Apex Silver is continuing to ramp up to full production at San Cristobal. Mining of ore from the pit continues at the planned rate. The concentrator has achieved throughput rates of approximately 40,000 metric tons/day (mt/d) on several days in the fourth quarter 2007 and in February 2008. Throughput in January and February was constrained primarily due to a shortage of process water resulting from well failures caused by high water salinity. Both average throughput rates and metal recovery rates have shown month to month improvement from the commencement of production in August 2007, with throughput currently averaging approximately 75% of designed capacity.

The company is focused on improving the reliability of process water by redrilling failed wells and repairing or replacing damaged pumps and believes that there will be adequate water commencing in March for production at designed rates until the planned delivery and installation in the third quarter 2008 of larger stainless steel casings and pumps that should provide a long-term solution. The company also is focused on metallurgical pilot plant work to optimize the ore blends and recovery rates. Workforce training in an operating plant environment continues and the company continues to adjust designed process control systems to accommodate the real-time operating environment.

The company said it also continues to improve the delivery of operating parts and supplies and to resolve various startup mechanical production issues. The company expects to resolve most of these issues in the second quarter 2008.

Proven and probable reserves for San Cristobal as of December 31, 2007, were calculated by WLR Consulting, Inc. using an $11.45/mt net smelter return cutoff value and market price assumptions of $10.76/oz silver, $1.19/lb zinc and $0.73/lb lead. These prices represent the three-year average prices for each of the metals through December 2007 as required by SEC guidelines. Reserves are essentially unchanged from year-end 2006 as the decrease from mining was mostly offset by additions of ore to the mine model due to increased average metals prices.

During 2007, the Bolivian government passed new mining tax legislation. Under the newly adopted law mining companies must pay, in addition to the pre-existing 25% income tax, an additional 12.5% income tax when mineral prices are over defined thresholds ($5.55/oz for silver, $0.53/lb for zinc and $0.30/oz for lead). The new mining tax law provides that only 60% of the additional 12.5% income tax, or 7.5%, must be paid by companies producing a value-added product. Apex said it believes that the zinc and lead concentrates produced by San Cristobal are value-added products. It is not certain whether the government will agree with that position.

Regulations implementing the new tax law are not yet available, so the precise effect of the changes is not yet certain. Mining companies have also been subject under pre-existing law to a mining royalty (Complementary Mining Tax) creditable against income tax. Under the new mining tax law, a royalty has been imposed on silver, which ranges from 3% to 6% based on current silver prices. At prices above $8/oz, the maximum rate is in effect. Also under the new mining tax law, the royalty is creditable against the income tax when metals prices are below the thresholds referenced above. If metals prices are higher than the thresholds, the royalty is not creditable against income tax, but instead is deductible, reducing the amount of taxable income. In addition, under pre-existing law, a 25% surtax is triggered when annual profits are in excess of $50 million after capital investments are deducted. The company has been involved in discussions with the Bolivian government regarding the possibility of eliminating the 25% surtax.

In December 2007, the Bolivian Constituent Assembly approved a draft constitution for the Republic of Bolivia. The draft constitution provides, among other things, that mining companies will be required to enter into mining agreements with the State within a year following ratification of the constitution by public referendum. The draft constitution does not describe the terms of such agreements.