Silver Mines

October 31, 2011 06:34 ET

1st Quarter cash flow and activities report

                                                                                           Silver Mines Limited
                                                                                             FKP House, Level 5
                                                                                            17-19 Bridge Street
                                                                                              Sydney, NSW, 2065
                                                                                             P: +61 2 9253 0900

31 October, 2011

Company Announcements
Australian Securities Exchange Limited
Level 4, 20 Bridge Street
Sydney NSW 2000

By electronic lodgement - 5 pages




    -   Reverse Circulation (RC) program completed 98 RC holes drilled during the September Quarter for
        7,679m. Results continue to demonstrate near surface silver rich mineralisation at Webbs, and the potential for
        this to continue at depth where the deposit remains open in many locations.
    -   Diamond Drilling (DD) program with 11 DD holes completed during the September Quarter for 1,568.2m.
        Results generally support, infill and extend previous drilling. This program is ongoing.
    -   Mineralurgy Pty Ltd appointed to oversee Metallurgical Testwork Program and Develop Process Flow Sheet
        to Pre-Feasibility Level.
    -   Regional Exploration around Webbs continues to generate excellent targets
    -   Corporate - cash position at the end of the quarter - $2.39 million. On the 6 September 2011, the
        Company announced a Pro Rata Offer of Options to Shareholders. The Offer was completed in October 2011 with the
        issue of 6,728,525 options to shareholders and a further 6,882,207 shortfall options to professional and
        sophisticated investors.  The Options have an exercise price of 35 cents and expire 31 October 2012.


Webbs Silver Project - EL5674

1.      RC Drilling

SVL commenced a large program of RC drilling at the Webbs Silver Project in early June 2011. This program is
designed to increase tonnage and upgrade the JORC classification of the existing high grade silver resource as
well as test near surface potential of exploration targets along the Webbs trend. During the September quarter
98 RC holes were completed for a total of 7,679m. Results were also received for holes drilled prior to the
September quarter. Results for all holes from this program have previously been released to the market in ASX
Announcements of 1 July 2011, 19 August 2011, 2 September 2011 and 7 October 2011. Please refer to these
Announcements for full details. This program has now been completed.

Results continue to demonstrate the high grade nature of the deposit extending to surface as well as highlight
potential depth extensions as well as the possible development of multiple lode horizons. Additional RC
drilling is planned to close up near surface gaps along the trend and test for depth extensions.

Better intersections from the drilling include:
     -   RC137   4m@ 309g/t Ag, 0.02% Cu, 0.9% Pb and 1.1% Zn from 56m
     -   RC153   2m @ 425g/t Ag, 0.7% Cu, 2.1% Pb and 1.4% Zn from 10m
     -   RC162   2m @ 206g/t Ag, 0.04% Cu, 0.01% Pb and 0.01% Zn from 20m
     -   RC177   4m @ 153g/t Ag, 0.5% Cu, 2.0% Pb and 3.2% Zn from 17m
     -   RC178   1m @ 705g/t Ag, 2.6% Cu, 7,7% Pb, 11.0% Zn from surface
     -   RC179   3m @ 159g/t Ag, 0.6% Cu, 1.4% Pb, 2.2% Zn from 6m
     -   RC203   2m @ 519g/t Ag, 1.2% Cu, 5.2% Pb, 10.5% Zn from 22m
     -   RC204   1m @ 2129g/t Ag, 1.1% Cu, 0.1% Pb, 4.0% Zn from 27m
     -   RC209   5m @ 496g/t Ag, 0.9% Cu, 1.2% Pb, 1.3% Zn from 10m
     -   RC211   5m @ 161g/t Ag, 0.01% Cu, 1.5% Pb, 3.5% Zn from 10m
     -   RC214   15m @ 258g/t Ag, 0.01% Cu, 0.4% Pb, 2.9% Zn from 39m
         incl.   2m @ 732g/t Ag, 0.01% Cu, 0.2% Pb and 3.1% Zn from 52m
     -   RC219   8m @ 590g/t Ag, 0.01% Cu, 0.6% Pb, 3.3% Zn from 87m
         incl.   2m @ 1246g/t Ag, 0.01% Cu, 0.4% Pb and 5.4% Zn from 88m
     -   RC235 - 5m@ 113g/t Ag, 0.01% Cu, 0.1% Pb and 0.1% Zn from 93m
     -   RC235 - 2m @ 282g/t Ag, 0.4% Cu, 2.3% Pb and 3.9% Zn from 111m
     -   RC238 - 3m@ 195g/t Ag, 0.29% Cu, 2.86% Pb and 2.31% Zn from 17m
     -   RC238 - 2m @ 320g/t Ag, 0.21% Cu, 2.07% Pb and 2.46% Zn from 71m
     -   RC243 - 5m @ 182g/t Ag, 0.25% Cu, 1.35% Pb and 1.45% Zn from 32m
     -   RC246 - 2m @ 219g/t Ag, 0.25% Cu, 0.99% Pb and 3.68% Zn from 19m
     -   RC247 - 5m @ 347g/t Ag, 0.29% Cu, 1.73% Pb and 1.82% Zn from 28m
     -   Incl.    -1m @ 790g/t Ag, 0.52% Cu, 2.66% Pb and 2.47% Zn from 31m
     -   RC250  10m @ 327g/t Ag, 0.52% Cu, <0.1% Pb and 2.53% Zn from 172m
     -   Incl.    - 2m @ 863g/t Ag, 1.31% Cu,< 0.1% Pb and 3.53% Zn from 174m
     -   RC254- 13m @ 731g/t Ag, 0.84% Cu, 2.46% Pb and 2.10% Zn from 81m
     -   Incl.     - 4m @ 2095g/t Ag, 2.31% Cu, 5.31% Pb and 4.17% Zn from 86m
     -   RC256 - 21m @ 212g/t Ag, 0.4% Cu, 0.9% Pb and 2.9% Zn from 83m
     -   Incl.    -  6m @ 399g/t Ag, 0.9% Cu, 0.6% Pb and 6.1% Zn from 97m
     -   RC257 -  1m @ 268g/t Ag, 0.3% Cu, 2.6% Pb and 2.5% Zn from 17m
     -   RC257 -  1m @ 613g/t Ag, 1.4% Cu, 5.1% Pb and 2.2% Zn from 26m
     -   RC260 -  4m @ 293g/t Ag, 0.8% Cu, 3.0% Pb and 3.3% Zn from 33m
     -   Incl.     -  1m @ 746g/t Ag, 2.2% Cu, 6.4% Pb and 6.9% Zn from 35m
     -   RC261 - 4m @ 226g/t Ag, 0.7% Cu, 1.5% Pb and 2.6% Zn from 37m
     -   RC262 - 8m @ 169g/t Ag, 0.4% Cu, 1.7% Pb and 2.4% Zn from 17m
     -   Incl.     - 2m @ 283g/t Ag, 0.8% Cu, 2.8% Pb and 4.4% Zn from 23m

Updated interpretations of the new drilling results are currently underway and will be incorporated into a new
resource estimate expected to be completed by December 2011.

2.      Diamond Drilling

Diamond commenced in August 2011 and to the end of the September quarter 11 holes had been completed for a
total of 1,568.2m. The diamond drilling program is designed to provide additional geological and structural
information to assist in resource estimation. This is achieved by twinning or infilling the RC drill pattern.
Drill core will also be used for geotechnical assessment and in metallurgical testwork.

To date this drilling has resulted in 8 intersections through the mineralised zone. The drill core through
these sections is usually quite competent. Strong sericite-quartz-carbonate alteration is present with
sulphides; sphalerite-tetrahedrite-galena and chalcopyrite occurring as fracture or breccia fill and locally as
massive sulphide veins up to 30cm thick.

Diamond drilling has also been used to extend or 'diamond tail' 3 previously drilled RC holes. Two of these
holes where abandoned short of target and one intersected weakly developed lode.

Processing of the drill core is ongoing. The first batch of results will be released to the market when

3.      Metallurgical Testwork

Silver Mines is pleased to announce that it has engaged Mineralurgy Pty Ltd to oversee a metallurgical testwork
program for the Webbs Silver Project. Mineralurgy is represented by world recognised metallurgical consultant,
Mr Peter Munro. Peter is regarded as an expert on silver-lead-zinc metallurgy and has worked extensively on
complex polymetallic projects in Australia and overseas. Peter will develop and supervise the metallurgical
test work program and develop the process flowsheet and design criteria for a potential processing plant for
the project.

Regional Exploration, New England Area, NE NSW - ELs 6114 and 6771

SVL released results (ASX release - 12 July 2011) from rock chip sampling and induced polarization surveys on
its 100% owned Exploration Licenses 6771 and 6114. Results were highly encouraging and revealed numerous new
targets associated with silver rich polymetallic mineralisation. These results serve to highlight the potential
for Webbs style targets in the region to the north of Webbs in a similar geological setting.

    -   Silver values in rock chips up to 2,950 g/t, copper to 1.7%, lead to 15.1% and zinc to 28.9%.
    -   165 rock chip samples were collected and approximately 10.6 line km of Dipole-Dipole Induced
        Polarization (IP) completed.
    -   Mineralisation is associated with sulphide veining and disseminations in altered sediments and
        granitic rocks, proximal to the Triassic Mole Granite - which is a major source of local silver base metal and
        tin mineralisation.
    -   Some IP anomalies are proximal to elevated geochemistry and old workings. IP anomalies not associated
        with old workings remain to be mapped and sampled.

    -   Silver Mines considers the style of mineralisation identified during this program to be similar to
        that which occurs at the Webbs Silver deposit defined as narrow zones of 'bonanza lode' enveloped in lower
        grade altered and mineralized country rock.


The December Quarter will continue to be an exciting time for Silver Mines with the following key programs
underway or planned to commence;
    -   Resource Model upgrade at Webbs incorporating new drilling
    -   Complete diamond core processing, assaying in preparation for selection of metallurgical samples
    -   Commence metallurgical testwork program
    -   Exploration drilling on regional targets.

    -   Plan for deeper drilling at Webbs
    -   Continued rehabilitation of drill sites at Webbs
Please direct any queries regarding the content of this report to Charles Straw (CEO) on
+61 2 9253 0900 or

Charles Straw

Managing Director

The  information  in this Document that relates to Exploration Results, Mineral Resources or  Ore  Reserves  is
based on information compiled by Mr Charles Straw, CEO of Silver Mines and Mr David Hobby, consulting geologist
to  SVL, Mr Straw and Mr Hobby are Members of The Australasian Institute of Mining and Metallurgy. Mr Straw and
Mr  Hobby have sufficient experience which is relevant to the style of mineralisation and type of deposit under
consideration and to the activity which they are  undertaking to qualify as a Competent Persons as  defined  in
the  2004 Edition of the 'Australasian Code for Reporting of Exploration' for Reporting of Exploration Results,
Mineral Resources and Ore Reserves'. Both Mr Straw and Mr Hobby consent to the inclusion in the report  of  the
matters based on his information in the form and context in which it appears.

Silver Mines Limited
ACN 107 452 942

                                                                                                 Appendix 5B
                                                                  Mining exploration entity quarterly report

                                                                                                    Rule 5.3
                                                Appendix 5B

                                Mining exploration entity quarterly report
Introduced 1/7/96.  Origin:  Appendix 8.  Amended 1/7/97, 1/7/98, 30/9/2001, 01/06/10.

Name of entity

ABN                                                             Quarter ended ("current quarter")
45 107 452 942                                                            30 September 2011

Consolidated statement of cash flows
                                                         Current quarter          Year to date (3
Cash flows related to operating activities               $A'000                   months)
1.1     Receipts from product sales and related                                   
1.2     Payments for   (a)  exploration & evaluation     (931)                    (931)
                       (b)  development                                           
                       (c)  production                                            
                       (d)  administration               (271)                    (271)
1.3     Dividends received                                                        
1.4     Interest and other items of a similar nature     30                       30
1.5     Interest and other costs of finance paid         (1)                      (1)
1.6     Income taxes paid                                                         
1.7     Other (provide details if material) Pre paid     ----------------------------------------
                                                         (1,173)                  (1,173)
        Net Operating Cash Flows
        Cash flows related to investing activities
1.8     Payment for purchases of: (a)  prospects                                  
                      (b)  equity investments            -                        -
                      (c)  other fixed assets            -                        -
1.9     Proceeds from sale of:    (a)  prospects         -                        -
                      (b)  equity investments            -                        -
                      (c)  other fixed assets            -                        -
1.10    Loans to other entities                                                   
1.11    Loans repaid by other entities                                            
1.12    Other (provide details if material)              ----------------------------------------
                                                         -                        -
        Net investing cash flows
1.13    Total operating and investing cash flows         (1,173)                  (1,173)
        (carried forward)
1.13    Total operating and investing cash flows         (1,173)                  (1,173)
        (brought  forward)                               ----------------------------------------
        Cash flows related to financing activities
1.14    Proceeds from issues of shares, options, etc.    191                      191
1.15    Proceeds from sale of forfeited shares                                    
1.16    Proceeds from borrowings                                                  
1.17    Repayment of borrowings                                                   
1.18    Dividends paid                                                            
1.19    Other (provide details if material)              ----------------------------------------
        Net financing cash flows                         191                      191
        Net increase (decrease) in cash held             (982)                    (982)
1.20    Cash at beginning of quarter/year to date        3,371                    3,371
1.21    Exchange rate adjustments to item 1.20           ----------------------------------------
1.22    Cash at end of quarter                           2,389                    2,389

Payments to directors of the entity and associates of the directors
Payments to related entities of the entity and associates of the related entities
                                                                                           Current quarter
1.23     Aggregate amount of payments to the parties included in item 1.2                  21
1.24     Aggregate amount of loans to the parties included in item 1.10
1.25     Explanation necessary for an understanding of the transactions
         Director Fees
Non-cash financing and investing activities
2.1    Details of financing and investing transactions which have had a material effect on consolidated
       assets and liabilities but did not involve cash flows

2.2    Details of outlays made by other entities to establish or increase their share in projects in
       which the reporting entity has an interest

Financing facilities available
Add notes as necessary for an understanding of the position.

                                                                  Amount available          Amount used
                                                                  $A'000                    $A'000
3.1    Loan facilities                                                            
3.2    Credit standby arrangements                                                

Estimated cash outflows for next quarter                             ----------------------------------------
4.1    Exploration and evaluation                                     -
4.2    Development                                                    
4.3    Production                                                     
4.4    Administration                                                 350
       Total                                                          350
Reconciliation of cash
Reconciliation of cash at the end of the quarter (as   Current quarter         Previous quarter
shown in the consolidated statement of cash flows) to  $A'000                  $A'000
the related items in the accounts is as follows.       
5.1   Cash on hand and at bank                         94                      40
5.2   Deposits at call                                 2,295                   3,331
5.3   Bank overdraft                                   -                       -
5.4   Other (provide details)                          -                       -
      Total: cash at end of quarter (item 1.22)        2,389                   3,371

Changes in interests in mining tenements

                                  Tenement      Nature of interest             Interest     Interest
                                  reference     (note (2))                     at           at end of
                                                                               beginning    quarter
                                                                               of quarter
6.1   Interests in mining                                                                             
      tenements relinquished,
      reduced or lapsed
6.2   Interests in mining         -                                                         
      tenements acquired or
Issued and quoted securities at end of current quarter
Description  includes  rate of interest and any redemption or conversion rights together  with  prices  and

                           Total number        Number quoted      Issue price per     Amount paid up per
                                                                  security (see       security (see note
                                                                  note 3) (cents)     3) (cents)
7.1     Preference                                                                    
7.2     Changes during                                                                
        (a)  Increases
        through issues
        (b)  Decreases
        through returns
        of capital, buy-
7.3     +Ordinary          135,105,618         135,105,618                            
7.4     Changes during                                                                
        (a)  Increases     1,000,000           1,000,000          17    cents    per  17 cents per share
        through issues                                            share
        (b)  Decreases
        through returns
        of capital, buy-
7.5     +Convertible                                                                  
        debt securities
7.6     Changes during                                                                
        (a)  Increases
        through issues
        (b)  Decreases
7.7     Options                                                   Exercise price      Expiry date
        (description and                                                              
        factor)            2,000,000           -                  Unlisted Options,   Expiry 27 August
                                                                  exercise price 24   2012.Vest 27
                                                                  cents,              February 2011
                           2,000,000           -                  Unlisted Options,   Expiry 27 August
                                                                  exercise price 40   2013. Vest - 27
                                                                  cents, Expiry 27    August 2011
                                                                  August 2013.        
                                                                  Vest - 27 August    
                           5,000,000           -                  Unlisted Options,   Expiry  Date  1   May
                                                                  exercise price      2012
                                                                  35 cents,           
                           8,500,000           -                  Unlisted Employee   Expiry Date 23
                                                                  Options, exercise   December  2015
                                                                  price  50 cents,    
                                                                  Employee Options,   
                           3,500,000           -                  exercise price      Expiry Date 6 July
                                                                  20 cents,           2012
                           3,000,000           -                  Rights

7.8     Issued during                                                                 
7.9     Exercised during   1,000,000                              Unlisted Options,   Expiry    27   August
        quarter                                                   exercise price 17   2011.
7.10    Expired during                                                                
7.11    Debentures                                                                    
        (totals only)
7.12    Unsecured notes                                                               
        (totals only)

Compliance statement

1         This statement has been prepared under accounting policies which comply with accounting standards
          as defined in the Corporations Act or other standards acceptable to ASX (see note 4).

2         This statement does give a true and fair view of the matters disclosed.

Sign here:              ............................................................Date:    ..     October
                    (Company secretary)

Print name:         ...Kevin Lynn......................................................


1         The quarterly report provides a basis for informing the market how the entity's activities have
          been financed for the past quarter and the effect on its cash position.  An entity wanting to
          disclose additional information is encouraged to do so, in a note or notes attached to this

2         The "Nature of interest" (items 6.1 and 6.2) includes options in respect of interests in mining
          tenements acquired, exercised or lapsed during the reporting period.  If the entity is involved
          in a joint venture agreement and there are conditions precedent which will change its percentage
          interest in a mining tenement, it should disclose the change of percentage interest and
          conditions precedent in the list required for items 6.1 and 6.2.

3         Issued and quoted securities  The issue price and amount paid up is not required in items 7.1 and
          7.3 for fully paid securities.

4         The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB
          1026: Statement of Cash Flows apply to this report.

5         Accounting Standards ASX will accept, for example, the use of International Accounting Standards
          for foreign entities.  If the standards used do not address a topic, the Australian standard on
          that topic (if any) must be complied with.

                                              == == == == ==

+ See chapter 19 for defined terms.

Contact Information

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