Silver Mines
LSE : SVLP

October 01, 2009 06:50 ET

Annual Financial Report

                                                     

                                                 SILVER MINES LIMITED
     
                                                          
                                                          
                                                  STATUTORY REPORT
                                                          
                                                    30 JUNE 2009
     
     
     
     
     
     
Contents



                                                                                       Page

Directors' Report                                                                         2
Auditor's Independence Declaration                                                       10
Income Statement                                                                         11
Balance Sheet                                                                            12
Statement of Changes in Equity                                                           13
Statement of Cash Flows                                                                  14
Notes to the Financial Statements                                                        15
Directors' Declaration                                                                   34
Independent Audit Report                                                                 35
Corporate Directory                                                                      37
                                                 SILVER MINES LIMITED
                                                  DIRECTORS' REPORT




The Directors present their report on the Company for the year ended 30 June 2009.

Directors

The Directors of Silver Mines Limited during the financial year and until the date of this report are:

David Henty Sutton (Non Executive Director -Chairman)
Kim Austen Slater (Non Executive Director)
David John Straw (Non Executive Director)
Malcolm Harvey Bird (Non Executive Director)

Principal Activities

During the 12 months to June 30 2008 Silver Mines Limited (SVL) continued to aggressively explore its NSW tenements
with the majority of work and expenditure focused on the Webbs Silver Project on EL5674. The Company wound back its
exploration activities as a result of the global economic downturn and put in place work programs to conserve
capital in September 2008.

Webbs Silver Project (EL5674)
    
*  Webbs Silver Project Global inferred resource estimate (dated August 2008) of 670,000 tonnes at 210g/t
   silver (6.8 ounces per tonne silver) for 4.5 million ounces of silver.

*  Webbs Silver South Prospect inferred resource (which is part of the Global estimate above) of 510,000
   tonnes at 230g/t silver (7.4 ounces per tonne silver) for 3.8 million ounces of silver.
    
*  Copper, zinc and lead provide significant value to the Inferred Resource representing 40% of the calculated
   value in this model.
    
Our interpretation of the project is that a north-south trending mineralised envelope exists over a strike length of
approximately 2,000m with the historic Webbs Silver Mine located in the northern third. The envelope is up to 15
metres wide in places and contains a series of higher grade silver-rich polymetallic veins up to five metres wide
and up to 100 metres long and at least 250 metres deep from the surface - as is the case at the Webbs Silver Mine.
These higher grade lodes have been the primary target for the exploration to date (Figure 1).

Our exploration team has successfully demonstrated that the interpretation is valid and have thus far delineated
eight high priority targets within the mineralised envelope. Of these eight targets only four have been drilled by
us and silver-rich polymetallic mineralisation has been intersected in all four. The product of this drilling is an
Inferred Resource estimate for the four targets as shown above.

This is an excellent result and demonstrates not only that our team has a successful targeting strategy but also
demonstrates that the project is showing all the signs of a potential mine.

Other Tenements

Our Mole River projects continue to deliver good results with a number of targets generated that require ground
geophysics and drilling. SVL will continue to place these projects on care and maintenance until financing
opportunities improve.

Results

The Company incurred a pre-tax operating loss of $673,091 (2008: loss $546,480).


Dividends

No  dividend  has  been  paid since the end of the previous financial year and no dividend is  recommended  for  the
current year, (2008 - nil).


Review of Operations

The comprehensive review of operations is covered in the General Managers Report that accompanies these accounts.

Significant Changes in the State of Affairs

There were no significant changes in the state of affairs in the Company during the year.

Events subsequent to reporting date

Since 30 June the Company has raised a total of $428,000 through the issue of 3,200,000 shares at 3.5 cents per
share and 7,900,000 shares at 4 cents per share.

Other than the raising of additional capital, there has not arisen in the interval between the end of the financial
year and the date of this report any item, transaction or event of a material and unusual nature likely, in the
opinion of the Directors of the Company, to affect significantly the operations of the Company, the results of those
operations, or the state of affairs of the Company in future financial years.


Likely developments

Information on likely developments is included in the Chairman's Report accompanying this financial report.

Further information about likely developments in the operations of the Company and the expected results of those
operations in future financial years has not been included in this report because disclosure of the information
would be likely to result in unreasonable prejudice to the Company.


Environmental Issues

The Company's Project Areas are located on exploration licences issued by the Department of Mineral Resources and
operate under an environmental licence issued by the Environmental Protection Authority.

These licences require the preparation of an annual Environmental Management Report and a Mining Operations Plan.

The Company had statutory obligations to protect the environment in which it was exploring.  During the reporting
period the Company did not fail to meet its obligations pursuant to any environmental legislation.

                                                
Information on Directors

David Henty Sutton, Non-Executive Chairman

David has many years experience in stock broking and investment banking. Since 2002 he has been Executive Chairman
of Martin Place Securities Pty Ltd, a boutique investment firm holding an AFS Licence, where his responsibilities
include management of corporate finance, advisory and share broking facilities within the firm. Martin Place
Securities Pty Ltd provides services in corporate advisory, stock broking, and investment research, with particular
emphasis on the resources and energy sectors.

Prior to his current role David was a partner and Director of several Australian Stock Exchange firms including
Clarke & Co, McNab Clarke and more recently, a Director of TA Securities, Hudson Securities and Terrain Securities.
He became a member of the Stock Exchange of Melbourne and subsequently of the Australian Stock Exchange Limited.

His past experience of directorships of public companies includes Imperial Corporation Ltd., (a company producing
natural gas in the United States), Sinovus Mining Limited, Fall River Resources Limited and Imperial Corporation
Limited.

Other listed company directorships held during past 3 years:
Sinovus Mining Limited
Imperial Corporation Ltd
Reef Mining Limited

David John Straw, Non-Executive Director

David Straw is a geologist with extensive experience in all phases of mineral exploration, project development,
joint ventures, mine development, production, valuation and finance, across most commodities including silver, gold,
tin, tungsten, base metals, iron ore, mineral sands, uranium, asbestos and coal. He has wide experience with
companies, governments and individuals. He also has an intimate knowledge of all levels of corporate administration.
His global experience includes, but is not limited to, Australia, Canada, USA, Mexico, Africa (South, West and
Central), Europe and South-East Asia.

David has held a broad range of technical, managerial and advisory positions through his career to both small and
large exploration and mining companies as well as governments.

Selected highlights from his career include; Chief Geologist at Canadian Johns-Manville Co. Ltd., Director of
Yerranderie Silver Limited and of Mareeba Mining and Exploration Limited. He also has held various positions
including Vice President Exploration, Vice President Mineral Development and Directors of Inco Australia and Inco
Indonesia. He was Deputy Managing Director of merchant bank Westralian International, and a Director of Robe River
Ltd. He has held various positions form Operations Manager to General Manager Corporate Development of Mount Isa
Mines and Director of various subsidiaries. At BMI Limited he held various positions including General Manager and
Director of mining subsidiaries.

Other listed company directorships held during past 3 years:
Arthar Resources Corp
Tearlach Resources Ltd

Kim Austen Slater, Non-Executive Director:

Kim Slater has over 25 years experience in senior executive roles within the banking and financial services
industry. Over this time he has provided specialist advice on structured products, hybrids, fixed interest, and
equity derivative products to the Board and executives of major public and private institutions. He has held
positions with County Natwest, Deustche Bank, and Salomon Smith Barney. His background in derivatives led him to
being involved in many large corporate transactions, breaking new ground in the use of derivatives in takeovers and
corporate finance.
                                                
More recently Kim operates an independent boutique advisory practice that specialises in providing strategic advice
and corporate guidance to Boards and senior executives of ASX-listed companies. His experience in successfully
driving development and executing strategy combined with the experience and knowledge of owning and operating his
own small business, give a useful and varied perspective to the strategic aspirations of Silver Mines Ltd.
                                                          
Other listed company directorships held during past 3 years:
Mobile Soft Limited

Malcolm Harvey Bird, Non Executive Director

Malcolm Bird has over 35 years experience in the stock broking industry with an emphasis on mining investments. He
is currently a Director of Morning Star Gold NL and has been on the Board of Central West Gold NL since its creation
17 years ago.

Other listed company directorships held during past 3 years:
Morning Star Gold NL
Central West Gold NL

Company Secretary
Kevin Lynn B.Bus, CA, FAIDC, FFin
Mr  Lynn is a Chartered Accountant with over 20 years corporate and finance and is also Company Secretary to several
listed companies.
       
Remuneration Report

Remuneration policy

The remuneration policy of Silver Mines Limited has been designed to align director and executive objectives
with shareholder and business objectives by providing a fixed remuneration component and offering specific long
term incentives based on key performance indicators affecting the Company's financial results. The Board of
Silver Mines Limited believes the remuneration policy to be appropriate and effective in its ability to attract
and retain the best executives and directors to run and manage the Company.

The Board's policy for determining the nature and amount of remuneration for Board members and senior executives
of the Company is as follows:

The  remuneration  policy,  setting  the  terms and conditions for the  executive  Directors  and  other  senior
executives, was developed by the Board. All executives receive a base salary (which is based on factors such  as
length of service and experience) and superannuation. The Board reviews executive packages annually by reference
to  the Company's performance, executive performance and comparable information from industry sectors and  other
listed companies in similar industries.

The Board may exercise discretion in relation to approving incentives, bonuses and options. The policy is
designed to attract the highest calibre of executives and reward them for performance that results in long term
growth in shareholder wealth.

Executives are also entitled to participate in the employee share and option arrangements.
The executive Directors and executives receive a superannuation guarantee contribution required by the
government, which is currently 9%, and do not receive any other retirement benefits.

All remuneration paid to Directors and executives is valued at the cost to the Company and expensed. Options are
valued using the Black & Scholes methodology.

The Board policy is to remunerate Non Executive Directors at market rates for comparable companies for time,
commitment and responsibilities. The Board determines payments to the Non Executive Directors and reviews their
remuneration annually, based on market practice, duties and accountability. Independent external advice is
sought when required. The maximum aggregate amount of fees that can be paid to Non Executive Directors is
subject to approval by shareholders at the Annual General Meeting (currently $250,000). Fees for Non Executive
Directors are not linked to the performance of the Company. However, to align Directors' interests with
shareholder interests, the Directors are encouraged to hold shares in the Company and are able to participate in
employee option plans.

Performance based remuneration

The Company currently has no performance based remuneration component built into the General Managers executive
remuneration package.

Company performance, shareholder wealth and Directors' and executives' remuneration

The remuneration policy has been tailored to increase goal congruence between shareholders and Directors and
executives. Currently, this is facilitated through the issue of options to the majority of Directors and
executives to encourage the alignment of personal and shareholder interests. The Company believes this policy
will be effective in increasing shareholder wealth. At commencement of mine production, performance based
bonuses based on key performance indicators are expected to be introduced. For details of Directors' and
executives' interests in options at year end, refer note 15 of the financial statements.

The Directors have set the base fees payable as follows -
Non-executive Chairman                                         $30,000 per annum
Non-executive Directors                                        $30,000 per annum
Audit Committee members                                           $Nil per annum

In addition to the fees above, the Company makes compulsory superannuation contributions on behalf of each
Director in accordance with the Superannuation Guarantee Act. The Company does not have any schemes for
retirement benefits for Non-Executive Directors.

Service Agreements

There are no other service agreements.

      Director remuneration for the year ended 30 June 2009

                            Salary     Non      Super-   Retirement  Equity    Other     Total
                            & Fees   Monetary annuation  benefits    Options   Bonuses
    D Sutton                
    2009                    30,000          -      -         -          -                30,000  
    2008                    30,000          -      -         -          -                30,000
    D Straw                 
    2009                    30,000          -      -         -          -                30,000
    2008                    30,000          -      -         -          -                30,000
                                                                   
    K Slater                
    2009                    30,000          -      -         -          -                30,000 
    2008                    30,000          -      -         -          -                30,000
                            
    M Bird                  
    2009                    30,000          -      -         -          -                30,000  
    2008                    30,000          -      -         -          -                30,000
                                                                   

The Directors were each paid $7,500 in cash for the three month period 30 September 2008 and resolved to take their
fees for the remaining period in the form of shares in the Company. The Shares will be valued at the weighted
average share price of the Company shares during the quarter in which the fees became due and payable. The issue of
these shares will be the subject of a resolution to be put to shareholders at the Company's next Annual General
Meeting.
       
                                                         
Remuneration of the 5 named executives who receive the highest remuneration for the year ended 30 June 2009
       
                            Salary    Non       Super-        Retirement     Equity    Other        Total
                            & Fees    Monetary  annuation     benefits       Options   Bonuses
                                                              
                                     
    K Lynn                  
    2009                    36,000           -          -            -             -         -     36,000  
    2008                    36,000           -          -            -             -         -     36,000
                                     
    C Straw                 
    2009                    160,560          -          -            -             -         -    160,560 
    2008                    154,505          -     13,905            -             -    25,000    193,410
                                     



Options granted as part of remuneration

No  options  were  issued  to Directors or executives as part of their remuneration for the  year.  For  details  of
Directors and executives interests in options at year end, refer note 15 of the financial statements.

Performance Income as a proportion of total remuneration

No performance based bonuses have been paid to Directors during the financial year. It is the intent of the Board
to include performance bonuses as part of remuneration packages when mine production commences.

Meetings of Directors

The  following table sets out the number of meetings of the Company's Directors during the year ended 30  June  2009
and the number of meetings attended by each Director.


        Name                                                               Board Meetings
                                                                      Eligible       Attended
        D Sutton                                                          6             6
        M Bird                                                            6             6
        D Straw                                                           6             -
        K Slater                                                          6             6
        C Straw as Alternate Director for D Straw                         -             6
        
      
In light of the current activities and size of then Company, it is not presently considered necessary for a separate
Audit and Remuneration Committees of the Board. No Audit, Remuneration or Nomination and Remuneration Committee
Meetings were held during the year, with all relevant matters being considered by the full Board of Directors.
This situation will be kept under constant review by the Board.


Shares and Options

During the year the Company issued 5,305,000 shares at an issue price of 3.5 cents per share. No new options were
issued.
       
                           
Corporate Governance

In recognising the need for the highest standards of corporate behaviour and accountability, the Directors support
and have adhered to the principles of corporate governance. The Company's corporate governance statement follows the
financial report.
      
Non-Audit Services

The Company engages the services of its auditor, Graham Abbott Associates, on other assignments in addition to their
statutory audit duties where the firm's expertise and experience with the Company are beneficial. Non-audit services
to be undertaken by the auditor are referred to the Chairman of the Company for approval where the fees are expected
to exceed $10,000.

The Board of Directors has considered the level and nature of non-audit services provided by the auditor during the
year and, in accordance with the advice received from the Audit Committee, is satisfied that the provision of the
non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations
Act 2001. The Directors are satisfied that the nature and scope of each type of non-audit service provided by the
auditor did not compromise the auditor independence requirements of the Corporations Act 2001. Details of the
amounts paid or payable to the auditor for audit and non-audit services provided during the year are set out below.


                                                                                2009               2008
                                                                                  $                  $
Audit services:                                                                              
Remuneration for audit and review of financial reports under the             
Corporations Act 2001                                                        19,192             16,950
                                                                                             
Other assurance services:                                                                    
                                                                                             
Independent Accountants Report - UK Plus Listing                                  -              5,930
                                                                                                     -
                                                                                             
Total auditor's remuneration                                                 19,192             22,880


Directors and Officers Indemnification

During the financial year Silver Mines Limited paid premiums of $14,580 (2008: $29,051) to insure the Directors  and
Officers of the Company.

The Company has agreed to indemnify and keep indemnified the Directors and Officers of the Company against all
liabilities incurred by the Directors or Officers as a Director or Officer of the Company and all legal
expenses incurred by the Directors or Officers as a Director or Officer of the Company.

The indemnity only applies to the extent and in the amount that the Directors or Officers are not indemnified
under any other indemnity, including an indemnity contained in any insurance policy taken out by the Company,
under the general law or otherwise.

The indemnity does not extend to any liability:

* to the Company or a related body corporate of the Company; or
* arising out of conduct of the Directors or Officers involving a lack of good faith; or
* which was incurred prior to 1 February 1996 and which is in respect of any negligence, default, 
  breach of duty or breach of trust of which the Directors or Officers may be guilty in relation 
  to the Company or related body corporate.
      
Auditor's Independence Declaration

A  copy of the auditor's independence declaration as required under Section 307C of the Corporations Act is set  out
on page 10 and forms part of the Director's Report.

This report is made in accordance with a resolution of the Directors.

David Sutton
Director


30 September 2009
     
AUDITOR'S INDEPENDENCE DECLARATION

Auditor's Independence Declaration under Section 307C of the Corporations Act 2001 to the Directors of Silver Mines
Limited

I declare that, to the best of my knowledge and belief, in relation to our review of Silver Mines Limited for the
year ended 30 June 2009 there have been:

(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in
    relation to the review; and

(ii) no contraventions of any applicable code of professional conduct in relation to the review.

Graham Abbott - Principal


Graham Abbott Associates
Chartered Accountants

Dated 30 September 2009.
Sydney, Australia.
                                                 SILVER MINES LIMITED
                                                          
                                                  INCOME STATEMENT
                                           FOR THE YEAR ENDED 30 JUNE 2009


                                                                                     
                                                         Notes         2009             2008
                                                                          $                $
                                                                                      
Revenues from ordinary activities                          2         44,705          219,341
                                                                                      
Expenses from ordinary activities                                                     
                                                                                      
- Accounting/ Company secretarial                                   (37,624)         (36,000)
                                                                     
- Wages                                                             (20,724)        (195,873)
                                                                    
- Share registry                                                    (25,829)         (26,656)
                                                                    
- Stock exchange fees                                               (18,773)         (15,823)
                                                                    
- Bank fees                                                          (4,178)          (2,003)
                                                                     
- Auditors                                                          (17,200)         (22,800)
                                                                    
- Directors emoluments                                             (127,455)        (127,984)
- Office expenses                                                   (23,006)          (6,952)
                                                                    
- Occupational health & safety                                            -             (621)
                                                                     
- IT & communications                                                (6,783)         (19,297)
                                                                    
- Rent                                                              (44,978)         (33,529)
                                                                    
- Depreciation                                                      (66,026)         (39,529)
                                                                    
- Insurance                                                         (32,107)         (31,763)
                                                                    
- Professional advisors                                             (12,870)         (85,753) 
                                                                    
- Plus Market Listing fees                                         (215,437)               -
- Other expenses from ordinary activities                           (64,806)        (121,238)
                                                                    
Total expenses                                                     (717,796)        (765,821)
                                                                                      
Loss from ordinary activities before income tax            3       (673,091)        (546,480)
expense
                                                                                      
Income tax expense                                         4              -                -
                                                                                      
Loss from ordinary activities after income tax                     (673,091)        (546,480)
expense
                                                                                      
                                                                                      
                                                                                      
                                                                      Cents            Cents
                                                                                              
Basic earnings per share                                   21         (0.01)           (0.01)
Diluted earnings per share                                 21         (0.01)           (0.01)



                     
                     The accompanying notes form an integral part of these financial statements.

                                                SILVER MINES LIMITED
                                                          
                                                    BALANCE SHEET
                                                 AS AT 30 JUNE 2009


                                                                                      
                                                         Notes             2009            2008
                                                                              $               $
                                                                                       
Current Assets                                                                         
Cash and cash equivalents                                  5           373,395         1,491,991
Receivables                                                6            50,516           150,783
                                                                                       
Total Current Assets                                                   423,911         1,642,774
                                                                                       
Non-Current Assets                                                                     
Other financial assets                                     7            75,550           110,550
Intangible assets                                                                      
- Deferred exploration & development                       8         3,965,310         3,193,474
Property plant & equipment                                 9           124,422           188,031
                                                                                       
Total Non-Current Assets                                             4,165,282         3,492,055
                                                                                       
Total Assets                                                         4,589,193         5,134,829
                                                                                       
                                                                                       
Current Liabilities                                                                    
Payables                                                   10          228,841           284,061
Provisions                                                 11            7,934             4,307
                                                                                       
Total Current Liabilities                                              236,775           288,368
                                                                                       
Non Current Liabilities                                                                
Payables                                                   10          131,939           129,283
                                                                                       
Total Non Current Liabilities                                          131,939           129,283
                                                                                       
                                                                       368,714           417,651
Total Liabilities
                                                                                       
Net Assets                                                           4,220,479         4,717,178
                                                                                       
Equity                                                                                 
Contributed equity                                         12        5,747,792         5,571,400
Accumulated losses                                         13       (1,527,313)         (854,222)
                                                                                       
                                                                                       
Total Equity                                                         4,220,479         4,717,178
                                                                                       



                     The accompanying notes form an integral part of these financial statements.

                                               
                                               SILVER MINES LIMITED
                                                          
                                                          
                                           STATEMENT OF CHANGES IN EQUITY
                                           FOR THE YEAR ENDED 30 JUNE 2009


                                                    Notes      Ordinary       Retained         Total
                                                                Shares        Earnings           
                                                                   $             $               $
                                                                                                 
                                                                                                        
Balance at 30 June 2007                                       5,612,981      (307,742)      5,305,239
                                                                                                        
Shares Issued during the year                                         -             -               -
Costs of funds raised                                           (41,581)            -         (41,581)
Loss attributable to members of the Company                           -      (546,480)       (546,480)
                                                                                                        
Balance at 30 June 2008                                       5,571,400      (854,222)      4,717,178
                                                                                                        
Shares Issued during the year                                   185,675             -         185,675
Costs of funds raised                                            (9,283)            -          (9,283)
Loss attributable to members of the Company                           -      (673,091)       (673,091)
                                                                                                        
Balance at 30 June 2009                                       5,747,792    (1,527,313)      4,220,479
                                                                                                 


                                                          
                     The accompanying notes form an integral part of these financial statements.
                                                          
                                                
                                                
                                                
                                                SILVER MINES LIMITED
                                                          
                                                          
                                               STATEMENT OF CASH FLOWS
                                           FOR THE YEAR ENDED 30 JUNE 2009


                                                                                      
                                                          Notes            2009            2008
                                                                              $               $
                                                                                       
Cash Flows From Operating Activities                                                   
Interest received                                                        44,705          219,341
Payments to suppliers and employees                                    (600,440)        (690,815)
                                                                                       
Net cash outflows from operating activities                18          (555,735)        (471,474)
                                                                                       
Cash Flows From Investing Activities                                                   
Exploration bonds                                                        35,000          (60,550)
Property plant & equipment                                               (2,417)        (212,356)
Exploration expenditure                                                (771,836)      (2,295,157)
                                                                                       
Net cash outflows from investing activities                            (739,253)      (2,568,063)
                                                                                       
Cash Flows From Financing Activities                                                   
Proceeds from the issue of shares                                       185,675                -
Fund raising costs                                                       (9,283)         (41,581)
Borrowings - finance leases                                                              129,283
                                                                                       
Net cash inflows from financing activities                              176,392           87,702
                                                                                       
Net Increase in Cash Held                                            (1,118,596)      (2,951,835)
Cash at the Beginning of the Financial Year                           1,491,991        4,443,826
                                                                                       
Cash at the End of the Financial Year                       5           373,395        1,491,991
                                                                                       


                     The accompanying notes form an integral part of these financial statements.

                                                
                                                
                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009

1.      STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

(a)   Reporting Entity

      Silver Mines Limited (the "Company") is a public company domiciled in Australia. The financial report covers
      Silver Mines as an individual entity. The financial report was authorised for issue on  30 September 2009 by
      the Board of Directors.
      
      The Company primarily is involved in the exploration for minerals in Australia.
      
(b)   Basis of Preparation
      
      Statement of Compliance
      
      The  financial  report  of Silver Mines Limited is a general purpose financial report prepared  in  accordance
      with  Australian  Accounting  Standards including Australian Accounting Interpretations,  other  authoritative
      pronouncements  of  the  Australian Accounting Standards Board, and the Corporations Act  2001.  International
      Financial Reporting Standards form the basis of Australian Accounting Standards adopted by the AASB.
      
      Compliance with AIFRS
      
      Statement of Compliance
      
      The  financial  report  of Silver Mines Limited is a general purpose financial report prepared  in  accordance
      with  Australian Accounting Standards (AASBs) including Australian Accounting Interpretations, adopted by  the
      Australian  Accounting Standards Board (AASB), Urgent Issues Group Interpretations (UIG) and the  Corporations
      Act  2001.  International  Financial  Reporting Standards form the basis of  Australian  Accounting  Standards
      adopted by the AASB.
      
      Compliance with AIFRS
      
      Australian Accounting Standards include Australian Equivalents to International Financial Reporting  Standards
      (AIFRS).  Compliance  with  AIFRS  ensures that the financial report of Silver  Mines  Limited  complies  with
      International Financial Reporting Standards (IFRS).
      
      The  following standards, amendments to standards and interpretations have been identified as those which  may
      impact  the  Company in the period of initial application.  They are available for early adoption at  30  June
      2008, but have not been applied in preparing this financial report.
      
      -   AASB 8 Operating Segments introduces the "management approach" to segment reporting.  AASB 8, which becomes
          mandatory for the Company's 30 June 2010 financial statements, will require the disclosure of segment information
          based on the internal reports regularly reviewed by the Company's Chief Operating Decision Maker in order to assess
          each segment's performance and to allocate resources to them.  Currently the Company only operates in one industry
          and one geographic segment.  No changes to the presentation of segment information are expected from the application
          of this standard.
          
      -   Revised AASB 101 Presentation of Financial Statements introduces as a financial statement (formerly
          "primary" statement) the "statement of comprehensive income" and makes changes to the statement of changes in
          equity.  The revised standard does not change the recognition, measurement of disclosure of transactions and events
          that are required by other AASBs.  The revised AASB 101 will become mandatory for the Company's 30 June 2010
          financial statements.  The Company has not yet determined the potential effect of the revised standard on the
          Company's disclosures.
                                                
 
 (b)     Basis of Preparation
      
      -   Revised AASB 123 Borrowing Costs removes the option to expense all borrowing costs and requires that an
          entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a
          qualifying asset as part of the cost of that asset. The revised AASB 123 will become mandatory for the Company's 30
          June 2010 financial statements and will constitute a change in accounting policy for the Company.  In accordance
          with the transitional provisions the Company will apply the revised AASB 123 to qualifying assets for which
          capitalisation of borrowing costs commences on or after the effective date. The Company has not yet determined the
          potential effect of the revised standard on future earnings.
      
      -   AASB 2008-1 Amendments to Australian Accounting Standard - Share-based Payment: Vesting Conditions and
          Cancellations changes the measurement of share-based payments that contain non-vesting conditions.  AASB 2008-1
          becomes mandatory for the Company's 30 June 2010 financial statements.  The Company has not yet determined the
          potential effect of the amending standard on the Company's financial report.
          
      Reporting Basis and Conventions
      
      The financial report is presented in Australian dollars.
      
      The  preparation of a financial report in conformity with Australian Accounting Standards requires  management
      to  make judgments, estimates and assumptions that effect the application of policies and the reported amounts
      of assets, liabilities, revenue and expenses.
      
      *   Critical Accounting Estimates and Judgments
      
          The estimates and judgments incorporated into the financial report are based on historical experiences and the best
          available current information on current trends and economic data, obtained both externally and within the group.
          The estimates and judgements made assume a reasonable expectation of future events but actual results may differ
          from these estimates.

      *   Key Estimates - Impairment
      
          The Company assesses impairment at each reporting date by evaluating conditions specific to the group that may lead
          to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined.
          Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.
          
          Rehabilitation
          
          The Company is required to estimate the rehabilitation costs of its operations in the accounting policy note in
          paragraph (c). The estimate is based on management best estimate of the cost.
          
          Exploration and evaluation costs
          
          The Company applies judgment in determining which exploration costs should be capitalized or expensed as per the
          accounting policy in paragraph (c).
      
      The  estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates
      are recognised in the period in which the estimate is revised if the revision effects only that period, or  in
      the  period of the revision and future periods if the revision affects both current and future periods.  There
      were no key adjustments during the year which required accounting estimates and judgments.
      
      The  financial report has been prepared on an accruals basis and is based on historical costs modified by  the
      revaluation  of  selected non-current assets, financial assets and financial liabilities for  which  the  fair
      value basis of accounting has been applied.
                                                     
      The  following  is  a  summary  of the material accounting policies adopted by  the  economic  entity  in  the
      preparation of the financial report. The accounting policies have been consistently applied, unless  otherwise
      stated.


(c)  Exploration and Evaluation Expenditure
      
      Exploration  and  evaluation  expenditure incurred is accumulated in respect  of  each  identifiable  area  of
      interest.  These  costs are only carried forward to the extent that they are expected to be  recouped  through
      the  successful  development of an area or where activities in the area have not yet reached  a  stage,  which
      permits reasonable assessment of the existence of economically recoverable reserves.
      
      Accumulated costs in relation to an abandoned area are written off in full against profits in the  year  which
      the decision to abandon the area is made.
      
      A  regular  review  is undertaken of each area of interest to determine the appropriateness of  continuing  to
      carry forward costs in relation to that area of interest.
      
      Costs of site restoration are provided over the life of the facility from where exploration commences and  are
      included  in  the  costs of that stage. Site restoration costs include the dismantling and removal  of  mining
      plant,  equipment  and building structure, waste removal, and rehabilitation of the site  in  accordance  with
      clauses of the mining permits. Such costs have been determined using estimates of future costs, current  legal
      requirements and technology on an undiscounted basis.
       
       Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs  of
       site  restoration, there is uncertainty regarding the nature and extent of the restoration due  to  community
       expectations  and  future legislation. Accordingly, the costs have been determined  on  the  basis  that  the
       restoration will be completed within one year of abandoning the site.
       
       Exploration  and  evaluation  assets are tested for impairment each year. When the  facts  and  circumstances
       suggest that the carrying amount exceeds the recoverable amount, the carrying amount is written down  to  its
       likely recoverable amount.

(d)   Trade creditors
      
      A  liability is recorded for goods and services prior to balance date, whether invoiced to the Company or not.
      Trade creditors are normally settled within 30 days.

(e)   Cash
      
      For  the purposes of the statement of cash flows, cash and cash equivalents included cash on hand and at  call
      deposits  with banks or financial institutions, investments in money market instruments maturing  within  less
      than two months and net of bank overdrafts.

(f)   Net fair value
      
      The net fair value of cash, investments and trade creditors approximates their carrying value.

(g)   Revenue
      
      Interest  revenue is recognised on a proportional basis taking in to account the interest rates applicable  to
      the financial assets.
      
      Other revenue is recognised when the right to receive the revenue has been established.
                                                          
                                       
(h)   Income Tax
             
      The charge for current income tax expense is based on the profit for the year adjusted for any non-
      assessable or disallowed items. It is calculated using the tax rates that have been enacted or are
      substantially enacted by the balance sheet date.
       
      Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences
      arising between the tax bases of assets and liabilities and their carrying amounts in the financial
      statements. No deferred income tax will be recognised from the initial recognition of an asset or liability,
      excluding a business combination, where there is no effect on accounting or taxable profit or loss.
       
      Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is
      realised or liability is settled. Deferred tax is credited in the income statement except where it relates
      to items that may be credited directly to equity, in which case the deferred tax is adjusted directly
      against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax
      profits will be available against which deductible temporary differences can be utilised. The amount of
      benefits brought to account or which may be realised in the future is based on the assumption that no
      adverse change will occur in income taxation legislation and the anticipation that the economic entity will
      derive sufficient future assessable income to enable the benefit to be realised and comply with the
      conditions of deductibility imposed by the law.
       
 (i)  Goods and Services Tax (GST)
      
      Revenues,  expenses  and  assets  are recognised net of the amount of GST, except  where  the  amount  of  GST
      incurred  is  not  recoverable  from  the Australian Taxation Office.  In  these  circumstances,  the  GST  is
      recognised  as part of the cost of acquisition of the asset or as part of an item of the expense.  Receivables
      and payables in the balance sheet are shown inclusive of GST.
       
       Cash  flows  are  included in the Cash Flow Statement on a gross basis and the GST component  of  cash  flows
      arising  from  investing  and financing activities, which is recoverable from or  payable  to  the  Australian
      Taxation Office, are classified as operating cash flows
             
(j)    Acquisitions of Assets
             
       The cost method of accounting is used for all acquisitions of assets regardless of whether shares or other
       assets are acquired.  Cost is determined as the fair value of the assets given up at the date of acquisition
       plus costs incidental to the acquisition.

(k)    Property, Plant and Equipment
             
       Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.
       Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of
       replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised
       in the carrying amount of the plant and equipment as a replacement only if it is eligible for
       capitalisation.
       
       (i) The depreciation rates used are as follows:
       
       Plant and equipment                              20-25% straight line
       Office furniture and equipment                   25-33 1/3% straight line
       Motor vehicles                                   33 1/3% straight line
       
       The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if
       appropriate, at each financial year end.
       
       (ii) Impairment
       
       The carrying values of plant and equipment are reviewed for impairment at each reporting date with
       recoverable amount being estimated when events or changes in circumstances indicate that the carrying value
       may be impaired.

       The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in
       use. In assessing value in use, the estimated future cash flows are discounted to their present value using
       a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
       specific to the asset.
       
       For an asset that does not generate largely independent cash flows, recoverable amount is determined for the
       cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be
       close to its fair value.
       
       An impairment exists when the carrying amount of an asset or cash-generating units exceeds its estimated
       recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.
       
       For plant and equipment, impairment losses are recognised in the income statement.
       
(l)   Employee Entitlements
      Wages, salaries and annual leave
      
      Provision  is  made  for  the  Company's liability for employee benefits arising  from  services  rendered  by
      employees  to  balance  date. Employee benefits that are expected to be settled within  12  months  have  been
      measured  at  the  amounts expected to be paid when the liability is settled, plus related on-costs.  Employee
      benefits  payable  later than12 months have been measured at the present value of the  estimated  future  cash
      outflows to be made for those benefits.
      
      Long Service Leave
      
      A provision for long service leave is taken up where applicable for all employees.
       
      Equity-settled compensation
       
       The  Company operates a share-based compensation plan. These include both a share option arrangement  and  an
       employee  share  scheme.  The  bonus element over the exercise price of the  employee  services  rendered  in
       exchange  for the grant of shares and options is recognised as an expense in the income statement. The  total
       amount  to be expensed over the vesting period is determined by reference to the fair value of the shares  of
       the options granted.
       
       Employee option plan
       
       The  establishment of the Silver Mines Limited Employee Share Option Plan (ESOP) was approved by shareholders
       at  the  annual  general  meeting  held on 29 November 2007. The ESOP  was  designed  to  provide  long  term
       incentives for Directors to deliver long term shareholder returns.
       
       The  fair  value  of  options  granted  under the ESOP is recognised as  an  employee  benefit  expense  with
       corresponding increase in equity. The fair value is measured at grant date. The fair value at grant  date  is
       measured  using  a Black-Scholes option pricing model that takes into consideration the exercise  price,  the
       term of the option, the impact of dilution and the share price at grant date.
                                                       
       Upon  the exercise of options, the exercise proceeds received are allocated to share capital and the  balance
       of the share-based payments reserve relating to those options is transferred to share capital.
       
(m)    Impairment

       At each reporting date, the Company reviews the carrying values of its tangible and intangible assets to
       determine whether there is any indication that those assets have been impaired. If such an indication
       exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell
       and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over
       its recoverable amount is expensed to the income statement. Impairment testing is performed annually for
       intangible assets with indefinite lives.

       Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates
       the recoverable amount of the cash-generating unit to which the asset belongs.

(n)    Intangible Assets

       Intangible assets acquired in a business are initially measured at cost. Intangible assets with indefinite
       lives are tested for impairment annually either individually or at the cash-generating unit level. Such
       intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed
       each reporting period to determine whether indefinite life assessment continues to be supportable. If not,
       the change in the useful life assessment from indefinite to finite is accounted for as a change in an
       accounting estimate and is thus accounted for on a prospective basis
             

(o)   Issued Capital
      
      Ordinary shares are classified as equity.  Incremental costs directly attributable to the issue of new  shares
      or  options  are  shown  in equity as a deduction, net of tax, from the proceeds. Incremental  costs  directly
      attributable to the issue of new shares or options, or for the acquisition of a business, are included in  the
      cost of the acquisition as part of the purchase consideration.
       
       If  the  Company  reacquires  its own equity instruments (e.g. as the result  of  a  share  buy-back),  those
      instruments  are deducted from equity and the associated shares are cancelled. No gain or loss  is  recognised
      in  the  profit or loss and the consideration paid including any directly attributable incremental costs  (net
      of income taxes) is recognised directly in equity.

(p)    Earnings Per Share
             
       Basic earnings per share
       
       Basic earnings per share is determined by dividing net profit after income tax attributable to members of
       the Company by the weighted average number of ordinary shares outstanding during the financial year.
       
       Diluted earnings per share
       
       Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take
       into account the after income tax effect of interest and other financing costs associated with dilutive
       potential ordinary shares and the weighted average number of shares assumed to have been issued for no
       consideration in relation to dilutive potential ordinary shares.
                                                

(q)    Financial Instruments
      
      Recognition and Initial Measurement
      
      Financial  instruments,  incorporating financial assets and financial liabilities,  are  recognised  when  the
      entity becomes a party to the contractual provisions of the instrument.  Trade date accounting is adopted  for
      financial assets that are delivered within timeframes established by marketplace convention.
      
      Financial  instruments are initially measured at fair value plus transactions costs where  the  instrument  is
      not  classified  as at fair value through profit or loss. Transaction costs related to instruments  classified
      as  at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are
      classified and measured as set out below.
      
      Derecognition
      
      Financial  assets are derecognised where the contractual rights to receipt of cash flows expires or the  asset
      is  transferred  to another party whereby the entity no longer has any significant continuing  involvement  in
      the  risks  and benefits associated with the asset.  Financial liabilities are derecognised where the  related
      obligations  are  either discharged, cancelled or expire. The difference between the  carrying  value  of  the
      financial  liability  extinguished or transferred to another party and the fair value of  consideration  paid,
      including the transfer of non-cash assets or liabilities assumed, is recognised in profit and loss.
      
      Classification and Subsequent Measurement
      
      Loans and Receivables
      
      Loans  and  receivables are non-derivative financial assets with fixed or determinable payments that  are  not
      quoted  in an active market and are subsequently measured at amortised cost using the effective interest  rate
      method.
      
      Financial Liabilities
      
      Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised
      cost using the effective interest rate method

(r)    Lease payments

       Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term
       of the lease. Lease incentives received are recognised as an integral part of the total lease expense over
       the term of the lease.

       Minimum lease payments made under finance leases are apportioned between the finance expense and the
       reduction of the outstanding liability. The finance expense is allocated to each period during the lease
       term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
       Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term
       of the lease when the lease adjustment is confirmed.

(s)   Comparative Figures

      Where required by Accounting Standards, comparative figures have been adjusted to conform to changes in
      presentation for the current financial year.

(t)   Going Concern

      The financial statements are presented on a going concern basis. Since 30 June 2009 the Company has raised a
      total of $428,000 through the issue of 3,200,000 shares at 3.5 cents per share and 7,900,000 shares at 4
      cents per share. The directors are not aware of any uncertainties which would cast doubt of the Company's
      ability to continue as a going concern.
                                                
                                                
                                                
                                                
                                                 SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009

                                                                                     
                                                                         2009             2008
                                                                            $                $
2. REVENUE                                                                   
                                                                                      
                                                                                      
Revenue from operating activities                                                     
Interest received                                                      44,705          219,341
                                                                                      
    
3. OPERATING EXPENSES                                                        
                                                                                      
The operating loss from operating activities:                                         

- Accounting/ Company secretarial                                     (37,624)         (36,000)
                                                                       
- Wages                                                               (20,724)        (195,873)
                                                                     
- Share registry                                                      (25,829)         (26,656)
                                                                     
- Stock exchange fees                                                 (18,773)         (15,823)
                                                                     
- Bank fees                                                            (4,178)          (2,003)
                                                                     
- Auditors                                                            (17,200)         (22,880)
                                                                     
- Directors emoluments                                               (127,455)        (127,984)
                                                                     
- Office expenses                                                     (23,006)          (6,952)
                                                                     
- Occupational health & safety                                              -             (621)
                                                                     
- IT & communications                                                  (6,783)         (19,297)
                                                                     
- Rent                                                                (44,978)         (33,529)
                                                                     
- Depreciation                                                        (66,026)         (39,529)
                                                                     
- Insurance                                                           (32,107)         (31,763)
                                                                     
- Professional advisors                                               (12,870)         (85,753)
                                                                     
- Plus Market Listing fees                                           (215,437)               -
                                                                            
- Other expenses from ordinary activities                             (64,808)        (121,238)
                                                                             
                                                                                      
Total                                                                (717,796)        (765,821)
                                                                                      
4. INCOME TAX                                                                
                                                                                      
(a)  Temporary Differences                                                      
     Current tax                                                            -                -
     Deferred tax                                                           -                -
     Underprovision for previous years                                      -                -
                                                                                      
     Total                                                                  -                -
                                                                                      
(b) Reconciliation of income tax expense to prima facie tax payable                       
                                                                                      
    Operating loss before income tax                                 (673,091)        (546,480)
                                                                                          
    Prima facie income tax benefit at 30% on operating loss           201,927          163,944
    Add tax effect of:                                                                    
    Tax losses and temporary differences not recognised              (201,927)        (163,944)
    Non temporary differences                                               -                -
                                                                                          
    Income tax attributable to operating loss                               -                -

Directors are of the view that there is insufficient probability that the Company and its subsidiaries
will derive sufficient income in the foreseeable future to justify booking the tax losses and
temporary differences as deferred tax assets and deferred tax liabilities.
                                                                                      
                                                          
                                                
      
                                                                             2009            2008
                                                                                $               $
(c) There is no amount of tax benefit recognised in equity as the tax                     
effect of temporary differences has not been booked
                                                                                            
(d) Tax Losses                                                                            
    Unused tax losses for which no tax loss has been booked as a         1,527,313        854,222
    deferred tax asset adjusted for non temporary differences
                                                                           
Potential tax benefit at 30%                                               458,194        256,267
                                                                                            
(e) Unrecognised temporary differences                                                    
                                                                                      
    Non deductible amounts as temporary differences                              -              -
    Accelerated deductions for book compared to tax                              -              -
    Total                                                                  458,194        256,267
                                                                           
           Potential effect on future tax expense                          458,194        256,267
                                                                                      

5. CASH AND CASH EQUIVALENTS                                                 
                                                                                      
Cash at bank and on hand                                                   373,395      1,491,991
                                                                                      
Cash at the end of the financial year as shown in the statement 
of cash flows is reconciled in the related items in the statement 
of financial position as follows:
                                                                                      
Cash assets                                                                373,395      1,491,991
The effective interest rates on term deposits were 5.08% (2008:                       
7.2%).
                                                                                      

6. RECEIVABLES                                                               
                                                                                      
Other Debtors                                                               50,516        150,783
Provision for Doubtful Debts                                                     -              -
                                                                                      
                                                                            50,516        150,783
7. OTHER FINANCIAL ASSETS                                                      
                                                                                      
Non-Current                                                                           
Performance guarantee bonds                                                 75,550        110,550
                                                                                      

8. INTANGIBLE ASSETS                                                         
                                                                                      
Non-Current                                                                           
Exploration expenditure                                                               
Costs carried forward in respect of areas of interest in:                             
Exploration and evaluation phase                                                      
Opening balance                                                          3,193,474        898,317
Expenditure in the period                                                  771,836      2,295,157
Expenditure written off                                                          -              -
                                                                                      
                                                                         3,965,310      3,193,474

                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009
                                                          
                                                                           2009             2008
                                                                              $                $
                                                                                      
                                                                                      
                                                          
9. PROPERTY, PLANT AND EQUIPMENT                                             
                                                                                      
                                                                                      
Plant and equipment - at cost                                           188,031           85,605
Financial Lease Assets                                                        -          147,843
Assets acquired                                                           2,417                -
Less: Accumulated depreciation                                          (66,026)         (45,417)
                                                                                      
                                                                        124,422          188,031
      
      
      Reconciliation
      
      Reconciliation of the carrying amounts of each class of property, plant and equipment at the beginning and
      end of the current financial year are as follows:
      
      
                                                       Plant &       Motor Vehicles        Total
                                                      Equipment             $                $
                                                          $                 
Carrying value at start of year                      60,486             127,545          188,031
Additions                                             2,417                   -            2,417
Disposals                                                 -                   -                -
Depreciation                                        (29,625)            (36,401)          66,026
                                                                                       
Carrying value at end of year                        33,278              91,144          124,422

                                                                           
                                                                           
                                                                           2009             2008
                                                                              $                $
10. PAYABLES                                                                  
                                                                                      
Current                                                                               
                                                                                      
Trade creditors and accruals                                            228,841          284,061
                                                                                      
Non Current                                                                           
                                                                                      
Hire Purchase Creditors                                                 131,939          129,283
                                                                                      

11. PROVISIONS
                                                                                      
Employee Entitlements                                                     7,934            4,307
                                                                                      
Number of Employees at year end                                               1                2
                                                
                                                
                                                
                                                
                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009
                                                          
                                                                           2009             2008
                                                                              $                $
 12. CONTRIBUTED EQUITY                                                                
                                                                                              
(a) Issued and paid up capital                                                            
                                                                                              
Balance at the beginning of the financial year                        5,571,400        5,612,981
Issue of shares to raise capital                                        185,675                -
Share Issue Costs                                                        (9,283)         (41,581)
                                                                                                     
Balance at the end of the financial year                              5,747,792        5,571,400
                                                                                              
Consisting of 48,802,505 ordinary shares (2008: 43,497,505  ordinary shares)
                                                                                      
      
      (b)     Movements in ordinary share capital                                                    
                                                                                                    
       Date                Details                              Number of     Issue                $
                                                                   shares     price
       25 September 2006   Seed Capital                        13,820,005     $0.08        1,142,005
                                                                                                     
       19 January 2007     Tenement Acquisition Shares          5,375,000     $0.06          375,000
       19 January 2007     IPO Shares                          20,652,500     $0.20        4,130,500
       21 February 2008    Placement                            3,600,000     $0.21          756,000
                           Transaction costs arising from               -                  (782,105)
                           share issues
       28 May 2008         Bonus Issue                             50,000                          -
       30 June 2008        Balance                             43,497,505                  5,571,400
                                                                                                     
       29 June 2009        Placement                            5,305,000    $0.035          185,675
                           Transaction costs arising from                                     (9,283)
                           share issues
       30 June 2009        Balance                             48,802,505                  5,747,792

      
      (a)    Issued and paid up capital
             
             Ordinary  shares entitle the holder to participate in dividends and the proceeds on winding up  of  the
             Company  in proportion to the number of and amounts paid on the shares held. On a show of hands,  every
             holder  of  fully  paid ordinary shares present at a meeting in person or by proxy is entitled  to  one
             vote, and upon a poll each share is entitled to one vote.
             
             
      (b)    Share Options
                 
            *  13,820,000unlisted options at 20 cents per share expiring November 2009.

            *  2,000,000 Underwriters Options issued to Martin Place Securities Pty Ltd at 25 cents per share expiring
               November 2009
            
            *  2,500,000 options to Directors of the Company exercisable at 20 cents per share expiring 5 years from the
               dated of issue 8 May 2012.
                 
            *  1,300,000 options to executives and staff of the Company exercisable at 20 cents per share expiring 5 years
               from the dated of issue 8 May 2012.
               
               

                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009

      (c)    Capital Management
      
             The Company's objectives when managing capital is to safeguard the ability to continue as a going
             concern, so that it can continue to provide returns to shareholders and benefits for other
             stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
             
             Management effectively manages the Company's capital by assessing the Company's financial risks and
             adjusting its capital structure in response to changes in these risks and in the market. There have
             been no changes in the strategy adopted by management to control the capital of the Company since the
             prior year.
            
                                                                              2009             2008
                                                                            Number           Number
Movements in options                                                            
                                                                                        
  Balance at the beginning of the financial year                        19,620,000       19,620,000
  Options Lapsed                                                                 -                -
  Options Exercised                                                              -                -
  Options Issued                                                                 -                -
                                                                                        
  Balance at the end of the financial year                              19,620,000       19,620,000
  
                                                                                      
                                                                              2009             2008
                                                                                 $                $
13. ACCUMULATED LOSSES                                                         
                                                                                       
Opening balance                                                            854,222          307,742
Net loss for year                                                          673,091          546,480
                                                                                       
Closing balance                                                          1,527,313          854,222
                                                                                       
                                                          
                                                          
14. AUDITOR'S REMUNERATION                                                    2009             2008
                                                                                 $                $
Remuneration for audit or review of the financial reports of the                       
Company:
Current auditors of the Company:                                                       
Audit and review of the financial statements                                19,192           16,950
Other services                                                                   -            5,930
                                                                                             
                                                                            19,192           22,880
                                                                            
                                                                            
                                                          
                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009
                                                          
15.     REMUNERATION OF DIRECTORS AND EXECUTIVES
      
(a)     Names of Directors and specified executives and positions held at any time during the year:
      
        
        Directors                           
                                            
        D Sutton                            Chairman - Non-Executive
        D Straw                             Director - Non-Executive
        K Slater                            Director - Non-Executive
        M Bird                              Director - Non-Executive
                                            
        Specified Executives                
                                            
        C Straw                             General Manager (Alternate director for D Straw)
        K Lynn                              Company Secretary
        
      
(b)     Relevant Interests in Options and Ordinary Shares at the Date of this Report


        Ordinary shares                           Balance      Net change      Balance   30
                                              1 July 2008           other         June 2009
        Specified Directors                                                                  
        D Sutton                                1,090,000         407,450         1,497,450
        D Straw                                         -               -                 -
        K Slater                                        -               -                 -
        M Bird                                  6,085,000               -         6,085,000
        
      
      OPTIONS
      
        Employee                  Balance         Granted as          Options      Net Change         Balance
        Options               1 July 2008       Remuneration        Exercised           Other    30 June 2009
                                                                                                              
        Specified Directors                                                                                   
                                                                                                              
        D Sutton                  500,000                 -                 -               -         500,000
        D Straw                   500,000                 -                 -               -         500,000
        K Slater                  500,000                 -                 -               -         500,000
        M Bird                    500,000                 -                 -               -         500,000
        Specified Executives                                                                                  
                                                                                                              
        C Straw                   500,000                 -                 -               -         500,000
        K Lynn                    500,000                 -                 -               -         500,000
        Total                   3,000,000                 -                 -               -       3,000,000
                                                          
       
(c)    Directors' and Senior Officers' Emoluments
       
       The  Remuneration  Committee is responsible for making recommendations to the Board on remuneration  policies
       applicable  to  Board  members and senior Officers of the Company.  The Board's  remuneration  policy  is  to
       ensure  the  remuneration  level  properly  reflects  the  person's  duties  and  responsibilities  and  that
       remuneration is competitive in attracting, retaining and motivating people of the highest quality.
                                                                                     
       
       The  Company  employed a General Manager, who was involved in, concerned in, and took part in the  management
       of  the  Company's  affairs.  Details of the nature and amount of the remuneration of each  Director  of  the
       Company are set out below:
      
      
      Director remuneration for the year ended 30 June 2009

                                     Salary       Non       Super-     Retirement   Equity    Other        Total
                                     & Fees       Monetary  annuation  benefits     Options   Bonuses
     D Sutton                        
     2009                            30,000              -          -         -           -         -     30,000 
     2008                            30,000              -          -         -           -         -     30,000 
     D Straw                                              
     2009                            30,000              -          -         -           -         -     30,000
     2008                            30,000              -          -         -           -         -     30,000 
     K Slater                                                              
     2009                            30,000              -          -         -           -         -     30,000 
     2008                            30,000              -          -         -           -         -     30,000     
     M Bird                                            
     2009                            30,000              -          -         -           -         -     30,000
     2008                            30,000              -          -         -           -         -     30,000 
                                 
       
       Remuneration of the 5 named executives who receive the highest remuneration for the year ended
       30 June 2009
       
                                     Salary       Non       Super-     Retirement   Equity    Other     Total
                                     & Fees       Monetary  annuation  benefits     Options   Bonuses
                                                            
                                               
     K Lynn                          
     2009                            36,000              -          -         -           -         -   36,000
     2008                            36,000              -          -         -           -         -   36,000
                                      
     C Straw                        
     2009                           160,560              -          -         -           -         -  160,560
     2008                           154,505              -     13,905         -           -    25,000  193,410
                                            
       
      (d)     Individual directors' and executives compensation disclosures
       
       The  Company  has not employed any executive officers, other than Directors, who were involved in,  concerned
       in,  or  who took part in the management of the Company's affairs.  Details of the nature and amount  of  the
       remuneration  of  each  Director  and  executive of the Company and some  equity  instrument  disclosures  as
       permitted  by  Corporations  Regulations are provided in the Remuneration Report section  of  the  Directors'
       Report.
       
       The fair value of options is provided in the Remuneration Report section of the Directors' Report.
       
       There were no shares or options issued as remuneration to executives during the financial year ended June
       2009.
       
       The Directors were each paid $7,500 in cash for the three month period 30 September 2008 and resolved to
       take their fees for the remaining period in the form of shares in the Company. The Shares will be valued at
       the weighted average share price of the Company shares during the quarter in which the fees became due and
       payable. The issue of these shares will be the subject of a resolution to be put to shareholders at the
       Company's next Annual General Meeting.
       
       
      
                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009
       
16. RELATED PARTY TRANSACTIONS

      Related parties of Silver Mines Limited fall into the following categories:
      
      Directors
      
      Other Transactions with Director Related Entities
      
      Payment/provision  of the following payments were made for consulting and other services to  related  entities
      of the following Directors:
      
                                                                         2009             2008
                                                                            $                $
        D Sutton                                                        9,284           41,581
      
      Payments to Mr Sutton represent capital raising fees to Martin Place Securities Pty Ltd of which Mr Sutton  is
      a Director. The transaction was on normal commercial terms.
      
      
17. SEGMENT INFORMATION
      
    Business Segments
      
    The Company operates in the mining industry in Australia only. Operations comprise mineral exploration.
      
                                                                          2009             2008
                                                                             $                $
    18.    RECONCILIATION OF OPERATING LOSS AFTER INCOME TAX TO NET                 
           CASH FLOWS FROM OPERATING ACTIVITIES
                                                                                     
Operating loss after income tax                                       (673,091)        (546,479)
Depreciation                                                            66,026           39,529
Increase/(decrease) in Receivables                                     102,923            8,731
Increase/ (decrease) in Payables                                       (55,221)          28,102
(Increase) / decrease in Provisions                                      3,267           (1,357)
                                                                                     
Net cash outflows from operating activities                           (555,735)        (471,474)
                                                                                     
                                                                                     
    19.     COMMITMENTS FOR EXPENDITURE                                              
                                                                                     
Operating Leases                                                                     
Non-cancellable operating lease rentals are payable as follows:                      
Due within one year                                                     53,000           53,000
Due beyond one year and within five years                                    -           53,000
                                                                                     
                                                                        53,000          106,000
      
      The Company leases property and a vehicle under non-cancellable operating leases expiring within three years.
      The Company also has Leases which generally provide the Company with a right of renewal at which time all
      terms are renegotiated.  Lease payments comprise a base amount plus an incremental contingent rental.
      
      

                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009

 20. FINANCIAL INSTRUMENT DISCLOSURES
       
       The Company's activities expose it to a variety of financial risks: market risk (including currency risk,
       interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management
       program focuses on the unpredictability of financial markets and seeks to minimise adverse affects on the
       financial performance of the Company. The Company uses different methods to measure different types of risk
       to which it is exposed. These methods include sensitivity analysis in the case of interest rates and other
       price risks and aging analysis for credit risk.
       
       Risk management is carried out by the Chief Financial Officer under policies approved by the Board of
       Directors. The Chief Financial Officer identifies and evaluates the risks in close cooperation with the
       Company's management and Board.
       
       (a)    Market Risk
       
       (i) Foreign exchange risk
       
       The Company does not have any significant exposure to foreign exchange risk.
       
       (ii) Price Risk
       
       The Company in the current year did not have any significant exposure to investment or commodity price risk.
       The Company will have exposure to silver price risk if and when mining operations begin. Directors have not
       made any determination at this stage as to whether they will consider commodity price hedge arrangements.
       
       (iii) Cash flow and fair value interest rate risk
       
       The Company has exposure to interest rate risk which is the risk that a financial instrument's value will
       fluctuate as a result of changes in market interest rates and the effective weighted average interest rates
       on those financial assets and the financial liabilities.
       
       The Company policy is to ensure that the best interest rate is received for the short-term deposits. The
       Company uses a number of banking institutions, with a mixture of fixed and variable interest rates. Interest
       rates are reviewed prior to deposits maturing and re-invested at the best rate.
       
       The interest rate risk is detailed in the table below.
          
                                            Weighted   Floating      Fixed Interest Rate     Non-          Total
                                             Average   Interest           Maturing           interest
                                           Effective   Rate                                  Bearing
                                            Interest
                                                Rate
                                                                    Within 1     Over 1                        
                                                                        year       year
                                                   %          $            $          $            $           $
        2009                                                                                                         
        FINANCIAL ASSETS                                                                                             
        Cash assets                             7.5%                 373,395          -            -     373,395
        Performance guarantee bonds                                        -     75,550            -      75,550
        Other financial assets                     -                       -          -       50,516      50,516
                                                                     373,395     75,550       50,516     499,461
                                                                                                                     
                                                                                                                     
        FINANCIAL LIABILITIES                                                                                        
        Payables                                   -                       -   (131,939)    (236,775)    (368,714)
        NET FINANCIAL ASSETS                                         
        (LIABILITIES)                                                373,395    (56,389)    (186,259)     130,747
        
        
        
                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009
                                           
                                           
                                                          
                                            Weighted   Floating      Fixed Interest Rate     Non-          Total
                                             Average   Interest           Maturing           interest
                                           Effective   Rate                                  Bearing
                                            Interest
                                                Rate
                                                                    Within 1      Over 1                        
                                                                        year        year
                                                   %          $            $           $            $           $
                                                          
        2008                                                                                                         
        FINANCIAL ASSETS                                                                                             
        Cash assets                              7.5          -    1,491,991            -           -   1,491,991
        Performance guarantee bonds                           -            -      110,550           -     110,550
        Other financial assets                     -          -            -            -     150,783     150,783
                                                                                                                     
                                                              -    1,491,991      110,550     150,783   1,753,324
                                                                                                                     
        FINANCIAL LIABILITIES                                                                                        
        Payables                                   -          -            -     (129,283)   (288,368)   (417,651)
                                                                                                                      
        NET FINANCIAL ASSETS                                  -    1,491,991      (18,733)   (137,585)  1,335,673
        (LIABILITIES)
                                                          
      
      (b)   Reconciliation of net financial assets per statement of financial position:
      
                                                                                        2009               2008
                                                                                           $                  $
                                                                                                   
       Net financial assets per above                                                130,747          1,335,673
       Property Plant & Equipment                                                    124,422            188,031
       Deferred Exploration & Development                                          3,965,310          3,193,474
                                                                                   4,220,479          4,717,178
       Net assets per statement of financial position
      
      (c)     Credit Risk
             
       The  maximum exposure to credit risk, excluding the value of any collateral or other security in  respect  of
       recognised financial assets, is the carrying amount as disclosed in the statements of financial position  and
       notes to the financial statements.
             
      (d)     Liquidity Risk
      
       Prudent  liquidity risk management implies maintaining sufficient cash, the availability of  funding  through
       adequate  amount  of committed credit facilities and the ability to close out market positions.  The  Company
       manages  liquidity risk by continuously monitoring forecast and actual cash flows matching maturity  profiles
       of  financial  assets  and  liabilities. Surplus funds are generally only invested in  instruments  that  are
       tradable in highly liquid markets.
       
       The Company at trading date had deposits which mature within three months and cash at bank. Due to the cash
       available to the Company there is no use of any credit facilities at balance date.
       
       
       .
                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009

             
       (e)     Net Fair Values
             
       The  fair  value  of  financial  assets  and financial liabilities must  be  estimated  for  recognition  and
       measurement  or  for  disclosure  purposes.  The  net fair values  of  the  financial  assets  and  financial
       liabilities approximate their carrying values.
       
       No financial assets and financial liabilities are readily traded on organised markets.
       
       The  aggregate  net  fair  values  and carrying amounts of financial assets  and  financial  liabilities  are
       disclosed in the statements of financial position and in the notes to the financial statements.
       
       (f)     Sensitivity Analysis
       
       The Company has not performed a sensitivity analysis on price risk and its impact on current year results
       and equity which could result from a change in this risk as the likely impact is insignificant given the
       minimal revenue generated from gold sales during the year.
       
                                                                           2009             2008
                                                                          Cents                $
                                                                                     
       21.     EARNINGS PER SHARE                                                
                                                                                     
       Basic earnings per share                                           (0.01)           (0.01)
       Diluted earnings per share                                         (0.01)           (0.01)
                                                                                     
                                                                         Number           Number
                                                                                     
       Weighted average number of shares used as the denominator                     
                                                                                     
       Weighted average number of ordinary shares used as the        43,759,121       43,449,505
       denominator in calculating basis earnings per share and
       alternative basis earnings per share
                                                                                     
       Weighted average number of ordinary shares and potential      63,379,121       63,069,505
       ordinary shares used as the denominator in calculating
       diluted earnings per share and alternative diluted earnings
       per share
                                                                                     
                                                                            $               $
                                                                                     
       Reconciliation of earnings used in calculating earnings per                   
       share
                                                                                     
       Earnings used in calculating basic and diluted earnings per   (673,091)       (546,480)
       share
                                                                                     
      
      Options granted to employees and Directors are considered to be potential ordinary shares and have been
      included in the determination of diluted earnings per share.  The options have not been included in the
      determination of basic earnings per share.
      
                                                          
                                                SILVER MINES LIMITED
                                                          
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2009
                                                          
      
      22.     LEASED ASSETS
      
      The Company leases premises and vehicles under a number of finance and operating lease agreements. Some
      leases provide the Company with the option to purchase equipment at a beneficial price. The leased equipment
      secures lease obligations. At 30 June 2009, the net carrying amount of leased vehicles was $91,143 (2008:
      $147,843).
      
      
      23      EVENTS AFTER THE BALANCE SHEET DATE

      There were no significant events after balance date other than the raising of a total of $428,000 through the
      issue of 3,200,000 shares at 3.5 cents per share and 7,900,000 shares at 4 cents per share.
      
      
      
                                                          
       24.     COMPANY DETAILS                                                   
                                                                                     
       The registered office of the Company is
       
       Silver Mines Limited
       11 Rodborough Avenue
       Crows Nest NSW 2065
       Australia
       
       
       
       The principal places of business are:
       
       Silver Mines Limited
       Sydney Office
       Suite 201,109 Alexander Street
       Crows Nest, NSW 2065
       
       Silver Mines Limited
       Exploration Office
       +61 2 9436 0533
       +61 2 9436 0688
       
                                                      

                                                SILVER MINES LIMITED
                                                          
                                               DIRECTORS' DECLARATION

The Directors declare that:

1       the financial statements and notes, as set out on pages 11 to 33 are in accordance with the Corporations
        Act 2001 and:

                 (a) comply with Accounting Standards and the Corporations Regulations 2001; and

                 (b) give a true and fair view of the financial position as at 30 June 2009 and of the
                     performance for the year ended on that date of the Company and economic entity;

2       the Chief Executive Officer and Chief Finance Officer have each declared that:

                 (a) the financial records of the Company for the financial year have been properly maintained
                     in accordance with section 286 of the Corporations Act 2001;

                 (b) the financial statements and notes for the financial year comply with the Accounting
                     Standards; and

                 (c) the financial statements and notes for the financial year give a true and fair view;

3       in the Director's opinion there are reasonable grounds to believe that the Company will be able to pay its
        debts as and when they become due and payable.


This declaration is made in accordance with a resolution of the Board of Directors.



David Sutton
Director
30 September 2009
      
                                                SILVER MINES LIMITED
                                                          
                                                          
                                              INDEPENDENT AUDIT REPORT


To the members of Silver Mines Limited

Report on the Financial Report

We have audited the accompanying financial report of Silver Mines Limited (the Company), which comprises the balance
sheets as at 30 June 2009, and the income statements, statements of changes in equity and cash flow statements for
the year ended on that date, a summary of significant accounting policies, other explanatory notes and the
directors' declaration.

Directors' Responsibility for the Financial Report

The directors of the Company are responsible for the preparation and fair presentation of the financial report in
accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the
preparation and fair presentation of the financial report that is free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB
101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial
Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with
International Financial Reporting Standards.

Auditor's Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the financial report in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.

Liability limited by a scheme approved under Professional Standards Legislation.


Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We
confirm that the independence declaration required by the Corporations Act 2001, provided to the directors of Silver
Mines Limited on 30 September 2009, would be in the same terms if provided to the directors as at the date of this
auditor's report.

Auditor's Opinion

In our opinion the financial report of Silver Mines Limited is in accordance with the Corporations Act 2001,
including:

(a) giving a true and fair view of the Company's and consolidated entity's financial position as at 30 June
    2009 and of their performance for the year ended on that date; and

(b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and
    the Corporations Regulations 2001.

The financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included on pages 6 to 8 of the directors' report for the year ended 30 June
2009. The directors of the Company are responsible for the preparation and presentation of the Remuneration Report
in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor's Opinion

In our opinion the Remuneration Report of Silver Mines Limited for the year ended 30 June 2009, complies with
section 300A of the Corporations Act 2001.



Graham Abbott Associates
Chartered Accountants






Graham Abbott - Principal

30 September 2009



                                                SILVER MINES LIMITED
                                                 CORPORATE DIRECTORY
                                                         
                                                         
Directors                                                Auditors
                                                         Graham Abbott Associates Chartered Accountants
David Sutton Non -Executive Chairman                     10 Crown Street
David Straw Non-Executive Director                       Sydney
Malcolm Bird Non-Executive Director                      NSW 2011
Kim Slater Non-Executive Director                        
Charles Straw (Alternate Director for D Straw)           Company's Solicitor
                                                         Macpherson + Kelly
Company Secretary                                        Level 11
Kevin Martin Lynn                                        56 Pitt Street
                                                         Sydney NSW 2000
General Manager                                          tel: +61 2 9247 4990
Charles Straw                                            fax: +61 2 9252 6276


Australian Company Number
107 452 942

Registered Office
11 Rodborough Avenue
Crows Nest, NSW, 2065
Phone: +61 2 9436 0533
Fax: +61 2 9436 0688
E-mail: info@silverminesltd.com.au
Website: www.silverminesltd.com.au


Bank
National Australia Bank Limited
345 George St
Sydney NSW 2000

Share Registry
Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000


Contact Information

  • Silver Mines