1

Commodities: Silver and Zinc

Silver: Higher Prices, Depleting Inventories

Zinc Posts Major Recovery in 2003

Silver is unique. Its applications are diverse and versatile. For centuries, as a precious metal, it has been a means of human adornment and served as a major ingredient for fine table utensils, appropriately called silverware. Over the last century, it has provided mankind the capability to take photographs, X-rays and print them on silver impregnated media. More recently, the world discovered silver’s other powerful properties as a super conductor, super reflector and super preservative. Last year, each of these vast areas of silver application approximately equally shared in total world consumption of the metal*.

Over the last 23 years, the total amount of silver consumed by industry has increased from approximately 380 million ounces in 1980 to approximately 800 million ounces in 2003*. At the same time, particularly over the last ten years, mine production has not kept pace with growing industrial demand, creating an endemic silver supply deficit. The shortage of metal supply has been largely facilitated by existing silver inventories, which, by most indications, have been depleting steadily. Recent research* shows that at the end of 2003, the global silver inventory was reduced to approximately 258.2 million ounces, sufficient for less than six months of existing demand.

Modern life would be inconceivable without zinc. While the metal is broadly used in a variety of applications, it is mostly known as an anti-corrosive agent in the manufacturing of galvanized steel. In fact, galvanizing accounts for approximately 50% of the end use of zinc metal with about 70% of all produced galvanized material used in the form of steel sheet. A recent study, conducted by CRU International, a Londonbased research and consultancy group, gave a positive prognosis for the primary sectors which use galvanized steel sheet. Consumption is expected to increase 6.5% and 4.4% in 2004 and 2005, respectively. Accordingly, the rate of production of galvanized steel is expected to follow suit. China is expected to

have a major impact on the galvanized steel market. Its automotive manufacturing industry, a major consumer of galvanized steel, is expected to continue building on its recent pattern of growth. This fact bodes well for an already robust picture for refined zinc consumption, which in 2003 posted another healthy increase, rising to a new high of 7.2 million tonnes*. The positive demand outlook for galvanized steel is not expected to change this pattern. Refined zinc is commonly produced from zinc concentrates, which are expected to continue to be in short supply. Apex Silver, a significant future producer of this metal, should be a major beneficiary from the existing supply/demand imbalance in the world zinc concentrate markets. The shortage of zinc concentrates

World Consumption of Refined Zinc is on the Increase

Silver Stocks as Months of Demand Source: CPM Group

120

Source: CHR Metals

10,000 9,500

100

9,000

80

8,500

Estimated Total Silver Bullion Inventories Source: CPM Group

10

1998

2001 2003

1995

1989

1992

1986

1983

1980

1977

1974

1971

1968

1965

1962

1959

1956

1953

1950

Million Ounces

2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

* Source: CPM Group

should result in lower treatment charges levied on producers by the smelters, a positive factor for a major concentrate producer such as Apex Silver.

8,000 Thousands of Tonnes

1998

2001 2003

1995

1989

1992

1986

1983

1980

1977

1974

1968

1971

1965

1962

1959

1956

0

1953

20

1950

Months

40

The pressure has been building for the price of silver to react. For months it lingered around lows of $4 to $5 per ounce until, in the second half of 2003, it commenced its upward trend. By February 13, 2004 it rose to $6.60 per ounce, increasing by 37% compared to the end of 2002. At the same time, the spheres of industrial silver applications continue to expand. For example, American Superconductor Corporation of Westborough, Mass. recently began construction of the first manufacturing facility for commercial production of silver-encapsulated high-temperature superconducting wire. With its low resistance to electrical current, the wire is used in constructing energy efficient motors and generators. In addition, silver is finding new uses in fiber optic components, non-platinum based catalytic converters, flat TV screens, silverbased wood preservatives (to replace arsenic-based compounds), marine anti-fouling agents, super-performing computer chips and many other applications. This time-tested metal is facing a new and bright future.

7,500 7,000 6,500

* Source: CHR Metals

6,000 1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Zinc Concentrate Treatment Charges Source: CHR Metals

240 220 200 San Cristobal feasibility assumption

180 US$ per Tonne of Con

60

160 140 120 100 1997

1998

1999

2000

2001

2002

2003

11

1

Commodities: Silver and Zinc

Silver: Higher Prices, Depleting Inventories

Zinc Posts Major Recovery in 2003

Silver is unique. Its applications are diverse and versatile. For centuries, as a precious metal, it has been a means of human adornment and served as a major ingredient for fine table utensils, appropriately called silverware. Over the last century, it has provided mankind the capability to take photographs, X-rays and print them on silver impregnated media. More recently, the world discovered silver’s other powerful properties as a super conductor, super reflector and super preservative. Last year, each of these vast areas of silver application approximately equally shared in total world consumption of the metal*.

Over the last 23 years, the total amount of silver consumed by industry has increased from approximately 380 million ounces in 1980 to approximately 800 million ounces in 2003*. At the same time, particularly over the last ten years, mine production has not kept pace with growing industrial demand, creating an endemic silver supply deficit. The shortage of metal supply has been largely facilitated by existing silver inventories, which, by most indications, have been depleting steadily. Recent research* shows that at the end of 2003, the global silver inventory was reduced to approximately 258.2 million ounces, sufficient for less than six months of existing demand.

Modern life would be inconceivable without zinc. While the metal is broadly used in a variety of applications, it is mostly known as an anti-corrosive agent in the manufacturing of galvanized steel. In fact, galvanizing accounts for approximately 50% of the end use of zinc metal with about 70% of all produced galvanized material used in the form of steel sheet. A recent study, conducted by CRU International, a Londonbased research and consultancy group, gave a positive prognosis for the primary sectors which use galvanized steel sheet. Consumption is expected to increase 6.5% and 4.4% in 2004 and 2005, respectively. Accordingly, the rate of production of galvanized steel is expected to follow suit. China is expected to

have a major impact on the galvanized steel market. Its automotive manufacturing industry, a major consumer of galvanized steel, is expected to continue building on its recent pattern of growth. This fact bodes well for an already robust picture for refined zinc consumption, which in 2003 posted another healthy increase, rising to a new high of 7.2 million tonnes*. The positive demand outlook for galvanized steel is not expected to change this pattern. Refined zinc is commonly produced from zinc concentrates, which are expected to continue to be in short supply. Apex Silver, a significant future producer of this metal, should be a major beneficiary from the existing supply/demand imbalance in the world zinc concentrate markets. The shortage of zinc concentrates

World Consumption of Refined Zinc is on the Increase

Silver Stocks as Months of Demand Source: CPM Group

120

Source: CHR Metals

10,000 9,500

100

9,000

80

8,500

Estimated Total Silver Bullion Inventories Source: CPM Group

10

1998

2001 2003

1995

1989

1992

1986

1983

1980

1977

1974

1971

1968

1965

1962

1959

1956

1953

1950

Million Ounces

2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

* Source: CPM Group

should result in lower treatment charges levied on producers by the smelters, a positive factor for a major concentrate producer such as Apex Silver.

8,000 Thousands of Tonnes

1998

2001 2003

1995

1989

1992

1986

1983

1980

1977

1974

1968

1971

1965

1962

1959

1956

0

1953

20

1950

Months

40

The pressure has been building for the price of silver to react. For months it lingered around lows of $4 to $5 per ounce until, in the second half of 2003, it commenced its upward trend. By February 13, 2004 it rose to $6.60 per ounce, increasing by 37% compared to the end of 2002. At the same time, the spheres of industrial silver applications continue to expand. For example, American Superconductor Corporation of Westborough, Mass. recently began construction of the first manufacturing facility for commercial production of silver-encapsulated high-temperature superconducting wire. With its low resistance to electrical current, the wire is used in constructing energy efficient motors and generators. In addition, silver is finding new uses in fiber optic components, non-platinum based catalytic converters, flat TV screens, silverbased wood preservatives (to replace arsenic-based compounds), marine anti-fouling agents, super-performing computer chips and many other applications. This time-tested metal is facing a new and bright future.

7,500 7,000 6,500

* Source: CHR Metals

6,000 1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Zinc Concentrate Treatment Charges Source: CHR Metals

240 220 200 San Cristobal feasibility assumption

180 US$ per Tonne of Con

60

160 140 120 100 1997

1998

1999

2000

2001

2002

2003

11

2

San Cristobal: A Major Reserve of Silver, Zinc and Lead

Flagship Project The wholly-owned San Cristobal property is Apex Silver’s flagship project. Located in the Potosi district of southwestern Bolivia, it is one of the largest open-pit deposits of silver, zinc and lead in the world. The project hosts approximately 450 million ounces of silver, eight billion pounds of zinc and three billion pounds of lead contained in 210 million tonnes of proven and probable reserves. As the deposit is open both laterally as well as to depth, reserve expansion is considered highly likely. Based upon the bankable-quality feasibility studies that have been completed, San Cristobal is projected to be one of the

12

A Case of an Emerging Mine Becoming a Great Exploration Target largest-scale lowest-cost open-pit silver mining operations in the world. At the designed production rate of 40,000 tonnes of ore per day, San Cristobal is expected to produce concentrates containing approximately 27 million ounces of silver, 570 million pounds of zinc and 200 million pounds of lead per year in the first five full years of production, making it one of the world’s largest producers of these key metals. In addition, because of its economies of scale and conventional process design, this operation is well positioned to be among the very lowest-cost producers too.

Successful mining companies almost invariably are rooted in major discoveries of large orebodies leading to the development of significant long-life low-cost mines which in turn produce new great exploration targets. This cyclical characteristic is commonly shared by a small yet distinguished group of large mines such as Rio Tinto’s Bingham Canyon, Freeport-McMoRan Copper and Gold’s Grasberg and Newmont’s Yanacocha open-pit operations. San Cristobal, which was discovered by Apex Silver geologists, has all the attributes to join this elite group. Its current reserve contains sufficient ore to sustain production

ore, thus the orebody is considered open to depth. The management of Apex Silver believes that continued exploration in the volcanic depression should yield additional resources at Animas, Colon, East Jayula and Mulatos. None of these areas were included in the proven and probable reserve base as more infill drilling is required to bring their resources into reserve category. In addition to the areas associated with the primary deposit, Apex Silver will focus on a large number of satellite targets around San Cristobal, such as Toldos, Inca and Montes Claros.

for over fifteen years under the current feasibility plan and existing exploration targets are expected to extend the mine life well beyond that period. The San Cristobal property, 100%-owned by Apex Silver, encompasses approximately 186,000 hectares. The orebody, which occupies the central portion of a volcanic depression, is comprised of a disseminated silver-lead-zinc mineralization and includes the Jayula, Tesorerra and Delgado deposits collectively shaped as approximately three quarters of a donut. During the original exploration campaign which defined the existing reserve, Apex Silver did not conduct drilling in the remaining fourth of the “donut”, as the area was the site of the old town San Cristobal. That town has now been moved successfully to a different location. In addition to a possible lateral extension, the orebody has the potential to expand at depth as well. The current pit design bottoms at an approximately 350-meter depth, governed by the extent of the original drill holes. Of the approximately 700 drill holes that define the reserves at San Cristobal, 54% bottomed in

These targets will be actively pursued once the company begins generating cash from its mining operations. Our objective is to use these highly prospective areas as a springboard to increase our silver reserves to one billion ounces and zinc reserves to 20 billion pounds.

Dr. Larry J. Buchanan, Chief Geologist

13

2

San Cristobal: A Major Reserve of Silver, Zinc and Lead

Flagship Project The wholly-owned San Cristobal property is Apex Silver’s flagship project. Located in the Potosi district of southwestern Bolivia, it is one of the largest open-pit deposits of silver, zinc and lead in the world. The project hosts approximately 450 million ounces of silver, eight billion pounds of zinc and three billion pounds of lead contained in 210 million tonnes of proven and probable reserves. As the deposit is open both laterally as well as to depth, reserve expansion is considered highly likely. Based upon the bankable-quality feasibility studies that have been completed, San Cristobal is projected to be one of the

12

A Case of an Emerging Mine Becoming a Great Exploration Target largest-scale lowest-cost open-pit silver mining operations in the world. At the designed production rate of 40,000 tonnes of ore per day, San Cristobal is expected to produce concentrates containing approximately 27 million ounces of silver, 570 million pounds of zinc and 200 million pounds of lead per year in the first five full years of production, making it one of the world’s largest producers of these key metals. In addition, because of its economies of scale and conventional process design, this operation is well positioned to be among the very lowest-cost producers too.

Successful mining companies almost invariably are rooted in major discoveries of large orebodies leading to the development of significant long-life low-cost mines which in turn produce new great exploration targets. This cyclical characteristic is commonly shared by a small yet distinguished group of large mines such as Rio Tinto’s Bingham Canyon, Freeport-McMoRan Copper and Gold’s Grasberg and Newmont’s Yanacocha open-pit operations. San Cristobal, which was discovered by Apex Silver geologists, has all the attributes to join this elite group. Its current reserve contains sufficient ore to sustain production

ore, thus the orebody is considered open to depth. The management of Apex Silver believes that continued exploration in the volcanic depression should yield additional resources at Animas, Colon, East Jayula and Mulatos. None of these areas were included in the proven and probable reserve base as more infill drilling is required to bring their resources into reserve category. In addition to the areas associated with the primary deposit, Apex Silver will focus on a large number of satellite targets around San Cristobal, such as Toldos, Inca and Montes Claros.

for over fifteen years under the current feasibility plan and existing exploration targets are expected to extend the mine life well beyond that period. The San Cristobal property, 100%-owned by Apex Silver, encompasses approximately 186,000 hectares. The orebody, which occupies the central portion of a volcanic depression, is comprised of a disseminated silver-lead-zinc mineralization and includes the Jayula, Tesorerra and Delgado deposits collectively shaped as approximately three quarters of a donut. During the original exploration campaign which defined the existing reserve, Apex Silver did not conduct drilling in the remaining fourth of the “donut”, as the area was the site of the old town San Cristobal. That town has now been moved successfully to a different location. In addition to a possible lateral extension, the orebody has the potential to expand at depth as well. The current pit design bottoms at an approximately 350-meter depth, governed by the extent of the original drill holes. Of the approximately 700 drill holes that define the reserves at San Cristobal, 54% bottomed in

These targets will be actively pursued once the company begins generating cash from its mining operations. Our objective is to use these highly prospective areas as a springboard to increase our silver reserves to one billion ounces and zinc reserves to 20 billion pounds.

Dr. Larry J. Buchanan, Chief Geologist

13

3

Our Community

Defining New Standards for Sustainable Development Apex Silver has embraced the principles of sustainable development to guide its policies regarding communities and the environment surrounding its operations. The company strongly believes that successful mine development is inseparable from a well thought out community development. This philosophy, commonly referred to in the industry as the “San Cristobal Model”, has been recognized as an example of how future mines will be built anywhere in the world. The strength of the San Cristobal Model lies in the notion that the surrounding community should be sustained outside of mining activities regardless of the stage of development of mining operations. Apex Silver embarked on this program well in advance of commencing mining activities at San Cristobal.

First, together with the local community, it successfully and carefully relocated a 90-family town complete with a 400-year-old church (which was meticulously restored to its former glory) and a local cemetery, to a new, more acceptable site. Since its relocation, the town of San Cristobal has grown to accommodate 140 families. It has new better-equipped housing, a model school complete with company-provided computers, a local medical facility, a government house and services like water, sewage and power distribution. Second, Apex Silver planted the seeds for creating a local self-sustaining economic activity, which could capitalize on the particular attributes of the local geography, culture and tradition. Through its Bolivian subsidiary, Apex Silver provided funding for the development of the San Cristobal Foundation, which is 100%owned by the community and is co-managed by members of the local community. The Foundation implemented a number of critical local projects that can already provide livelihood to the 14

residents of the town of San Cristobal, well in advance of and outside the activities of the San Cristobal mine. For example, the Foundation facilitated construction of the San Cristobal hotel to take advantage of an increasing flow of tourists through the area. The hotel opening was followed by the inauguration of a mountain bicycle tour operator that allows tourists to take advantage of a multitude of biking trails in the area. A new greenhouse facility was created to grow vegetables for local consumption. Many more projects are on the go. In addition to the Foundation, Apex Silver contributes annually to different projects for the benefit of the local communities in alliance with other institutions that share Apex Silver’s vision of sustainable development. These co-sponsored projects along with various other community initiatives have not only provided employment in the region prior to commencing mining

operations, they have created the spirit of mutual respect, cooperation, transparency and trust between the company and the local residents. This spirit is a critical ingredient for the successful development of the San Cristobal project. Finally, Minera San Cristobal S.A., Apex Silver’s 100%-owned Bolivian subsidiary, is one of the founders of the Bolivian Business Council for Sustainable Development, a member of the World Business Council for Sustainable Development (WBCSD). Based in Geneva, Switzerland, WBCSD is a coalition of 170 international companies united by a shared commitment to sustainable development via the three pillars of economic growth, ecological balance and social progress.

Carlos H. Fernandez President and Chief Executive Officer, Andean Silver Corporation LDC, a wholly-owned subsidiary of Apex Silver

The Site is Ready for Development Preparation for an upcoming re-commencement of development at San Cristobal never stopped as Apex Silver awaited a muchanticipated recovery in commodity prices. With the town of San Cristobal successfully moved to a more desirable location in 1999, the company was well positioned to maintain the site in a condition for a quick start-up of activities once a production decision is made. The existing camp at the site of the old Toldos mine was kept in excellent shape to accommodate approximately 400 individuals that would need to be on site once construction begins. The warehouse, with some of the previously-procured equipment has been kept in a turn-key condition. At the peak of construction we expect to have approximately 2-3,000 individuals. Once operations

begin, San Cristobal is expected to have a workforce comprised of 500-700 employees and contractors. Mine preparation, mill construction and infrastructure development must proceed in a proper sequence to ensure safe and timely start-up. Our mining plans call for moving approximately 100,000 tonnes of material per day of which ore should constitute approximately 40%. The waste rock will be safely stockpiled, contoured and eventually revegetated. The ore will be transported to the mill where it will be crushed, milled and concentrated into three finished products: zinc, lead, and bulk concentrates totaling approximately 600,000 tonnes per year. These silver-rich concentrates will be shipped to smelters for final processing and metal recovery. While we expect a multi-national professional team working at San Cristobal, Bolivians will play a key role in building and

operating the project. Drawn from the local area as well as other communities around the country, these individuals will receive comprehensive training to perform their jobs efficiently, effectively and, most importantly, safely. This integrative approach to operations should produce a team spirit necessary for the successful startup at San Cristobal.

Michael F. Shaw Vice President, Project Manager, San Cristobal

15

3

Our Community

Defining New Standards for Sustainable Development Apex Silver has embraced the principles of sustainable development to guide its policies regarding communities and the environment surrounding its operations. The company strongly believes that successful mine development is inseparable from a well thought out community development. This philosophy, commonly referred to in the industry as the “San Cristobal Model”, has been recognized as an example of how future mines will be built anywhere in the world. The strength of the San Cristobal Model lies in the notion that the surrounding community should be sustained outside of mining activities regardless of the stage of development of mining operations. Apex Silver embarked on this program well in advance of commencing mining activities at San Cristobal.

First, together with the local community, it successfully and carefully relocated a 90-family town complete with a 400-year-old church (which was meticulously restored to its former glory) and a local cemetery, to a new, more acceptable site. Since its relocation, the town of San Cristobal has grown to accommodate 140 families. It has new better-equipped housing, a model school complete with company-provided computers, a local medical facility, a government house and services like water, sewage and power distribution. Second, Apex Silver planted the seeds for creating a local self-sustaining economic activity, which could capitalize on the particular attributes of the local geography, culture and tradition. Through its Bolivian subsidiary, Apex Silver provided funding for the development of the San Cristobal Foundation, which is 100%owned by the community and is co-managed by members of the local community. The Foundation implemented a number of critical local projects that can already provide livelihood to the 14

residents of the town of San Cristobal, well in advance of and outside the activities of the San Cristobal mine. For example, the Foundation facilitated construction of the San Cristobal hotel to take advantage of an increasing flow of tourists through the area. The hotel opening was followed by the inauguration of a mountain bicycle tour operator that allows tourists to take advantage of a multitude of biking trails in the area. A new greenhouse facility was created to grow vegetables for local consumption. Many more projects are on the go. In addition to the Foundation, Apex Silver contributes annually to different projects for the benefit of the local communities in alliance with other institutions that share Apex Silver’s vision of sustainable development. These co-sponsored projects along with various other community initiatives have not only provided employment in the region prior to commencing mining

operations, they have created the spirit of mutual respect, cooperation, transparency and trust between the company and the local residents. This spirit is a critical ingredient for the successful development of the San Cristobal project. Finally, Minera San Cristobal S.A., Apex Silver’s 100%-owned Bolivian subsidiary, is one of the founders of the Bolivian Business Council for Sustainable Development, a member of the World Business Council for Sustainable Development (WBCSD). Based in Geneva, Switzerland, WBCSD is a coalition of 170 international companies united by a shared commitment to sustainable development via the three pillars of economic growth, ecological balance and social progress.

Carlos H. Fernandez President and Chief Executive Officer, Andean Silver Corporation LDC, a wholly-owned subsidiary of Apex Silver

The Site is Ready for Development Preparation for an upcoming re-commencement of development at San Cristobal never stopped as Apex Silver awaited a muchanticipated recovery in commodity prices. With the town of San Cristobal successfully moved to a more desirable location in 1999, the company was well positioned to maintain the site in a condition for a quick start-up of activities once a production decision is made. The existing camp at the site of the old Toldos mine was kept in excellent shape to accommodate approximately 400 individuals that would need to be on site once construction begins. The warehouse, with some of the previously-procured equipment has been kept in a turn-key condition. At the peak of construction we expect to have approximately 2-3,000 individuals. Once operations

begin, San Cristobal is expected to have a workforce comprised of 500-700 employees and contractors. Mine preparation, mill construction and infrastructure development must proceed in a proper sequence to ensure safe and timely start-up. Our mining plans call for moving approximately 100,000 tonnes of material per day of which ore should constitute approximately 40%. The waste rock will be safely stockpiled, contoured and eventually revegetated. The ore will be transported to the mill where it will be crushed, milled and concentrated into three finished products: zinc, lead, and bulk concentrates totaling approximately 600,000 tonnes per year. These silver-rich concentrates will be shipped to smelters for final processing and metal recovery. While we expect a multi-national professional team working at San Cristobal, Bolivians will play a key role in building and

operating the project. Drawn from the local area as well as other communities around the country, these individuals will receive comprehensive training to perform their jobs efficiently, effectively and, most importantly, safely. This integrative approach to operations should produce a team spirit necessary for the successful startup at San Cristobal.

Michael F. Shaw Vice President, Project Manager, San Cristobal

15