIMITED****An Exploration and Development Stage Company**

# **CONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in United States dollars)(Unaudited)**

| ** **                                                                                                                  | ** ** | **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 Note15 for supplemental cash flow information.

The accompanying notes form an integral part of theseconsolidated financial statements.

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**APEXSILVER MINES LIMITED**

**AnExploration and Development Stage Company**

**NOTES TOTHE CONSOLIDATED FINANCIAL STATEMENTS**

**(Expressedin United States dollars)**

**1.****                                      Basis of Preparation of Financial Statements and Nature of Operations**

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

In the opinion of management, these financialstatements reflect all adjustments that are necessary for a fair statement ofthe results for the periods presented. All adjustments were of a normal recurring nature.  These interim financial statements should beread in conjunction with the annual financial statements of the Companyincluded in its 2006 Annual Report on Form 10-K.

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

**2.****                                      SignificantAccounting Policies**

Effective January 1, 2007, the Company adoptedFinancial Accounting Standards Interpretation No. 48, “Accounting forUncertainty in Income Taxes,” (“FIN 48”), an interpretation of FinancialAccounting Standards Statement No. 109, “Accounting for Income Taxes.” FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. The Interpretation requires that the Company recognizein its financial statements the impact of uncertain tax positions. FIN 48 alsoprovides guidance on de-recognition, classification, interest and penalties,accounting in interim periods and disclosure. The adoption of FIN 48 did nothave a material impact on the Company’s financial position or results ofoperations (see Note 10).

*NewAccounting Standards*

During February 2007 the Financial AccountingStandards Board (“FASB”) issued Financial Accounting Standards No. 159 “TheFair Value Option for Financial Assets and Financial Liabilities-Including anamendment of FASB Statement No. 115” (“FAS No. 159”). FAS No. 159 permitsentities to choose to measure many financial instruments and certain otheritems at fair value. Most of the provisions of FAS No. 159 apply only toentities that elect the fair value option. However, the amendment to FASB Statement No. 115, Accounting for CertainInvestments in Debt and Equity Securities, applies to all entities withavailable-for-sale and trading securities. FAS No. 159 is effective as of the beginning of the first fiscal yearthat begins after November 15, 2007 (fiscal year 2008 for the Company).  The Company does not expect the adoption ofFAS No. 159 to have a material impact on its financial position or results ofoperations.

During September 2006 the FASB issued FinancialAccounting Standards No. 157 “Fair Value Measurements” (“FAS No. 157”). FAS No.157 defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles (GAAP), and expands disclosures aboutfair value measurements. This Standard addresses how companies should measurefair value when they are required to use a fair value measure for recognitionor disclosure purposes under U.S. GAAP. Accordingly, this Standard does notrequire any new fair value measurements. FAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007, andinterim periods within those 

6

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fiscalyears (fiscal year 2008 for the Company). The Company does not expect theadoption of FAS No. 157 to have a material impact on its financial position orresults of operations.

**3.****                                      Investments**

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

The Company determines the appropriate classification of itsinvestments in debt and equity securities at the time of purchase andre-evaluates classifications at each balance sheet date. Debt securities areclassified as held to maturity when the Company has the intent and ability tohold the securities to maturity.  Held tomaturity debt securities are stated at amortized cost and include governmentagency and corporate obligations. Available for sale investments are marked to market at each reportingperiod with changes in value recorded as a component of other comprehensiveincome. If declines in value are deemed other than temporary, a charge is madeto net loss for the period.

The Company invests only in government and corporate securities rated “investmentgrade” or better. The following tables, based on quoted market prices,summarize the Company’s investments at March 31, 2007 and December 31, 2006:
| **March 31, 2007** | ** ** | **Cost**                | ** ** | **Fair Value** | ** ** | **Carrying Value** | ** ** |
|------------------------------|------------|-------------------------|------------|---------------------|------------|-------------------------|------------|
| ** **                   | ** ** | **(in Thousands)** | ** ** |
| 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                 |       | 761                     |       | 505                 |       | 505                     |       |
| Total available for sale     |       | 221,437                 |       | 221,198             |       | 221,198                 |       |
| Held to maturity             |       |                    |       |                |       |                    |       |
| Government bonds             |       | 2,000                   |       | 1,998               |       | 2,000                   |       |
| Total held to maturity       |       | 2,000                   |       | 1,998               |       | 2,000                   |       |
| Total short term             |       | $                       | 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      |       | $                       | 33,100     |                | $          | 33,100                  |       | $ | 33,100 |   |
| Total available for sale     |       | 33,100                  |       | 33,100              |       | 33,100                  |       |
| Held to maturity             |       |                    |       |                |       |                    |       |
| Government bonds             |       | 2,771                   |       | 2,750               |       | 2,750                   |       |
| Total held to maturity       |       | 2,771                   |       | 2,750               |       | 2,750                   |       |
| Total short term             |       | $                       | 35,871     |                | $          | 35,850                  |       | $ | 35,850 |   |

 

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| **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 |   |

Quotedmarket prices at March 31, 2007 and December 31, 2006 were used to determinethe fair values of the above investments.

The Company maintains the majority of its investmentsin auction rate securities (“ARS”) which provide acceptable interest rates withhigh liquidity allowing the Company to convert the securities to cash every 7to 35 days depending on the terms of the specific ARS.  Auction rate securities are floating ratesecurities with long-term nominal maturities of 25 to 30 years but are marketedby financial institutions with maturity and interest rate reset dates at 7, 28,or 35 day intervals. The result is that the market always has large quantitiesof securities resetting their interest rates every week resulting in highliquidity.  Most of the Company’s ARS atMarch 31, 2007 have reset dates of either 7 days or 28 days and annual yieldsranging from 2.83% to 5.58%.

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*Credit Risk*

Credit risk is the risk that a third party might failto fulfill its performance obligations under the terms of a financialinstrument. For cash and equivalents and investments, credit risk representsthe carrying amount on the balance sheet. We mitigate credit risk for cash andequivalents and investments by placing our funds and investments with highcredit-quality financial institutions, limiting the amount of exposure to eachof the financial institutions, monitoring the financial condition of thefinancial institutions and investing only in government and corporatesecurities rated “investment grade” or better.

The Company invests with financial institutions thatmaintain a net worth of not less than $1 billion and are members in goodstanding of the Securities Investor Protection Corporation.  Of the Company’s $450.0 million total ofcash and cash equivalents, restricted cash, short and long term investments andrestricted investments at March 31, 2007, $444.8 million was held at twelvelarge multinational banks.

**4.             Prepaid expenses and other assets**

Prepaid expenses and other assets consist of thefollowing:

|                                             | ** ** | **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 |   |

The prepaid consulting and contractor fees consist primarily of advancepayments made to contractors for work being performed for the San CristobalProject.

**5.             Value Added Tax Recoverable**

The Company has recorded value added tax (“VAT”) paidin Bolivia and related to the San Cristobal project as a recoverableasset.  Bolivian law states that VAT paidprior to production is recoverable as a credit against Bolivian taxes arisingfrom production, including income tax. The VAT is expected to be recoveredthrough future production from the San Cristobal project.  Future changes to Bolivian tax law could havean adverse effect on the Company’s ability to recover the VAT paid inBolivia.  At March 31, 2007 and December31, 2006, the VAT recoverable was $63.6 million and $54.2 million,respectively.  The VAT recoverableamounts include $6.2 million and $5.3 million of recoverable Bolivian importduties for the periods ended March 31, 2007 and December 31, 2006,respectively.

The Company has also paid VAT in Bolivia as well asother countries, primarily related to exploration projects, which has been chargedto expense as incurred because of the uncertainty of the recoverability.

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**6.             Property, Plant and Equipment**

The components of property, plant and equipment were as follows:

|                                 | ** ** | **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 |   |

For the three months ended March 31, 2007 and 2006 the Company recordeddepreciation expense of $114,000 and $95,000, respectively.  Also, for the three months ended March 31,2007 and 2006 the Company capitalized depreciation associated with the SanCristobal Project in the amounts of $2.0 million and $1.1 million respectively.

The March 31, 2007 and December 31, 2006 construction in progressbalances include $46.3 and $35.5 million of capitalized interestrespectively.  The capitalized interestamounts are related to the Convertible Senior Subordinated Notes, the projectfinance facility and equipment under capital lease (see Note 7).

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

**7.             Debt**

The Company’s debt consists of the following:
|                                                        | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **Current**                  | ** ** | **Long term**              | ** ** | **Current** | ** ** | **Long term** | ** ** |
| ** **                                             | ** ** | **(in thousands)**      | ** ** |
| 2.875%  Convertible Senior Subordinated Notes due 2024 |       | $                            | —     |                            | $          | 180,000 |   | $ | — |   | $ | 180,000 |   |
| 4.0% Convertible  Senior Subordinated Notes due 2024   |       | —                       |       | 109,987                         |       | — |   | 109,987 |   |
| Project finance  facility                              |       | —                       |       | 200,000                         |       | — |   | 180,000 |   |
| Note payable to  Ingelec for power line                |       | 1,216                        |       | —                          |       | 1,415 |   | — |   |
| Note assigned to  Sumitomo                             |       | —                       |       | 8,013                           |       | — |   | 7,853 |   |
| Capital lease  and other obligations                   |       | 5,459                        |       | 30,594                          |       | 2,993 |   | 14,355 |   |
| Other  obligations                                     |       | 13                           |       | 9,895                           |       | — |   | — |   |
|                                                   |       | $                            | 6,688      |                            | $          | 538,489 |   | $ | 4,408 |   | $ | 492,195 |   |

 

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*2.875%Notes and 4.0% Notes*

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

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

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

The indenture relating to the 4.0% Notes requires the Company tomaintain restricted investments to cover the payment of interest through 2007.  The amount invested will at maturity equalthe interest payments due.  As of March31, 2007, $2.8 million of restricted investments were designated for thispurpose.

*SanCristobal Project Finance Facility*

In December 2005 the Company closed on a $225 million project financefacility (the “Facility”), arranged by BNP Paribas and Barclays Capital, andfunded by a group of international financial institutions including banks,export credit agencies and the Andean Development Corporation, a multilateral financialagency that promotes sustainable development in South America.  Borrowings from the Facility are being usedto complete the development of the Company’s San Cristobal Project. At March31, 2007 the Company had borrowed $200.0 million under the Facility. TheCompany is required to pay a 1.0% annual commitment fee on the undrawn amountof the Facility.  Interest on theoutstanding amounts drawn under the Facility is based on LIBOR plus a creditspread.  The first principal paymentunder the Facility is due in December 2008, and the Facility must be fullyrepaid in December 2012.

In connection with the sale to Sumitomo Corporation (“Sumitomo”) of a35% interest in the subsidiaries that own and will operate the San Cristobalproject, Sumitomo has guaranteed the repayment of 35% of the project financefacility debt through completion of the project (which is no later thanDecember 2008).

The Facility contains covenants that require the Company to, amongother things, maintain certain security interests, financial ratios afterproject completion, insurance coverage, minimum sales contracts and metalsprice protection contracts as well as other requirements.  Failure to comply with these covenants or tocure related violations within specified periods could result in an event ofdefault, pursuant to which the project lenders could require immediaterepayment of all amounts outstanding under the Facility and immediate cashsettlement of the outstanding derivative positions associated with the SanCristobal Project.

Pursuant to the debt covenants contained in the Facility, the Companyis required annually to submit a revised Construction Budget, Operating Plan,and Financial Model (collectively the “Updated Plan”) for the San CristobalProject.  The covenants require that theUpdated Plan reflect certain set metals prices that are substantially less thancurrent metals prices. As such, representatives of the lenders and the Companyhave been engaged in discussions to agree upon mutually acceptable prices and otherterms for the Updated Plan. The representatives of the lenders have proposedhigher metals prices than those contained in the original agreement that willallow the Company to present an Updated Plan that will meet the Facility’s 

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financial requirements. The representatives of the lenders have alsoproposed an adjustment to the Facility’s repayment schedule to require a largerpercentage of principal to be repaid in earlier years and an increase in themandatory cash flow sweep from 35% to 45% of excess cash flow.  In connection with these proposed amendmentsto the terms of the Facility, the Company and Sumitomo have agreed to purchase putoptions to protect additional cash flow needed for the accelerated loanschedule.  The Company will also fund a$91 million margin account with the two banks holding the derivative positionsand Sumitomo will provide a post-completion guarantee of the derivativepositions 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.

At the date of this filing, formal approval of the amendments to theagreements and the Updated Plan by the requisite majority of lenders has notyet been obtained. While there can be no assurances that lender approval willbe obtained, management believes the necessary amendments and the Updated Planwill be approved by the requisite majority of lenders.

If the amendments and the Updated Plan are not approved by the lenders,until such time as approval is obtained, the Company would be required tooperate in all material respects, as defined by the Facility, in compliancewith the Initial Plan. If the Company’s operations fail to comply with theInitial Plan in all material respects, the lenders could declare a default andrequire the Company to settle all amounts outstanding under the Facility andderivatives liability.  Because theCompany’s current projections indicate that cash flows and operating ratioswill exceed those in the Initial Plan, the Company believes that operationswill comply in all material respects with the Initial Plan.  However, the Company cannot predict whatactions the lenders might take if they deem that the Company is not in materialcompliance with the Initial Plan.

If an event of default occurs, the lenders could require immediatepayment of amounts outstanding under the Facility and settlement of thederivatives liability.  If such a demandwere successfully made, the Company would require additional debt or equityfinancing in order to satisfy its obligations. There is no assurance that theCompany would be able to obtain additional financing on acceptable terms, or atall.

Direct costs incurred in obtaining the Facility were deferred and willbe amortized to interest expense over the term of the facility. At March 31,2007 the unamortized balance of deferred financing costs related to theFacility was approximately $10.8 million.

*PowerLine Notes*

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

SC Tesa borrowed approximately $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 theaccounts of SC Tesa and recorded the note payable of $1.2 million on itsconsolidated books.

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*CapitalLeases and Other Financing Obligations*

During the three months ended March 31, 2007 the Company placed inservice $23.0 million of additional mining equipment to be used in strippingand mine production, and recorded the transaction as a capital lease, resultingin total capital lease obligations of $36.1 million at March 31, 2007. Duringthe three months ended March 31, 2007 the Company made payments ofapproximately $4.3 million related to capital lease obligations including $3.2million of upfront mobilization fees.

The Company has a 17-year contract with a third party to provide portservices following construction of port facilities in Mejillones, Chile.  Certain assets being constructed at the portwill be made available for the exclusive use of the Company, includingconcentrate reception, unloading, and storage facilities.  The Company has evaluated its contractualagreement with the company and has determined that such agreement contains aleasing arrangement with respect to the assets that will be operatedexclusively for the use of the Company. Following the guidance of EITF 97-10 the Company is deemed the owner ofthe project during construction. Accordingly, for the period ended March 31, 2007, the Company recordedon its balance sheet $12.1 million to construction in progress and a financingobligation of $9.9 million, which is net of $2.2 million of funds previouslyadvanced to the port contractor including interest.

**8.             Sales Contracts and DerivativeInstruments**

Certain covenants related to the project finance facility required theCompany to provide price protection for a portion of its planned production ofmetals from San Cristobal.  During thethird quarter of 2005, the Company entered into certain derivative positionsutilizing primarily forward sales but also puts and calls to comply with theproject finance facility covenants.  Inorder to maintain leverage to silver market prices, the Company entered intoproportionally more zinc and lead positions than silver positions. Non-cashmark-to-market gains and losses from the open derivative positions mayfluctuate substantially from period to period based on spot and forward pricesand option volatilities.

In addition, in the past the Company made limited investments inshorter duration put and call options and other metals derivatives not requiredby the project financing facility. During 2006, the Company liquidated all of its discretionary derivativecontracts. At March 31, 2007 the Company did not hold any derivative contractsother than those required by the project finance facility.

The Company marks its open derivative positions to fair value at theend of each accounting period with the related change in fair value recorded toearnings. The Company recorded a gain of $108.3 million as a result of markingto market its open derivative position for the quarter ended March 31, 2007compared to a mark to market derivative loss of $172.8 million for the samequarter of 2006.  The gain is primarilythe result of lower spot and forward prices for silver and zinc at March 31,2007 as compared to spot and forward prices at December 31, 2006. The actualfinal financial impact of the required project financing facility derivativepositions will not be known until the positions are closed on their futuresettlement dates.  The Company does notintend to use cash to settle the open derivatives position contracts relatingto the project financing facility prior to their settlement dates beginning inSeptember of 2007.  At the time of finalsettlement, the gain or loss recorded will exclude previously recognizednon-cash mark-to-market gains or losses.

As the result of the sale of a 35% interest in the subsidiary thatholds the derivative positions to Sumitomo, Sumitomo has guaranteed the paymentof 35% of the hedge positions required by the project finance facility throughcompletion (which is no later than December 2008).

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The following table sets forth the Company’s open derivative positionsat March 31, 2007.
| ** **                         | ** ** | **Current Maturity Date** | ** ** |
|------------------------------------|------------|-------------------------------------|------------|
| ** **                         | ** ** | **Year 1**                     | ** ** | **Years 2 and 3** | ** ** | **Years 4 and 5** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| **Forward  Contracts**             |       |                                |       |   |   |   |   |   |   |   |   |
| Silver (000 ounces)                |       | 110                                 |       | 160 |   | 180 |   | 140 |   | 590 |   |
| Average price (per ounce)          |       | $                                   | 7.40       |   | $ | 7.15 |   | $ | 7.14 |   | $ | 7.13 |   | $ | 7.19 |   |
|                               |       |                                |       |   |   |   |   |   |   |   |   |
| Zinc (000 pounds)                  |       | 65,918                              |       | 466,269 |   | 243,609 |   | — |   | 775,796 |   |
| Average price (per pound)          |       | $                                   | 0.48       |   | $ | 0.48 |   | $ | 0.48 |   | $ | — |   | $ | 0.48 |   |
|                               |       |                                |       |   |   |   |   |   |   |   |   |
| Lead (000 pounds)                  |       | 67,569                              |       | 239,087 |   | 16,314 |   | — |   | 322,970 |   |
| Average price (per pound)          |       | $                                   | 0.30       |   | $ | 0.30 |   | $ | 0.28 |   | $ | — |   | $ | 0.30 |   |
|                               |       |                                |       |   |   |   |   |   |   |   |   |
| **Put  Option Contracts Owned**    |       |                                |       |   |   |   |   |   |   |   |   |
| Silver (000 ounces)                |       | 300                                 |       | 1,760 |   | 4,455 |   | 2,585 |   | 9,100 |   |
| Average price (per ounce)          |       | $                                   | 5.25       |   | $ | 5.60 |   | $ | 5.82 |   | $ | 5.88 |   | $ | 5.78 |   |
|                               |       |                                |       |   |   |   |   |   |   |   |   |
| **Call  Option Contracts Written** |       |                                |       |   |   |   |   |   |   |   |   |
| Silver (000 ounces)                |       | —                              |       | 8,285 |   | 1,380 |   | 135 |   | 9,800 |   |
| Average price (per ounce)          |       | $                                   | —     |   | $ | 8.20 |   | $ | 8.98 |   | $ | 8.95 |   | $ | 8.32 |   |
|                               |       |                                |       |   |   |   |   |   |   |   |   |
| Zinc (000 pounds)                  |       | 2,205                               |       | 11,574 |   | — |   | — |   | 13,779 |   |
| Average price (per pound)          |       | $                                   | 0.57       |   | $ | 0.57 |   | $ | — |   | $ | — |   | $ | 0.57 |   |
|                               |       |                                |       |   |   |   |   |   |   |   |   |
| Lead (000 pounds)                  |       | 4,409                               |       | 23,148 |   | — |   | — |   | 27,557 |   |
| Average price  (per pound)         |       | $                                   | 0.39       |   | $ | 0.39 |   | $ | — |   | $ | — |   | $ | 0.39 |   |

The Company determines the fair value of its open derivative positionsby applying market values obtained from the counterparties holding the Company’sderivative positions.  The Companyindependently verifies that the values received from the counterparties arebased on major commodities price indices such as the LME and COMEX and otheravailable market data.

The following table sets forth the fair value of the Company’s openderivative positions based on indices such as the LME and COMEX and valuationsfrom counterparties holding the Company’s derivative positions at March 31,2007 and December 31, 2006 and the change for the quarter ended March 31, 2007.
| ** **            | ** ** | **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 | ) |

**9.             Asset Retirement Obligations**

The Company has developed an asset retirement plan for its SanCristobal Project which is currently under construction and is expected tobegin producing in the third quarter of 2007. The plan includes estimatedreclamation, remediation and closure requirements based on Bolivian governmentrequirements, World Bank financing requirements and the Company’spolicies.  Beginning in the third quarterof 2005 the Company has been conducting activities at its San Cristobal Projectincluding earthworks, plant construction and mining activities that fall withinthe scope of the asset retirement plan and as such will require futurereclamation and closure expenditures.

The Company prepares estimates of the timing and amount of expectedcash flows when an asset retirement obligation (“ARO”) is incurred. The fairvalue of the ARO is measured by discounting the expected cash flows using adiscount factor that reflects the credit-adjusted risk-free rate of interest.The 

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Company records the fair value of an ARO when it is incurred andchanges in the fair value of the ARO are recorded as an adjustment to thecorresponding asset carrying amounts. The ARO is adjusted to reflect thepassage of time (accretion cost) calculated by applying the discount factorimplicit in the initial fair-value measurement to the beginning-of-periodcarrying amount of the ARO. The Company records accretion costs to expense asincurred.

The following table reconciles the beginning and ending balance for theCompany’s asset retirement obligations:

|                                 | ** ** | **The Three Months Ended  March 31, 2007** | ** ** | **The Year Ended  December 31, 2006** | ** ** |
|---------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                      | ** ** | **(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               |       | 139                                                                 |       | 391                                                       |       |
| Ending balance                  |       | $                                                                   | 6,053      |                                                      | $          | 5,761 |   |

**10.          Income Taxes**

The Company and certain of its subsidiaries operating in the CaymanIslands do not file income tax returns as the Cayman Islands currently does notimpose any income taxes.  The Companyfiles Bolivian, United States and certain other foreign country income taxreturns.  These tax returns and theamount of taxable income or loss reported are subject to examination by therelevant taxing authorities.  The Companyand subsidiaries have not generated taxable income since inception.  For the first quarter 2007 and 2006 theCompany recorded approximately $0.1 million and $0.1 million of income taxexpense related to withholding taxes on certain services provided to one of ourBolivian subsidiaries.

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

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

Tax years as early as 2001 remain open and are subject to examinationin the Company’s principal tax jurisdictions. Management has estimated that unrecognized tax benefits will notsignificantly increase or decrease within the next twelve months.  There is no interest or penalties estimatedon the underpayment of income taxes as a result of these unrecognized taxbenefits.  The Company’s policy is toclassify tax related interest and penalties as income tax expense.

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**11.          Shareholders’ Equity (Deficit)**

The following table sets forth the changes in shareholders’ equityduring the first three months of 2007:
| ** **                                        | ** ** | **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** | ** ** |

*StockOption Plans* — The Company established a plan to issueshare options and other share awards for officers, employees, consultants andagents of the Company and its subsidiaries as well as a share option plan forits non-employee directors (the ‘‘Plans’’).

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

A summary of the Company’s stock options issued under the Plans atMarch 31, 2007 and changes during the three months then ended is presented inthe following table:

| 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      |   |

The fair value of each option award is estimated on the date of grantusing the Black-Scholes option-pricing model.

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A summary of the status of the Company’s non-vested restricted stockgrants issued under the plans at March 31, 2007 and changes during the threemonths then ended is presented in the following table:

| Non-vested Shares             | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Grant Date  Fair Value  Per Share** | ** ** |
|------------------------------------|------------|----------------------------|------------|-----------------------------------------------------------------------------|------------|
| Non-vested at  beginning of period |       | 223,575                    |       | $                                                                           | 17.30      |   |
| Granted during  period             |       | 37,200                     |       | $                                                                           | 12.98      |   |
| Vested during  period              |       | (16,025                    | )          | $                                                                           | 18.05      |   |
| Forfeited during  period           |       | (4,050                     | )          | $                                                                           | 17.18      |   |
| Nonvested at end of  period        |       | 240,700                    |       | $                                                                           | 16.60      |   |

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

The Company has granted stock-based performance bonuses under the Planto certain employees, related to cost targets and completion date targets forthe construction of the San Cristobal Project. The Company may be required to issue up to 26,000 shares with a grantdate fair market value of $15.21 per share upon completion of the San Cristobalproject. The fair value of each performance bonus grant was based on theclosing price of the Company’s shares on the date of grant.

**12.          Minority Interest**

*Sumitomo Corporation*

During 2006 the Company sold to Sumitomo a 35% interest in three of theCompany’s subsidiaries that own its San Cristobal Project, market Projectconcentrates and hold the metals hedge positions required by the Projectlenders. The Company continues to own 65% of these three subsidiaries.

Subsequent to the close of the transaction with Sumitomo, the Companyincurred certain losses during 2006, primarily related to marking to market itsopen derivative positions required by the project finance facility.  Such losses would normally be shared bySumitomo in proportion to its 35% interest in the subsidiary recording thelosses.  However, generally acceptedaccounting principles do not permit the allocation of losses to the minorityinterest in 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 Sumitomo have each guaranteedtheir respective share of the project finance obligations and the relatedmetals derivative positions through the completion of the San Cristobal Projectat which time the guarantees will terminate and the lenders’ recourse will besolely to the project.  Since thederivative positions are expected to be funded through future earnings from theSan Cristobal project, the Company does not anticipate that Sumitomo will berequired to fund their proportionate interest in the mark-to-market lossesprior to the completion of the San Cristobal project.  Accordingly, at December 31, 2006 the Companyreduced the minority interest balance on its consolidated balance sheetsrelated to Sumitomo to $0 and absorbed approximately $98.8 million of non-cashlosses that normally would have been allocated to Sumitomo.

During the first quarter 2007 the Company recorded net income of $112.0million primarily related to the mark to market gain recorded on the openderivative positions required by the project finance facility.  The net income includes a $42.2 millionportion of the gain that would normally be allocated to Sumitomo’s minorityinterest position.  In addition Sumitomocontributed $4.6 million during the quarter ended March 31, 2007 to fund itsshare of certain excess costs related the San Cristobal project.  Sumitomo’s additional funding, interestreceivable from the Company and share of the gain retained by the Companyreduced the $98.8 million of losses previously absorbed by the Company to $52.0million at March 31, 2007.  The Companyanticipates recovering the remaining $52.0 million of losses it absorbed, andany additional losses it may absorb related to Sumitomo’s minority interest,from future earnings prior to the allocation of earnings to Sumitomo or fromfuture contributions by Sumitomo.

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*SC Tesa*

During 2005 the Company entered into a long-term contract with SC Tesato construct a power line and transport power to the San Cristobal project fromthe Bolivian power grid. The Company has loaned SC Tesa $22.3 million toconstruct the power line which will be repaid through credits against chargesfor the delivery of power (see Note 7). Per the guidance of FIN 46R the Company fully consolidates the accountsof SC Tesa.

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

**13.          Commitments and Contingencies**

*Escrow Amounts*— At March 31,2007 the Company had $4.0 million in an escrow account to provide for certainrequirements related to the development of the port facility for the SanCristobal project and recorded the amount as restricted cash.

*Project Financing* — Per theterms and conditions of the San Cristobal project finance facility the Companywas required to deposit cash and investments in an account the use of which isrestricted to the development of the San Cristobal project. At March 31, 2007the remaining balance in the account was $29.0 million of which $6.2 millionwas recorded to restricted cash and $22.8 million recorded to restrictedinvestments.

*Capital Commitments* — TheCompany will be required to spend approximately $120 million to completeconstruction of its San Cristobal project which is scheduled to beginproduction in the third quarter of 2007.

*Taxes*— The Company isreceiving certain tax and duty benefits on a portion of the equipment it isimporting for its San Cristobal project. The benefits are contingent uponfulfilling certain expenditure commitments within a specified period of timeand returning certain equipment off shore within a specified period of time.Failing to comply with these commitments would obligate the Company to refundthe benefits received.

*Performance*Bonus — TheCompany may be required to pay up to an estimated $4.0 million bonus to the SanCristobal Project construction management contractor contingent upon certainproject completion parameters and a $2.3 million bonus to the companyconstructing the port facilities for early completion of the facilities. Basedon the project status at March 31, 2007 the Company believes it is probablethat it will be required to pay the construction management contractor aportion of the bonus up to $1.3 million and the company constructing the portfacilities a bonus amount up to $2.3 million and has accrued those amounts atMarch 31, 2007 with the offset recorded to construction in progress.

*Political Contingencies*— TheCompany continues to monitor the political uncertainties in Bolivia resultingfrom the Bolivian government’s renegotiation of agreements with oil and gasproducers and statements regarding possible changes in current policiesaffecting the mining industry.  If theSan Cristobal Project were nationalized, or if taxes were substantiallyincreased or significant royalty payments imposed, the Company might be unableto recover its investment in the project and could have substantial liabilitiesincluding liabilities to the lenders under the project finance facility andliabilities to counterparties holding the metals derivative positions requiredby the project lenders.  In addition,changes in Bolivian law may have an adverse effect on the Company’s ability torecover the VAT receivable (see Note 5).

InMay 2006, the Constitutional Court of Bolivia issued a ruling declaring certainarticles of the 1997 Mining Code unconstitutional.  The Court’s ruling is not effective until May2008 and the Court urged the Bolivian Congress to enact legislation during thattime which may supersede the ruling. Although the 

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Court’s ruling isnot expected to impact our ability to operate the San Cristobal project, theruling may limit the transferability of our mining concessions and restrict ourability to mortgage our San Cristobal mining concessions as collateral to thelenders providing financing for the project.

*Other Contingencies* — Aspreviously disclosed, the Company has concluded, based on the results of aninternal investigation conducted under the direction of our Audit Committee,that certain senior employees of one of our South American subsidiaries wereinvolved in making impermissible payments of approximately $125,000 togovernment officials in 2003 and 2004 in connection with an inactive, earlystage exploration property that is not related to any of our active explorationor development properties.  Based onfindings to date, no changes to our previously filed financial statements arewarranted as a result of these matters. We have contacted the Department of Justice (“DOJ”) and SEC and reportedthe results of our internal investigation. We have been informed that the SEC and DOJ have commenced aninvestigation with respect to these matters, including possible violations ofthe Foreign Corrupt Practices Act.  Weare cooperating fully with the SEC and DOJ investigations. We cannot predictwith any certainty the final outcome of the investigations, including any finesor penalties that may be imposed.

**14.          Foreign Currency**

Gains and losses on foreign currency derivatives and transactions consistof the following:
| ** **                                                                             | ** ** | **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 |   |

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

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**15.          Supplementalcash flow information**

The following table reconciles net loss for the period to cash fromoperations:
| ** **                                                                                  | ** ** | **Three Months Ended  March 31,** | ** ** | **For the period  from December  22, 1994  (inception)  through  March 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2007**                                         | ** ** | **2006**                                                                                              | ** ** | **2007** | ** ** |
| ** **                                                                                  | ** ** | **(in thousands)**                          | ** ** |
| Cash flows from  operating activities:                                                      |       |                                             |       |                                                                                                  |       |   |   |
| Net gain (loss)                                                                             |       | $                                                | 111,979    |                                                                                                  | $          | (174,412 | ) | $ | (661,360 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:                |       |                                             |       |                                                                                                  |       |   |   |
| Amortization and depreciation                                                               |       | 114                                              |       | 92                                                                                                    |       | 1,913 |   |
| Amortization of deferred financing costs                                                    |       | —                                           |       | 552                                                                                                   |       | 3,134 |   |
| Accretion of asset retirement obligation                                                    |       | 139                                              |       | 48                                                                                                    |       | 545 |   |
| Amortization of premiums and discounts                                                      |       | (58                                              | )          | (439                                                                                                  | )          | (2,111 | ) |
| Mark-to-market (gain) loss on derivative positions                                          |       | (108,306                                         | )          | 172,818                                                                                               |       | 758,820 |   |
| Loss (gain) on Euro hedge                                                                   |       | —                                           |       | —                                                                                                |       | (534 | ) |
| Gain on extingushment of debt                                                               |       | —                                           |       | (2,875                                                                                                | )          | (9,640 | ) |
| Gross gain on sale of interest in subsidiary                                                |       | —                                           |       | —                                                                                                |       | (199,600 | ) |
| Minority interest in loss of consolidated subsidiary                                        |       | (4,930                                           | )          | 7                                                                                                     |       | (18,268 | ) |
| Stock compensation                                                                          |       | 707                                              |       | 1,098                                                                                                 |       | 19,884 |   |
| Shares issued in consideration for services                                                 |       | —                                           |       | —                                                                                                |       | 8,585 |   |
| Shares issued to purchase mineral rights                                                    |       | —                                           |       | —                                                                                                |       | 1,799 |   |
| Changes in operating assets and liabilities:                                                |       |                                             |       |                                                                                                  |       |   |   |
| (Increase) decrease in accrued interest receivable                                          |       | 244                                              |       | (152                                                                                                  | )          | (1,164 | ) |
| (Increase) decrease in prepaid expenses and other  assets net of amounts capitalized        |       | 1,732                                            |       | (592                                                                                                  | )          | (2,602 | ) |
| (Increase) in inventories                                                                   |       | (8,759                                           | )          | (3,620                                                                                                | )          | (36,431 | ) |
| Increase in value added tax recoverable (net)                                               |       | (9,456                                           | )          | (6,011                                                                                                | )          | (63,614 | ) |
| Increase in accrued interest payable net of amounts capitalized                             |       | —                                           |       | (117                                                                                                  | )          | 1,680 |   |
| Increase (decrease) in accounts payable and accrued liabilities  net of amounts capitalized |       | 193                                              |       | 1,074                                                                                                 |       | 4,830 |   |
| Other increase (decrease)                                                                   |       | (72                                              | )          | 418                                                                                                   |       | 57 |   |
| Net cash used in  operating activities                                                      |       | $                                                | (16,473    | )                                                                                                     | $          | (12,111 | ) | $ | (194,077 | ) |

 

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

|                                                            | ** ** | **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 |   |

**16.          Subsequent Events**

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

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

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

**General**

The following discussion and analysis summarizes theresults of operations of Apex Silver Mines Limited (“Apex Silver” or “we”) forthe three month period ended March 31, 2007 and changes in our financialcondition from December 31, 2006.  Thisdiscussion should be read in conjunction with the Management’s Discussion andAnalysis included in our Annual Report on Form 10-K for the period endedDecember 31, 2006.

Apex Silver is a mining exploration and developmentcompany that holds a portfolio of exploration and development propertiesprimarily in South America and Central America. We currently focus ourresources primarily on the development of our San Cristobal Project in Bolivia.At present, none of our properties are in production and, consequently, we haveno current operating income.

**Overview**

Development of San Cristobal

Construction of our San Cristobal Project insouthwestern Bolivia is substantially complete. All of the engineering has been completed and all of the majormechanical equipment has been installed. We are in the process of commissioning and testing the processing plantincluding the crushing, conveying, grinding and flotation circuits. The railspur and the port facilities are substantially completed and we expect theywill be available to handle concentrates which we anticipate to begin shippingfrom San Cristobal in the third quarter 2007 with the first sale ofconcentrates also scheduled for the third quarter of 2007.

We continue mining ore at the San Cristobal Projectand at March 31, 2007 we had stockpiled approximately 9.9 million tonnes ofwork-in-process ore inventories recorded at a cost of approximately $33.4million. Work-in-process inventories include ore produced and stockpiled forwhich further processing is necessary before a product is ready for sale.  Work-in-process inventories at March 31,2007, are comprised of 2.6 million tonnes of sulfide ores and 7.3 million tonnesof oxide ores. The sulfide ores will be processed through the San Cristobalmill first with the oxide ores scheduled for processing later in the minelife.  Final processing ofwork-in-process ore inventories to a saleable product is scheduled to begin duringthe third quarter of 2007.

Financing and Commodity Derivatives  Matters

During the first quarterof 2007 we borrowed $20 million under the $225 million San Cristobal projectfinance facility (the “Facility”) and during May 2007 we borrowed an additional$20 million bringing the total borrowings against the facility to $220million.  Pursuant to the covenantscontained in the facility, we are required annually to submit a revisedConstruction Budget, Operating Plan, and Financial Model (collectively the “UpdatedPlan”) for the San Cristobal project by November 1.  We are currently operating under theConstruction Budget, Operating Plan, and Financial Model initially approved bythe lenders when the facility was entered into (the “Initial Plan”) which remainsin 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 pricesfor silver, zinc and lead that are lower than recent spot prices.  The Updated Plan also reflected higheroperating costs than previously assumed primarily as a result of the impact ofrecord high commodity prices including costs for diesel fuel, reagents, andtires.  The low metals prices required bythe facility coupled with higher current operating costs resulted in projectedcash flow that would be insufficient to meet certain other Facilityrequirements, including minimum cash flows and debt service coverage ratiosrequired after completion.  In January2007, the lenders rejected the Updated Plan.

We continue to work withthe Facility lenders to arrive at mutually agreeable terms to amend theagreements and allow us to use higher metals prices in the Updated Plan.  The lenders have proposed higher metalsprices than those contained in the terms of the Facility.  The higher prices will allow us to present anUpdated Plan that will meet the Facility’s financial requirements.  The lenders have also 

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

We and Sumitomo haveaccepted these proposals and amendments to the facility agreements and anUpdated Plan for submission to the lenders are being prepared.  Once the amendments to the agreements andUpdated Plan are complete, an affirmative vote by the lenders is required for finalapproval.  At the date of this filing,formal approval of the amendments to the agreements and the Update Plan by therequisite number of lenders has not yet been obtained.  While there can be no assurances that lenderapproval will be obtained, we believe the necessary amendments and the UpdatedPlan will be approved by the requisite number of lenders.

If the amendments and theUpdated Plan are not approved by the lenders, or until such time as approval isobtained, we would be required to operate in all material respects, as definedby the Facility, in compliance with the Initial Plan. If our operations fail tocomply with the Initial Plan in all material respects, the lenders coulddeclare a default and require us to settle all amounts outstanding under theFacility including the derivatives liability. Because our current projections indicate that cash flows and operatingratios will exceed those in the Initial Plan, we believe that operations willcomply in all material respects with the Initial Plan.  However, we cannot predict what actions thelenders might take if they deem that we are not in material compliance with theInitial Plan.

For the quarter endedMarch 31, 2007, we recorded a $108.3 million gain as a result ofmarking-to-market our open derivative positions established pursuant to therequirements of the project financing facility. The gain is the result of lowerspot and forward prices for silver, zinc and lead at March 31, 2007 as comparedto spot and forward prices at December 31, 2006.  During the periods that the metals derivativepositions are outstanding, gains and losses may fluctuate substantially fromperiod to period based on spot prices, forward prices and quoted optionvolatilities. The actual final financial impact of the required projectfinancing facility derivative positions will not be known until the positionsare closed on their future settlement dates. We do not intend to use cash to settle the open derivatives positionsprior to their settlement dates beginning in September of 2007.  At the time of final settlement, the gain orloss recorded will exclude previously recognized non-cash mark-to-market gainsor losses.

Political Matters inBolivia

Atvarious times since his election, President Morales and others in hisadministration have made public statements regarding their desire to exertgreater state control over natural resource production in Bolivia.  In addition, the Bolivian government iscurrently considering various changes to applicable mining taxes, which wouldhave the effect of increasing the overall tax burden on the San Cristobalproject.  At present, various ideas havebeen proposed by government officials and others, but there is no legislationpending.  Should these changes occur, theprofitability of the San Cristobal project may be adversely effected.

OnMay 1, 2007 PresidentMorales issued a Supreme Decree declaring a Mining Fiscal Reserve over theentire Bolivian national territory to include all mineral resources, grantingthe Bolivian Mining Corporation (COMIBOL) the authority and right to administerand exploit the Fiscal Reserve.  TheSupreme Decree provides that mining concessions granted prior to enacting theSupreme Decree, which includes the San Cristobal mining concessions, will berespected and will remain in effect.

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**Results of Operations**

ThreeMonths Ended March 31, 2007

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

*Administrative.*  Administrative expense of $6.3 million forthe first quarter 2007 is comparable to $5.3 million for the first quarter2006.  Administrative expenses areincurred primarily by our corporate headquarters and consist primarily ofcompensation costs, professional fees paid for accounting and legal services,office and equipment lease costs and other general costs. Administrative costsare incurred supporting the areas of finance, compliance, marketing and otheradministrative requirements including the indirect support of the financing,development and other requirements of our San Cristobal Project.

*Gains and Losses - CommodityDerivatives*.  For thefirst quarter of 2007 we recorded a gain related to our metals derivativepositions in the amount of $108.3 million compared to a loss of $172.8 millionon our derivative positions for the first quarter of 2006. The 2007 gain is theresult of marking-to-market our open derivative positions based on lower spotand forward prices for silver, zinc and lead at March 31, 2007 as compared to spotand forward prices at December 31, 2006. The 2006 loss is the result of marking-to-market our open derivativepositions based on higher spot and forward prices for silver, zinc and lead atMarch 31, 2006 as compared to spot and forward prices at December 31, 2005.During the periods that the metals derivative positions are outstanding, gainsand losses may fluctuate substantially from period to period based on spotprices, forward prices and quoted option volatilities. (See “Overview” foradditional discussion of the first quarter 2007 derivative gain).

*Interest and other income.* Werecorded interest and other income of $6.8 million for the first quarter 2007as compared to $2.9 million recorded during the first quarter 2006.  The 2007 increase in interest and otherincome, as compared to 2006 was the result of the increased interest we earnedon the higher average cash and investment balances that we held during thequarter resulting from the proceeds received from the Ordinary Share offeringcompleted during the second quarter 2006 and the proceeds from the sale of a35% interest in our San Cristobal project in September 2006.  Available interest rates were also higher forthe first quarter 2007 as compared to the same period of 2006.

*Royalty Income.* Duringthe first quarter 2007, we received $0.3 million of royalty income from aproperty in Mexico on which we retained a net smelter return royalty.  The property is being test mined by a jointventure partner and we received royalties for product sold from the test miningoperation. We did not receive any such royalties for the quarter ended March31, 2006.

*Interest expense and other borrowing costs.*  We recognized no interest expense and otherborrowing costs during the first quarter 2007 as the total $10.8 million ofthose costs was capitalized.  During thefirst quarter 2006 we recognized $0.5 million of interest expense and otherborrowing costs which were net of approximately $4.3 million capitalized.Interest costs for both periods are primarily related to the Convertible SeniorSubordinated Notes Due 2024 and the project finance facility.

*Income Taxes*.   For both the first quarter 2007 and 2006 werecorded nominal amounts of income tax expense consisting solely of withholdingtaxes on inter-company investment income and administrative charges associatedwith one of our Bolivian subsidiaries.

**Liquidity and Capital Resources**

At March 31, 2007, our aggregate cash, restrictedcash, short and long-term investments and restricted investments totaled $450.0 millioncompared to an aggregate of $514.9 million in cash, restricted cash, short andlong-term investments and restricted investments at December 31, 2006.  The amounts held at March 31, 2007 include$147.8 million in cash and cash equivalents, $256.2 million ininvestments, $6.2 million of cash and $22.8 million of investments that arerestricted to fund development at our San Cristobal project, $4.0 million ofcash restricted to develop the port facility, $10.4 million of investments tocollateralize certain letters of credit and $2.8 million of investments thatare restricted and at maturity will provide the amounts necessary to payinterest through September 2007 on the 4.0% Convertible Senior SubordinatedNotes Due 2024.

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As of March 31, 2007, we had cash and cash equivalentsof $147.8 million, compared to $49.8 million at December 31, 2006.  The increase in our cash balance at March 31,2007 is primarily the result of $20.0 million of borrowings against the projectfinance facility, $0.5 million of proceeds from employee stock optionsexercised, $4.6 million contributed by Sumitomo as their share of a fundingrequirement for the San Cristobal Project, $21.8 million of restricted cashreleased and a net $141.0 million of investments liquidated during the period.The increases in our cash balances were all partially offset by $69.0 millioninvested in property, plant and equipment related to the development of the SanCristobal Project, $16.4 million used to fund operations, property holding costsand administrative costs, net of interest and other income and payments on longterm debt (primarily capital lease payments) of $4.5 million.

During the remainder of 2007, we and Sumitomo expectto spend approximately $120 million on the San Cristobal Project, representingthe remainder of the approximately $650 million total project cost estimate,plus an additional $40 million of working capital.  These cash requirements will be funded fromthe restricted cash and the liquidation of restricted investments held by theproject and set aside for this purpose and drawing the remaining fundsavailable from the project financing facility. We anticipate funding our 65% share of any additional requirements fromour existing cash and investments with Sumitomo funding the remaining 35%. Inaddition, for the remainder of the year we expect to spend approximately $12million on general corporate costs, $11 million on exploration efforts andapproximately $10 million on interest payments related to the outstanding convertibledebt.  We plan to fund these expendituresfrom our existing cash and investment balances and from interest and otherincome.  In addition, as a result of ournegotiations with the project finance facility lenders discussed above, we maybe required to deposit approximately $91 million in a restricted fixedmargin account during the second quarter of 2007 as security for the metalsderivative positions. We expect operating cash flows to begin during the thirdquarter of 2007.

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

**Significant Accounting Policies**

Effective January 1, 2007, we adopted FinancialAccounting Standards Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes,” (“FIN 48”), an interpretation of Financial Accounting StandardsStatement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. Fin 48 requires that we recognize in our financial statements theimpact of uncertain tax positions. FIN 48 also provides guidance onde-recognition, classification, interest and penalties, accounting in interimperiods and disclosure. The adoption of FIN 48 did not have a material impacton our financial position or results of operations.

*NewAccounting Standards*

During February 2007 the Financial AccountingStandards Board (“FASB”) issued Financial Accounting Standards No. 159 “TheFair Value Option for Financial Assets and Financial Liabilities-Including anamendment of FASB Statement No. 115” (“FAS No. 159”). FAS No. 159 permitsentities to choose to measure many financial instruments and certain otheritems at fair value. Most of the provisions of FAS No. 159 apply only toentities that elect the fair value option. However, the amendment to FASB Statement No. 115, Accounting for CertainInvestments in Debt and Equity Securities, applies to all entities withavailable-for-sale and trading securities. FAS No. 159 is effective as of the beginning of the first fiscal yearthat begins after November 15, 2007, or fiscal year 2008 for us.  We do not expect the adoption of FAS No. 159to have a material impact on our financial position or results of operations.

During September 2006 the FASB issued FinancialAccounting Standards No. 157 “Fair Value Measurements” (“FAS No. 157”). FAS No.157 defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles (GAAP), and expands disclosures aboutfair value measurements. This Standard addresses how companies should measurefair value when they are required to use a fair value measure for recognitionor disclosure purposes under U.S. GAAP. Accordingly, this Standard does notrequire any new fair value measurements. FAS No. 157 is effective for financial

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statements issued for fiscal years beginning after November 15, 2007,and interim periods within those fiscal years. We do not expect the adoption ofFAS No. 157 to have a material impact on its financial position or results ofoperations.

## **Contractual Obligations**

As discussed above, at March 31, 2007 we will berequired to spend an additional approximately $120 million to bring our SanCristobal project into production which we expect to begin in the third quarterof 2007.

During the three months ended March 31, 2007 we increasedour borrowings against the $225 million project finance facility by $20 millionand subsequent to March 31, 2007 we borrowed an additional $20 million bringingto $220 million total borrowings under the facility. In addition during thethree months ended March 31, 2007 we placed in service $23.0 million ofequipment recorded as capital leases resulting in total capital leaseobligations of $36.1 million at March 31, 2007.

## **Forward-Looking Statements**

Some information contained in or incorporated by referenceinto this report may contain forward-looking statements. These statementsinclude comments regarding San Cristobal development and construction plans,capital and other costs, funding and timing; the timing of completion of SanCristobal construction, start-up and commencement of operations; anticipatedspending during 2007; increased funding requirements, capital costs and workingcapital requirements for the San Cristobal Project; Contractual arrangementswith Sumitomo, including Sumitomo’s obligations with respect to fundingcommitments; the likely increased volatility in future earnings due to forwardsales, derivative positions and metals trading activity; compliance with andanticipated amendments to the San Cristobal Project finance facility; anticipatedSan Cristobal production and the timing and amounts of spending on theevaluation and expansion of our exploration portfolio. The use of any of thewords “anticipate,” “continues,” “estimate,” “expect,” “may,” “will,” “project,”“should,” “believe” and similar expressions are intended to identifyuncertainties.  We believe theexpectations reflected in those forward-looking statements are reasonable.  However, we cannot assure that theseexpectations will prove to be correct. Actual results could differ materially from those anticipated in theseforward-looking statements as a result of the factors set forth below and otherfactors set forth in, or incorporated by reference into this report:

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

·                                          politicalunrest and economic instability in Bolivia including the communities locatednear the San Cristobal Project and other countries in which we conductbusiness;

·                                          futureactions of the Bolivian government with respect to nationalization of naturalresources or other changes in the mining or taxation policies of the Boliviangovernment;

·                                          volatilityin market prices for silver, zinc and lead;

·                                          financialmarket conditions;

·                                          uncertaintiesassociated with developing a new mine, including potential cost overruns andthe unreliability of production and cost estimates in early stages of minedevelopment;

·                                          variationsin ore grade and other characteristics affecting mining, crushing, milling andsmelting operations and mineral recoveries;

·                                          geological,technical, permitting, mining and processing problems;

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

·                                          failureto reach agreement with Sumitomo Corporation regarding future development oroperation of San Cristobal, or failure to comply with agreements with Sumitomorelated to the San Cristobal Project;

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

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·                                          thefactors discussed under “Risk Factors” in our Form 10-K for the period endedDecember 31, 2006.

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

## **Item 3.    Quantitativeand Qualitative Disclosures About Market Risk**

## **Interest Rate Risk**

Our outstanding debt consists primarily of our 4.0%and 2.875% Convertible Senior Subordinated Notes due 2024 and amounts borrowedunder our San Cristobal project finance facility.  The Convertible Senior Subordinated Notesbear interest at a fixed rate and thus do not have exposure to interest ratechanges.  The project finance facilitybears interest at the LIBOR rate plus a credit spread.  As of the date of this filing, we hadborrowed $220 million under the facility. Assuming the full $225 million wasborrowed under the facility, a 1% increase in the LIBOR rate would result in anannual increase in interest expense of $2.25 million.  We have not entered into any agreements tohedge against unfavorable changes in interest rates, but may in the futuremanage our exposure to interest rate risk.

We invest excess cash in U.S. government and debtsecurities rated “investment grade” or better. The rates received on such investments may fluctuate with changes ineconomic conditions. As a result, our investment income may fall short ofexpectations during periods of lower interest rates.  Based on the average cash, restricted cash,investments and restricted investment balances outstanding during the firstthree months of 2007, a 1% decrease in interest rates would have resulted in areduction in interest income for the period of approximately $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 aredenominated in Bolivianos, Euros or other currencies.  As a result, currency exchange fluctuationsmay impact the costs of our operations. Specifically, the appreciation of Bolivianos against the U.S. dollar mayresult in an increase in operating expenses and capital costs at the SanCristobal project in U.S. dollar terms. To reduce this risk, we maintain minimum cash balances in all foreigncurrencies, including Bolivianos, and complete most of our purchases, includingpurchases relating to the San Cristobal project, in U.S. dollars.

We have previously engaged in a limited amount ofcurrency hedging activities primarily related to an equipment order for the SanCristobal project that was denominated in Euros.  At March 31, 2007 we did not hold any foreigncurrency 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 beginsproduction, our primary source of income will be from sales of concentratescontaining silver, zinc and lead.  As aresult, changes in the price of any of these commodities could significantlyaffect our results of operations and cash flows.

To complete the San Cristobal project financefacility, we were required to implement price protection for a portion of ourplanned silver, zinc and lead production from San Cristobal.  We haveentered into contracts utilizing forward sales, puts and calls.  Non-cashmark-to-market gains and losses from these and other derivative positions mayfluctuate substantially from period to period based on spot and forward pricesand option volatilities.  The actual final financial impact of thederivative positions required by the project financing facility will not beknown until the positions are closed on their future settlement dates. Our outstanding derivative positions represent 4%, 13% and 17% of plannedlife-of-mine payable production of silver, zinc and lead at San Cristobal butrepresent a significantly higher proportion of our planned production duringthe six years in which the derivative positions are in place.   For the first six years of production, wehave hedged approximately 10%, 24% and 32% of planned production of silver,zinc and lead, respectively.

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During the first quarter of 2007 we recorded anon-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-cashmark-to-market losses of $672.5 million on our open derivative positions. As of March 31, 2007 the fair value of our open derivative positions reflecteda $709.9 million liability.  Non-cashmark-to-market gains and losses from the open derivative positions havefluctuated substantially from period to period based on spot and forward pricesand option volatilities and will most likely continue to do so as long as thederivative positions are outstanding. See “Management’s Discussion and Analysisof Financial Condition and Results of Operations — Results of Operations”.

Related to certain pending amendments to the projectfinance facility agreement as discussed above, we and Sumitomo have agreed topurchase put options to protect additional cash flow needed for the acceleratedloan schedule.

# **Item 4.Controls and Procedures**

(a)           Disclosure Controlsand Procedures

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in the reportswe 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’srules and forms, and that such information is accumulated and communicated toApex Silver’s management, including its Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

As of the end of the period covered by this report, wecarried out an evaluation, under the supervision and with the participation ofour Disclosure Committee and management, including the Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures pursuant to Exchange Act Rule13a-15(e) under the Securities Exchange Act of 1934.  Based upon this evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that as a result of theunremediated material weakness related to loan covenant compliance discussedbelow, our disclosure controls and procedures were not effective as of the endof the period covered by this report.

(b)           Change in InternalControl over Financial Reporting

Apex Silver’s management is responsible forestablishing and maintaining adequate internal control over financial reportingas defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  Our internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles(GAAP).  Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with policies and procedures may deteriorate.

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

·                  Restatement of the our 2005 annualconsolidated financial statements; interim consolidated financial statementsfor the quarter ended September 30, 2005 and for each of the first threequarters of 2006 as a result of adjusts to the balances of our derivativeliabilities, gain on the sale of an interest in subsidiaries, minority interestin subsidiaries, minority interest in loss of 

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consolidated subsidiariesand the accumulated deficit accounts as a result of reassessing availablemarket data in the valuation of its metals derivatives.

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

Throughout the first quarter of 2007, we have beenactively engaged in the implementation of remediation efforts to address thetwo material weaknesses described above. As of March 31, 2007, thematerial weakness relating to the controls over the valuation of the metalsderivatives positions had been remediated, but the material weakness relatingto the controls over the monitoring of compliance with certain covenantsrelated to our project finance facility had not been remediated.

We have implemented the following controls andprocedures to remediate the material weakness relating to the valuation of ourmetals derivatives positions:

·                  We have implemented controls toaccurately determine the fair value of its open derivative positions byapplying market values obtained from the counterparties holding our derivativepositions.  We use independent valuationexperts to verify that the values received from the counterparties are based onmajor commodities price indices such as the LME and COMEX and other availablemarket data.

Based upon the action taken and evaluation of theeffectiveness of the controls, we have concluded that remediation of thematerial weakness in the controls over the valuation of the metals derivativepositions have been achieved as of March 31, 2007.

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

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

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

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

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PART II: OTHERINFORMATION

## **Item 1.   Legal Proceedings**

There were no material developments to proceedingspreviously discussed in our Form 10-K for the year ended December 31, 2006.

## **Item 1A. Risk Factors**

There were no material changes from the risk factorsas previously discussed in our Form 10-K for the year ended December 31, 2006.

## **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**

10.1         Non-Employee Directors DeferredCompensation and Equity Award Plan

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

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

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

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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on behalf of the undersigned thereunto dulyauthorized.
|                                      | APEX SILVER MINES LIMITED |
|--------------------------------------|---------------------------|
|                                 |                      |   |
|                                 |                      |   |
| Date:    May  9, 2007 | By:                       | \s\ Jeffrey G. Clevenger |
|                                 |                      | Jeffrey G. Clevenger |
|                                 |                      | President and Chief Executive Officer |
|                                 |                      |   |
|                                 |                      |   |
| Date:    May  9, 2007 | By:                       | \s\ Gerald J. Malys |
|                                 |                      | Gerald J. Malys |
|                                 |                      | Senior Vice President and Chief Financial Officer |

 

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