Apex Silver Mines Limited received an additional $53 million in the second

Tag : zinc strip
Ramp-up Throughput. San Crist?bal concentrator throughput for
the second quarter averaged 34,000 tonnes per day, approximately85% of the
40,000 tonnes per day design capacity. The key focus is now on thefinal
ramp up to consistent 40,000 tonnes per day throughput andimprovements to
metals recovery.

Production. Production from San Crist?bal for the second
quarter 2008 totaled approximately 84,000 tonnes of zincconcentrate and
23,000 tonnes of lead concentrate, containing approximately 4.2million
ounces of payable silver, 42,000 tonnes of payable zinc and 15,000tonnes
of payable lead.

Sales. Revenues totaled $60 million for the second quarter.
Concentrates sold contained approximately 1.6 million ounces ofpayable
silver, 26,500 tonnes of payable zinc and 5,400 tonnes of payablelead. The
company received an additional $53 million in the second quarterfor
concentrates shipped in the second quarter, which was recorded asdeferred
revenue. This amount, net of market adjustments, will be recordedas sales
in the third quarter when risk of loss passes at the port of
destination.

Operating Costs. The company has adopted a new presentation for
cash costs. Average cash operating costs for the quarter, whichincludes
the mining royalty (complementary mining tax), were $1.42 per ouncefor
silver or $0.24 per pound for zinc produced. For the six monthsending June
30, 2008 average cash operating costs were $0.43 per ounce silveror $0.26
per pound zinc. Average cash operating costs include byproductcredits.
Operating costs were adversely affected by increased costs fordiesel fuel,
reagents and other consumables.

Gain on Metal Derivatives. The company recorded for the second
quarter a $223 million mark to market gain related to its metalderivative
positions, which is primarily the result of declining lead and zincprices
during the period.

Income from Operations. Income from operations totaled $204
million, including the $223 million gain on metal derivative
positions.

Net Income. Net income for the quarter was $178 million, or
$2.57 per diluted share, including the gain on metal derivativepositions
and a gain of $63 million related to the sale of the deferredpayment right
to Sumitomo for $70 million.

Apex Liquidity. At June 30, 2008, the company had cash, cash
equivalents and investments totaling $214 million, of which $92million was
unrestricted cash and investments, including the proceeds of thesale of
the deferred payment right. The company faces significant financial
obligations in the second half of 2008 and during 2009 that areexpected to
exceed currently available funding sources. The company continuesto
explore alternatives to manage costs, as well as other actions topreserve
and improve liquidity, while remaining focused on execution of theSan
Crist?bal operating plan.

Minera San Crist?bal Line of Credit. The company has approved
a $50 million subordinated unsecured line of credit to be enteredinto by
Minera San Crist?bal as borrower, with a subsidiary of Sumitomo aslender,
and an initial loan of $15 million. The line of credit is expectedto be
effective during the week of August 11, 2008, and will permitborrowings by
Minera San Crist?bal until October 21, 2008.

Note: All information is presented on a 100% basis unless
otherwise noted. Apex owns 65% and Sumitomo 35% of the SanCrist?bal mine.

Summary Financial and Operating Data

Three Months Ended Six Months Ended
June 30 June 30
-------------------- ------------------
2008 2007 2008 2007
-------- -------- -------- --------
(in thousands, (in thousands,
except share data) except share data)
Sales of concentrates 59,678 a - 196,531 -
Costs applicable to sales
(exclusive of
amounts shown separately below) (62,605) b - (131,760) -
Gain (loss) on commodity
derivatives 223,463 c (165,647) 195,638 (57,341)
Income (loss) from operations 204,300 (173,714) 226,484 (73,698)
Gain on sale of interest in
subsidiary 63,071 d - 63,071 -
Income taxes (11,242) e (47) (21,802) (94)
Minority interest in loss
(income) of
consolidated subsidiaries (62,824) f 23,402 (35,130) 28,332
Net income (loss) per Ordinary
Share - basic 3.01 (2.45) 3.45 (0.54)
Net income (loss) per Ordinary
Share - diluted 2.57 (2.45) 2.94 (0.54)

Cash and cash equivalents - end
of period 82,188 151,156
======== ======== ======== ========

a. During the second quarter 2008, the company recorded sales of
concentrates of $59.7 million, net of $11.4 million negative
settlement and mark-to market adjustments related to sales made in
prior periods.
b. These costs relate to mining, milling, marketing, miningroyalties
and transportation of concentrate sold to customers.
c. For the second quarter 2008 the company recorded a gain relatedto
its metal derivative positions in the amount of $223 million. Gains
and losses are the result of marking-to market open metalderivative
positions and to the settlement of metal derivative positionsduring
the period, as compared to the previous quarter, based upon changes
in spot and forward prices for silver, zinc and lead. The gain for
the second quarter 2008 is primarily the result of declining leadand
zinc prices during the period.
d. Amount reflects the gain related to the sale of deferred paymentto
Sumitomo.
e. During the second quarter 2008 the company recorded income tax
expense of $11.2 million as compared to $0.1 million for the second
quarter 2007, due primarily to taxable income generated at the San
Crist?bal mine.
f. During the second quarter 2008, the company allocated gains tothe
minority interest holder of $62.8 million as compared to allocated
losses of $23.4 million for the second quarter 2007. The 2008 $62.8
million minority interest expense is primarily related toSumitomo's
interest in certain gains primarily related to the open metal
derivative positions required by the San Crist?bal project finance
facility ("the Facility"). Also during the second quarter2008,
Sumitomo advanced an additional $5.3 million to fund its share of
operating costs related to the San Crist?bal mine, and the company
recorded $2.3 million of interest due Sumitomo on its share of
advances to fund the San Crist?bal mine.

Operations Update

San Crist?bal concentrator throughput, metal recovery, concentrate
production and payable metals production continued to improveduring the
second quarter 2008. Concentrator throughput for the second quarter
averaged 34,000 tonnes per day, approximately 85% of the 40,000tonnes per
day designed capacity.

Average throughput in June was approximately 36,000 tonnes per day,which
together with zinc concentrate production of approximately 34,000dry
tonnes and lead concentrate production of approximately 10,000 drytonnes,
exceeded first quarter monthly average throughput by 35%, zincconcentrate
production by 72% and lead concentrate production by 102%.

In May, Minera San Crist?bal concluded a successful 14-daythroughput test
under the engineering, procurement, and construction managementcontract.
During the test period, mill throughput averaged 43,000 tonnes perday.
The plant ran near 50,000 tonnes per day on several days during thetest.
The plant's ability to maintain grind size at higher tonnage ratesconfirms
that the liberation of the minerals is possible at higherthroughputs.

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
====== ====== ====== ====== ====== ======
Mining (000's)
Total tonnes mined 2,802 3,182 3,682 3,890 3,677 4,033
------ ------ ------ ------ ------ ------
Milling (000's)
Total tonnes milled 814 751 842 946 1,048 1,080
====== ====== ====== ====== ====== ======

Recovery rate - silver 62% 65% 67% 68% 70% 65%
Recovery rate - zinc 76% 82% 76% 73% 78% 78%
Recovery rate - lead 65% 73% 65% 64% 70% 74%
------ ------ ------ ------ ------ ------
Concentrate produced (000's)
Zinc (dry tonnes) 17 20 23 24 26 34
Lead (dry tonnes) 5 5 5 6 7 10
====== ====== ====== ====== ====== ======

1Q08 2Q08
======= =======
Total mining cost / tonne of total material $ 1.80 $ 1.49
------- -------
Total milling cost(1) / tonne of ore $ 10.91 $ 10.88
------- -------
Total site support costs / tonne of con. produced(2) $ 196 $ 202
------- -------
Mining royalty / tonne of con. produced $ 118 $ 106
------- -------
Sea freight cost / tonne of con. produced $ 112 $ 121
======= =======
(1) Includes plant, maintenance and engineering costs
(2) Includes all other site support costs and land freight costs

Payable production during the second quarter totaled approximately4.2
million ounces of silver, 42,000 tonnes of zinc and 15,000 tonnesof lead,
reflecting increases of 42%, 43% and 45% respectively over firstquarter
payable production.

% 2Q08
Payable Production (000's) 2007 1Q08 2Q08 vs 1Q08
======== ======== ======== =======
Silver (oz) 2,200 2,948 4,191 42%
Zinc (tonnes) 19 29 42 43%
Lead (tonnes) 8 10 15 45%
======== ======== ======== =======

1Q08 2Q08
================== ================= =================
Strip ratio 1.0 1.0
------------------ ----------------- -----------------
Average Mill Feed Silver (g/t) 63 68
Grades Zinc 1.88% 2.04%
Lead 0.62% 0.70%
------------------ ----------------- -----------------
Average Silver in Zn (g/t) 585 505
Concentrate Silver in Pb (g/t) 4,668 4,537
Grades Zinc 58% 58%
Lead 68% 58%
================== ================= =================
Notes:
Strip ratio = waste mined / [sulfide ore + oxide ore mined ], wherethe
ore mined includes stockpiled sulfides and oxides as well assulfide ore
fed to mill

The company continues to improve process water availability, whichhas
increased from approximately 27,000 cubic meters per day inFebruary to
more than 40,000 cubic meters per day in June. This should nowallow for
sufficient process water to sustain 40,000 tonnes per daythroughput.

The company also has experienced higher than expected silica levelsin
certain concentrate shipments and is implementing processimprovements
intended to reduce these levels. This is not expected to materiallyaffect
operating income.

Due primarily to lower production during the first six months of2008, the
company now projects full year 2008 production of approximately 15million
ounces of payable silver, 190,000 tonnes of payable zinc and 60,000tonnes
of payable lead.

The primary focus in the plant during the remainder of 2008 will be
continued optimization of the flotation plant to improve metalrecoveries,
including reagent controls and training programs.

Jeffrey Clevenger, President and Chief Executive Officer, said,"We are
pleased with San Crist?bal's progress in the second quarter, andespecially
the improvement in performance metrics in June. Our focus on plant
optimization is evident in our results and we expect continuedoperating
improvements. The hard work and dedication of our team isunsurpassed and
is the critical contributing factor to our progress at SanCrist?bal."

Sales of Concentrates

At June 30, 2008 the company had received payments totaling $53million for
concentrates shipped to certain European smelters during the secondquarter
that have been recorded as deferred revenue. Under the company's
accounting policies, revenue is not recorded until both title andrisk of
loss have passed to the customer. Consistent with commercialpractice,
risk of loss for shipments to smelters in Europe typically passesat the
port of destination. The company expects to recognize $53 millionof
deferred revenue, net of market adjustments, as revenue during thethird
quarter 2008.

During the second quarter 2008 silver prices remained relativelyunchanged
while lead and zinc prices declined by approximately 40% and 20%,
respectively. During the second quarter 2008, the company recordeda net
reduction to sales of $11.4 million as a result of marking tomarket
previous period provisional sales. This net reduction in salesincluded
$6.1 million of provisional payments returned or to be returned tothe
smelters and a $5.4 million reduction in amounts receivable fromthe
smelters at June 30, 2008.

Payable Metal Sold (000's) 2007 1Q08 2Q08
===== ===== =====
Silver (oz) 999 3,473 1,645
----- ----- -----
Zinc (tonnes) 29 25 27
----- ----- -----
Lead (tonnes) 7 12 5
===== ===== =====

Liquidity and Capital Resources

At June 30, 2008, the company's aggregate cash, restricted cash,short- and
long-term investments were $213.9 million, including $70.0 millionreceived
from the sale of the deferred payment obligation to Sumitomo,compared to
an aggregate of $220.7 million in cash, restricted cash, short- and
long-term investments and restricted investments at December 31,2007.
Cash and investments at June 30, 2008 included $82.2 million of
unrestricted cash and cash equivalents, $7.1 million ofunrestricted
short-term investments, $2.2 million of long-term investments,$20.0
million of currently illiquid auction rate securities("ARS") classified as
long-term, $91.0 million of cash, of which $30.3 million isrecorded as
current, that is restricted to collateralize the open metalderivative
positions required by the Facility, and $11.4 million of cash thatis
restricted to support operating requirements at the San Crist?balmine and
Facility debt service. At June 30, 2008, the company's aggregate
unrestricted cash and investments totaled $91.5 million.

The San Crist?bal mining operations are experiencing increasedoperating
costs resulting from continued increases in oil and other commodityprices
that have driven up the cost of diesel fuel, reagents and othermaterials
consumed in the operation, as well as costs for mining,transportation and
power. And as previously disclosed, treatment costs for lead andzinc
concentrates have increased, with smelting charges for leadconcentrates
doubling from a year ago and charges for zinc concentrates rising
approximately 30% due to greater demand for smelter capacityresulting from
increased world concentrate supplies. Increased operating costs anda
decline in metals prices of approximately 40% percent for lead and20% for
zinc from the first quarter of 2008 have reduced operating marginsand have
had a negative impact on cash flow available to fund SanCrist?bal's
operations. The reduced operating margins will make it unlikelythat San
Crist?bal will generate the cash flow necessary to continue tosettle metal
derivative positions without additional contributions from thecompany and
Sumitomo. The company and Sumitomo contributed $97 million to theSan
Crist?bal operation in the first six months of 2008, and havecontributed
an additional $55 million to date in the third quarter. Thecompany's
share of 2008 contributions has totaled $94 million.

The company faces significant financial obligations in the secondhalf of
2008 and during 2009 that are expected to exceed available fundingsources
The company projects that an additional $125 million in fundingwill be
required from August 2008 through June 2009. In addition thecompany does
not expect San Crist?bal to achieve "completion" byyear-end 2008 as
required by the Facility. Failure to achieve completion wouldconstitute
an event of default under the Facility, entitling the lenders toaccelerate
repayment of all indebtedness and derivative liabilities, and couldalso
result in a default under the company's convertible notes. Thecompany and
Sumitomo may seek a one year extension of the completion testthrough
year-end 2009, but the company cannot predict whether or when thelenders
would consider an extension or the terms on which they would bewilling to
do so.

The company has completed negotiation of and approved a $50 million
subordinated unsecured line of credit to be entered into by MSC as
borrower, with a subsidiary of Sumitomo as lender, and an initialloan of
$15 million. The line of credit permits borrowings by MSC untilOctober 31,
2008. The company expects that the line of credit will becomeeffective
during the week of August 11, 2008, upon satisfaction of customaryclosing
conditions, and that the initial loan will be extended promptlythereafter.

Notwithstanding this new line of credit, the company believes thatit is
likely to require a significant restructuring of its operations or
indebtedness based on the foregoing factors and its projectionswith
respect to the San Crist?bal mine. The company has engagedJefferies &
Company, Inc. as its financial advisor to assist it in reviewingstrategic
and financial alternatives, which could include new debt or equity
financing, a sale of additional interests in San Crist?bal or inone or
more of the company's exploration properties or a restructuring,
refinancing or amendment of the Facility or the related metalderivative
positions.

Cash Costs

The company has revised its presentation of cash operating costsfor silver
and zinc production. The previous presentation required anallocation of
site operating costs between silver and zinc based on the relativesales
values of the two metals. Because prices for these metalsconstantly vary,
cost allocations may not appropriately reflect underlying operating
fundamentals. The revised presentation reports cash operating costson two
separate, alternative bases. Cash operating costs for silver are
calculated by assuming that San Crist?bal produces silver with zincand
lead by-products. Total operating costs are allocated to silver,and
estimated revenue from zinc and lead production is credited againstthose
costs. Likewise, cash operating costs for zinc are calculated byassuming
that San Crist?bal produces zinc with silver and lead by-products.Total
operating costs are allocated to zinc, and estimated revenuegenerated from
silver and lead production is credited against those costs. The
presentation reflects operating cash costs for silver or zincproduction
during the period and is not necessarily indicative of operatingprofit or
cash flow determined under GAAP. The company believes that therevised
presentation provides a more reliable indication of the cashgenerating
capabilities of the mining operation and a more useful metric forpurposes
of managing and evaluating operating performance. See"Non-GAAP Financial
Measures" at the end of this press release.

Cash Operating Cost -- New Presentation

Production Basis. YTD Results $M Unit Basis
========== ==========
Ag ($/oz.)
Site costs $ 159.4 $ 22.32
Silver refining $ 2.2 $ 0.30
Lead by-product credit $ (47.0) $ (6.58)
Zinc by-product credit $ (111.5) $ (15.62)
---------- ----------
Ag Net cash cost $ 3.0 $ 0.43
========== ==========
Zn ($/lb.)
Site costs $ 159.4 $ 1.02
Zinc treatment $ 48.7 $ 0.31
Lead by-product credit $ (47.0) $ (0.30)
Silver by-product credit $ (121.1) $ (0.77)
---------- ----------
Zn Net cash cost $ 40.0 $ 0.26
========== ==========
Note: site costs include $20.2 million of mining royalty

Average Cash Operating Costs -- Comparison of Previous Method withNew
Method

1Q08 2Q08
======= =======
Old Presentation, Production Basis
Ag ($/oz) $ (0.79) $ (0.31)
Zn ($/lb) $ 1.02 $ 0.89
======= =======
New Presentation, Silver Production Basis
Ag ($/oz) $ (1.37) $ 1.42
New Presentation, Zinc Production Basis
Zn ($/lb) $ 0.26 $ 0.24
======= =======

The company now expects average cash operating costs per payableounce of
silver to range from approximately $0.50 to $0.75 (assuming creditsfor
zinc of $0.85 per payable pound of zinc produced and credits forlead of
$0.85 per payable pound of lead produced) or a range ofapproximately $0.15
to $0.20 per payable pound of zinc (assuming credits for silver of$17.00
per payable ounce of silver produced and credits for lead of $0.85per
payable pound of lead produced).

Settlement of Metal Derivative Positions

During 2005, the company entered into certain forward sales, andput and
call options for silver, zinc and lead in order to comply withrequirements
under the Facility. Because of significant increases in spot andforward
prices for each of these metals, the company has recognizedsignificant
non-cash, mark-to market losses on these metal derivativepositions. Since
these metal derivative positions began to mature in July 2007, thecompany
has been required to make cash payments to settle the maturingpositions.
During the first six months of 2008 the company made cash paymentsof $112
million to settle maturing metal derivative positions. The amountof cash
required to settle the remaining metal derivative positions willnot be
known until the positions are closed on their settlement dates. AtJune
30, 2008 prices, the company estimates cash settlement costsassociated
with the remaining metal derivative positions maturing in 2008 tobe
approximately $115 million, with approximately equal amounts ofderivatives
maturing monthly.

Exploration Update

The company continues to advance exploration from a portfolio of
exploration projects in several countries, including Argentina,Mexico,
Peru and Bolivia.

Argentina.

El Quevar. The second phase of drilling at the El Quevar project in
northern Argentina was completed during the second quarter, with 78holes
drilled to date totaling about 15,500 meters of drilling, with10,650
meters drilled during 2008. The 2007 drilling established thepresence of
high-grade silver mineralization in parallel structures aggregatingmore
than a mile in length and as much as 80 to 100 feet wide. Thissecond
drilling phase is designed to provide close-spaced drill interceptsthat
can be used to support a preliminary economic assessment study.Drilling
has extended the zone of known mineralization to at least 300meters depth
in several areas. During the second quarter, the company has also
discovered another mineralized vein system at Copan, located about500