Apex Silver Reports Delay in 2006 Year-End Results



    DENVER, March 2 /CNW/ - Apex Silver Mines Limited (AMEX:   SIL) today
reported a delay in the release of its 2006 year-end results. The company also
reported that it has filed for a fifteen-day extension to file its annual
report on Form 10-K with the Securities and Exchange Commission. The company
has concluded that certain available market information that it did not use in
calculating the fair value of its open derivative positions which the company
holds as a requirement of its project financing facility, would have been a
more reliable indicator of the fair value of those positions. The company will
require additional time to finalize the calculation of the fair value of its
metals derivative positions utilizing that additional market information. The
company has determined that it will be required to restate the quarter ended
September 30, 2005, the year ended December 31, 2005, and the first three
quarters of 2006 to reflect the corrected fair value of its metals derivative
positions and has filed a Form 8-K with the Securities and Exchange Commission
reporting its intent to restate these periods.

    In addition, the company is currently assessing whether it will be
required to reflect as a current liability on its December 31, 2006 balance
sheet the outstanding principal and interest under the company's $225 million
San Cristobal project finance facility, of which the company has drawn $200
million, and the estimated cost of settlement of the derivative positions
required by the project finance facility, due to potential noncompliance with
certain covenants of the project finance facility.

    The company expects to report a loss for the year ended December 31, 2006
that is significantly greater than the loss reported for the year ended
December 31, 2005. The increase in its net loss for the year ended December
31, 2006 is due primarily to the company's share of the non-cash
mark-to-market loss, preliminarily estimated at $670 million, related to the
open metals derivative positions required by the company's project finance
facility as discussed below and an approximate $43 million realized loss on
the cash settlement of its discretionary metals derivative positions during
the year.

    The company also reports significant progress on the development of its
San Cristobal project which is now approximately 90% complete. The first sale
of concentrates from San Cristobal is expected in the third quarter of 2007.
In addition, the company has accelerated the evaluation of many of its more
promising exploration properties and the company's board of directors has
approved an increase in the exploration budget from $8.5 million in 2006 to
$14.5 million for 2007 in the hopes of advancing one or more of its properties
toward the development stage.

    Fair Value of Derivative Liability

    The project finance facility required the company to provide price
protection (effectively selling forward) a portion of its planned production
from San Cristobal. In 2005, the company entered into silver, zinc and lead
derivatives positions including primarily forward sales, but also puts and
calls to comply with this requirement. Pursuant to Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS No. 133"), the company records the open derivative positions
at their fair value on its balance sheet and records the change in fair value
to current earnings at the end of each reporting period.

    The company's derivatives mature or expire on various dates over an
approximate six-year period commencing in July 2007. Many of the derivatives
mature or expire beyond the periods covered by the major commodities price
indices such as LME or COMEX, or expire in future periods covered by those
indices with respect to which only limited trading activity has occurred. In
instances where only limited market activity exists, the company has
historically used price projections to estimate a forward price curve provided
by an independent third party employing statistical analysis an models to
calculate the fair value of its open derivative positions. As silver, zinc and
lead prices have continued to increase since the derivatives were entered
into, the disparity has increased between the fair values used by the company
for its long-dated derivatives and other market information reflected in
commodities prices indices and quoted prices from other trading institutions
related to long-dated metals derivatives. Inclusion of this available market
information to estimate the forward price curve would have resulted in
substantially higher fair market values than those used by the company to
determine the estimated fair value of its open derivative positions.

    After reviewing this information in detail, the company has concluded
that the additional market information is a more reliable indicator of fair
value than the independent third party price projections previously used, and
that the company has understated its derivative liability commencing with the
quarter ended September 30, 2005. The company estimates that the cumulative
understatement of the derivative liability is approximately $300 million as of
September 30, 2006. Additionally, correcting the valuation of the derivatives
will impact the gain recognized on the sale of a 35% in the mining subsidiary
in the quarter ended September 30, 2006. As a result, the company has
concluded that the financial statements for the following periods should no
longer be relied on and plans to file amended financial statements for these
periods: the quarter ended September 30, 2005, the year ended December 31,
2005 and the first three quarters of 2006. The company has discussed these
matters with its independent registered public accountants. The Company is in
the process of evaluating the impact this restatement will have on these prior
periods' financial statements and while the amounts are not yet known the
Company expects that the adjustments to these financial statements will be
material. The Company has discussed these matters with its independent
registered public accountants. The Company is also evaluating the effect this
restatement will have on management's assessment of internal control over
financial reporting as of December 31, 2006 which may result in a conclusion
that a material weakness existed and that internal control over financial
reporting was ineffective as of December 31, 2006. The change in the
derivative valuation method will likely result in increased volatility in the
company's non-cash earnings during the next three years, the period over which
most of the Derivatives mature or expire.

    The Company intends that these derivatives will be settled with revenues
from San Cristobal mine production over the six year period commencing in July
2007. Therefore, the cash effect of settling these hedges would be realized as
lower revenue over that six year period and the ultimate losses or gains from
these derivatives would be determined based upon market prices at the time of
settlement.

    Debt Covenant Compliance

    Covenants related to the project finance facility require that the
company and certain of its subsidiaries maintain certain security interests,
financial ratios after completion, insurance coverage, minimum sales contracts
and metals price protection contracts as well as other requirements. At
December 31, 2006, the company may have been in violation of certain covenants
related to the method and timeliness of the delivery of certain reports, and
the additions of certain provisions to the company's local insurance policies.
The company believes that these possible covenant violations have been cured,
and is in the process of requesting confirmation from its lenders, which the
company believes it will obtain, that any covenant violations that may have
resulted from these events have been cured and that any possible covenant
violations or related defaults resulting from these events have been waived.
In addition, the company is analyzing whether the restatement referenced above
may require covenant waivers from its lenders. Failure to comply with, to cure
failures to comply with, or to obtain waivers of project finance facility
covenants within specified time frames could result in a default that would
permit acceleration of all obligations pursuant to the project finance
facility, including repayment of the outstanding principal amount and
settlement of the derivatives. If such a demand were to be successful, the
company currently has insufficient cash and investments to pay in full its
share of the loan and hedge liability. Additionally, although the company
believes it would be able to secure additional financing to satisfy these
liabilities or defer payment of these obligations, there can be no assurance
that it would be able to do so on acceptable terms or at all. The inability to
obtain waivers of potential covenant violations could cause the company to
receive an opinion from its independent auditors that would include an
explanatory going concern paragraph.

    San Cristobal Nearing Start-up

    Significant advancement has been made in the development of San Cristobal
and the project is now approximately 90% complete with the first sale of
concentrates expected in the third quarter of 2007. All of the major
mechanical equipment including the flotation circuit, filtration plant and the
10-kilometer tailings line, including piping and booster pumping stations for
the 15-kilometer water supply system has been installed. Major components,
including the Semi-Autogenous Grinding (SAG) and two ball mill motors have
been installed and are undergoing testing procedures. Concentrator
construction has shifted to systems completion and is centered on final
installation of process piping and electrical instrumentation equipment.
Commissioning activities began in the fourth quarter of 2006 with the
electrical substation, utilities and the primary crusher and overland
conveyor. We have completed construction of a power line from the town of
Punutuma to San Cristobal, and we began drawing power from the national power
grid during November 2006. The construction of the railroad spur is proceeding
on schedule with 95% of the 65 kilometers of roadbed completed and 14
kilometers or 20% of the total spur laid. Construction of the Mejillones port
facility is also proceeding on schedule. The railroad spur and port facilities
are expected to be completed during the second quarter of 2007.

    Mining activities are advancing and as of December 31, 2006,
approximately 19 million tonnes of material had been moved including 1 million
tonnes of sulfide ore which will be processed through the mill when operations
commence, still on schedule for the third quarter of 2007. Two new CAT 789
200-tonne trucks were placed in service late in 2006 and eight more trucks
arrived during January and February 2007, with an additional 3 trucks arriving
in May. The new haulage equipment will be complemented by two PC 4000 Komatsu
shovels and a CAT 994 front-end loader all to arrive over the first 4 months
of 2007.

    The company recently updated its San Cristobal reserve estimates to
reflect the new information about the boundary between oxide and sulfide ore
and updated operating costs and metals prices. The updated metals prices
represent the three-year average prices for each of the metals through
December 2006 as per guidelines established by the SEC. The higher average
metals prices used in the revised reserve estimates have contributed to an
increase in reserve tonnes and payable metal with a resulting decrease in ore
grade. Details of the revised reserves will be published in the company's Form
10-K for December 31, 2006.

    Exploration

    The company has a portfolio of over 50 property groups in Mexico, Peru,
Argentina and Bolivia that it believes contain potential for silver, base
metals and gold mineralization or have other significant exploration
potential. During 2006 the company increased the rate of evaluation of many of
its properties and the company's Board of Directors has approved an increase
in the exploration budget from $8.5 million in 2006 to $14.5 million for 2007.
The company's focus for 2007 is to drill test its more promising projects to
identify which of them may be advanced to a development stage as soon as
possible. At year end, five prospects were being drilled and several more are
currently undergoing preparatory work so that they may be drilled in early
2007. The company's more promising projects are in Argentina, Mexico and Peru
and early results indicate that at least one project in each country will move
on to a more advanced stage of exploration. This will involve more drilling
and preliminary metallurgical, engineering and environmental work.

    Apex Silver is a mining exploration and development company. The Ordinary
shares of Apex Silver trade on the American Stock Exchange under the symbol
"SIL."

    This press release contains forward-looking statements regarding the
company, within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, including statements regarding the San Cristobal
project including the commencement of production in the third quarter of 2007,
projected timing for equipment delivery, settlement of commodity hedges and
capital expenditures. Actual results relating to any and all of these subjects
may differ materially from those presented. Factors that could cause results
to differ materially include fluctuations in silver, zinc and lead prices,
problems or delays in construction and startup, problems in emerging financial
markets and changes in government policies with respect to taxes or other
political unrest and uncertainty in Bolivia. The company assumes no obligation
to update this information. Additional information concerning factors that
could cause actual results to differ materially from those in the
forward-looking statements can be found in the company's Form 10-K filed with
the SEC for the year ended December 31, 2005.




For further information:

For further information: Apex Silver Mines Corporation Gerald Malys,
303-764-9167 Sr. Vice President and Chief Financial Officer

Organization Profile

APEX SILVER MINES LIMITED

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