Silver Mines
LSE : SVLP

October 01, 2010 08:24 ET

Annual Financial Report

                                                SILVER MINES LIMITED
                                                A.C.N. 107 452 942
     
                                                         
                                                          
                                                  STATUTORY REPORT
                                                          
                                                    30 JUNE 2010
     
     
Contents



                                                                                       Page

Directors' Report                                                                         2
Auditor's Independence Declaration                                                       10
Statement of Comprehensive Income                                                        11
Statement of Financial Position                                                          12
Statement of Changes in Equity                                                           13
Statement of Cash Flows                                                                  14
Notes to the Financial Statements                                                        15
Directors' Declaration                                                                   36
Independent Audit Report                                                                 37
Corporate Directory                                                                      39
                                                 SILVER MINES LIMITED
                                                  DIRECTORS' REPORT



The Directors present their report on the Company for the year ended 30 June 2010.

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
Charles Straw - Managing Director (Appointed 2 August 2010)
Malcolm Harvey Bird - Non Executive Director
David John Straw - Non Executive Director (retired 2 August 2010)
Kim Austen Slater - Non Executive Director (resigned 9 December 2009)


Principal Activities

During the 12 months to June 30th 2010 Silver Mines Limited continued to aggressively explore its NSW tenements with
the majority of work and expenditure again focused on the Webb's Silver Project on EL5674. The Company ramped up its
exploration activities as a result of securing almost $3 million dollars in new finance part during the financial
year, resulting in continued drilling at Webb's. Results were again impressive and support the strategy for
continued drilling and moving the project forward rapidly.

Webbs Silver Project (EL5674)

Summary

* Highly successful 5,144m drilling program completed at Webb's Silver Project.
* High silver grade multi-lode system extended along strike for a total length of over 600m at Webb's Silver
  South Prospect.
* Updated resource model currently underway with significant upgrade on existing model expected.
* Positive metallurgical results showing arsenic being suppressed whilst retaining high silver in
  concentrates.
* IP geophysics program shows high chargeability anomalies to the east and west of main Webb's lode system
  suggesting potential for parallel mineralisation.

Drilling

The new drilling completed at Webb's, totaling 5,144 m for the year, continued to intersect high grade silver-rich
polymetallic mineralisation at multiple prospects along the 2,500 m mineralised corridor.

Importantly, the drilling also indicates the presence of several parallel lode structures within the main
mineralised corridor. Mineralisation at the three key prospects - Webb's Silver Main, Webb's Silver South and Webb's
Silver Adit - remains open to the north and south and at shallow depths. Additional drilling is required to extend
and infill the current pattern.

Costean and Outcrop Sampling

Rock chip sampling was conducted in several old costeans and selected outcrops along the Webb's trend where suitable
access could be gained. Sampling was achieved as continuous traverses from west to east with individual samples
across a 1m interval. Highlights of this program occur at the extreme north and south of the Webb's trend as
currently defined. Costean 1 (CST001) in the north and Traverse 1 (TRV001) in the south both intersected resource
grade mineralisation at surface. Numerous other sample traverses also intersected potentially economic to sub
economic mineralisation and have identified the up dip extensions of deeper mineralisation previously defined by
drilling. These results combined with those of previous explorers will assist in preparing the updated resource
estimate and also identify areas for follow up work.
                                                
Metallurgy

Rougher flotation test-work on a waste dump composite sample has been conducted at a specialist laboratory in
Adelaide, South Australia. The aim of the test-work was maximising silver recovery and arsenic rejection.
Preliminary data indicates that a bulk rougher concentrate can be produced grading;

*       6,516 g/t Ag,
*       5.8% Cu,
*       15.7% Zn and
*       1.1% As can be produced.

 The relative recovery of these metals is;

*       62.1% Ag,
*       46.9% Cu,
*       66.2% Zn and
*       3.2% As.

The significance of this is that the testwork shows that a silver upgrade of over 20% is being achieved via
flotation of the silver-bearing tetrahedrite.  Such a high grade silver concentrate increases the value and
marketability of the concentrate to smelters. Additional silver is expected to be recovered in a lead-silver
concentrate which would improve total recovery above the 62% shown above which only takes into account a bulk
concentrate.

The positive result also demonstrates that excellent selectivity against arsenic can be achieved using a
conventional reagent scheme.  Further work will focus on concentrate separation to produce separate silver, lead and
zinc concentrates to maximise product revenue.

In parallel to this test-work, a similar waste dump composite sample has been prepared for Kelsey Jig test-work.
This test-work will investigate the effectiveness of gravity separation to reject arsenic from the silver bearing
sample, allowing a comparison between flotation and gravity methods to be made.

The Company is very pleased with the results as it demonstrates that standard flotation of mineralised material from
Webbs should yield very high grade silver concentrates with associated copper, zinc, lead and antimony whilst
minimising arsenic. Continued optimising of the test-work will follow to determine the best flow sheet for an onsite
processing plant.

Induced Polarisation (IP) Surveys.

The Company completed an induced polarisation (IP) survey at Webb's, designed to test for postulated strike
extensions to the known main mineralised system as well as lateral repetitions to the east and west. The results
highlight a number of very distinct 'chargeable 'zones parallel to the known main lode structure, particularly to
the east. The location, size, continuity, depth extent and shape of the new anomalies suggest that there is a high
likelihood of multiple mineralised structures parallel to the main Webb's Silver mineralised zone, both to the east
and west. The IP chargeability parameter relates directly to the amount of metallic minerals in the earth and these
anomalous results point to areas that are likely to contain anomalous amounts of sulphide minerals such as zinc,
lead and silver that may be related to economic accumulations of these metals.

IP geophysics has been used very successfully by the Company on the Webb's Silver Project for identifying silver
mineralisation. To date, each of four previously identified chargeable zones which have been drilled, have
encountered high grade silver mineralisation. The best of these is the Webb's Silver South Prospect which was
originally identified in the 1960s using IP. The Company sees the latest results as supporting the view that Webbs
has the potential to host a significant silver resource both within and adjacent to the historic lodes. The Company
is very excited about the new targets and the potential of the project.
                                                
Future Work

Silver Mines will incorporate these new results into an updated resource estimate. The resource estimate will help
identify areas that require further drilling and highlight other areas of potential.

Accordingly, further RC drilling is planned and should commence before the end of September 2010. The drilling will
initially focus on quantifying additional resource potential at Webb's Silver South Extended and also follow up
target areas around Webb's Silver Main. Diamond drilling will also be undertaken in the near term. This will provide
additional geotechnical and metallurgical data for input into project studies as well as support for ongoing
resource work.

Silver Mines is looking forward to reporting all results to shareholders in the coming weeks and months.

Other Tenements

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

EL 6269 - (Australia Oriental Minerals NL Joint Venture)

Under a Joint Venture Agreement, Silver Mines Limited will earn 50% of EL 6269, owned by Australia Oriental Minerals
NL (AOM) by expending $95,000 on exploration. This work has concentrated on the old Walla Walla Pb-Ag-Zn mine. In
2006, AOM undertook an extensive stream sediment and rock chip study of this area revealing a zone of prospective
ground extending from north of the Walla Walla mine southward past the old Colandel mine. The Company have followed
this up with rock chip and most recently an IP (Induced Polarisation) survey over the Walla Walla workings and along
strike from them.

The existing workings reached a recorded depth of 30 metres and extend north and south of the main shaft. It is
understood that the workings were following a vertical vein type structure present within a fine grained sedimentary
unit.

The information in this report that relates to Exploration Results is based on information compiled by Charles
Straw, consulting geologist and CEO, who is a Member of The Australasian Institute of Mining and Metallurgy. Charles
Straw has sufficient experience which is relevant to the style of mineralisation and type of deposit under
consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004
Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Charles
Straw consents to the inclusion in the report of the matters based on his information in the form and context in
which it appears.


Results

The Company incurred a pre-tax operating loss of $491,500 (2009: loss 673,091).


Dividends

No  dividend  has  been  paid since the end of the previous financial year and no dividend is  recommended  for  the
current year, (2009 - nil).


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 2010 the Company raised (before costs):
* $1,800,000 through the issue of 20,000,000 shares at 9 cents per share to professional and sophisticated
  investors 7 July 2010;
* $50,511 by way of pro rata offer dated 7July 2010 through the issue of 5,051,132 options at 1 cents per
  option;
* $43,670 by way of short fall offer to professional and sophisticated investors pursuant to the pro rata
  offer dated 7July 2010 through the issue of 4,367,030 options at 1 cents per option;
* $56,330 by way of options to professional and sophisticated investors through the issue of 5,632,970
  options at 1 cent per option dated 13 August 2010.

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. He was Executive Chairman from 2002 to 2010
of Martin Place Securities Pty Limited, a boutique investment firm holding an AFS Licence, where his
responsibilities include management of corporate finance, advisory, and sharebroking activities within the firm.
David currently owns and manages Dayton Way Financial Pty Ltd, a boutique financial services company focussing on
the global resources sector.

Prior to his current role he was a partner and Director of several stock exchange member firms including Clarke & Co
and Macnab 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, Australian Stock Exchange Limited.

His past experience in Directorships of public companies includes the Hudson Group of Companies, Fleet Capital
Limited and Waivcom International Ltd and his experience in Directorships of companies in the resources sector
includes Chairman of Reef Mining Limited, a listed gold producer, and he is currently a Director of Imperial
Corporation Ltd, a company producing natural gas in the United States.

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

Charles Straw - (Managing Director)
Charles is an economic geologist with over 15 years in the mining industry. His experience is multi-faceted ranging
from environmental management and planning through to mineral exploration, project development, valuation, finance
and corporate management. He holds an honours degree in applied geology from UNSW in Sydney and is a member of the
CIM and AUSIMM. He has lead the exploration and evaluation of precious and base metals projects in Australia, South
America and China. He is currently a Director and CEO of TSX.V listed Artha Resources Corporation.

Malcolm Harvey Bird, Non Executive Director

Malcolm 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


David John Straw, Non-Executive Director - retired 2 August 2010

Kim Austen Slater, Non-Executive Director - resigned 9 December 2009.


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  and  or
Director of 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 Managing Directors
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                                         $48,000 per annum
Non-executive Directors                                        $30,000 per annum
Audit Committee members                                           $Nil per annum

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 2010
      
    -----------------------------------------------------------------------------------------------------------------

                                                   Salary   Non      Super-     Retirement  Equity    Other     Total
                                                   & Fees   Monetary annuation  benefits    Options   Bonuses
    -----------------------------------------------------------------------------------------------------------------
    D Sutton                                       36,000    -        -              -      -         -        36,000
        2010                                                                               
    -----------------------------------------------------------------------------------------------------------------
        2009                                       30,000    -        -              -      -         -        30,000
    ----------------------------------------------------------------------------------------------------------------- 
     D Straw                                       30,000    -        -              -      -         -        30,000  
        2010                                                
    -----------------------------------------------------------------------------------------------------------------
        2009                                       30,000    -        -              -      -         -        30,000
    -----------------------------------------------------------------------------------------------------------------  
    K Slater                                       11,000    -        -              -      -         -        11,000
        2010                                                
    -----------------------------------------------------------------------------------------------------------------
        2009                                       30,000    -        -              -      -         -        30,000
    -----------------------------------------------------------------------------------------------------------------  
     C Straw                                            -    -        -              -      -         -             -
        2010                                                 
    -----------------------------------------------------------------------------------------------------------------
        2009                                            -    -        -              -      -         -             -
    ----------------------------------------------------------------------------------------------------------------- 
      M Bird                                       30,000    -        -              -      -         -        30,000 
        2010                                                
    -----------------------------------------------------------------------------------------------------------------
        2009                                       30,000    -        -              -      -         -        30,000
    -----------------------------------------------------------------------------------------------------------------
                                                           
          
On the 30 November 2009, shareholders approved the payment of Directors fees in the form of shares for Directors
fees accrued to 30 June 2009; each director received 367,025 shares equivalent to $22,500 in fees for the period to
30 June 2009. 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.
       
Remuneration of the 5 named executives who receive the highest remuneration for the year ended 30 June 2010


   ---------------------------------------------------------------------------------------------------- 
                            Salary   Non          Super-        Retirement         Equity         Total
                            & Fees   Other        annuation     benefits           Options
                                     Monetary          
                                     Bonuses
   ----------------------------------------------------------------------------------------------------
    K Lynn                  60,000   -            -             -                  -             60,000
    2010                             
   ----------------------------------------------------------------------------------------------------
    2009                    36,000   -            -             -                  -             36,000
   ---------------------------------------------------------------------------------------------------- 
    C Straw                 106,200  -            -             -                  -            106,200
    2010                              
   ----------------------------------------------------------------------------------------------------
    2009                    160,560  -            -             -                  -            160,560
   ----------------------------------------------------------------------------------------------------
                                     

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  2010
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             1
        K Slater                                                          3             2
        C Straw as Alternate Director for D Straw                         6             5
        --------------------------------------------------------------------------------------

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
* 695,000 shares at 3.5 cents per share for services rendered, 28 August 2009
* 3,200,000 shares at 3.5 cents per share to professional and sophisticated investors, 16 September 2009;
* 7,900,000 shares at 4.0 cents per share to professional and sophisticated investors, 2 October 2009;
* 1,957,687 shares at 4.0 cents per share to Directors pursuant to a resolution passed at the Company Annual
  General Meeting, 30 November 2009;
* 6,250,000 shares at 8.0 cents per share to professional and sophisticated investors, 11 December 2009;
* 5,376,470 shares and 4,517,503 options at 8.0 cents per share to professional and sophisticated investors,
  7 June 2010.                                                       
                                                          
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.
      

Directors and Officers Indemnification

During the financial year Silver Mines Limited paid premiums of $15,383 (2009: $14,580) 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 2010
     
                                         AUDITOR'S INDEPENDENCE DECLARATION
                                   UNDER SECTION 307C OF THE CORPORATIONS ACT 2001
                                      TO THE DIRECTORS OF SILVER MINES LIMITED


In  accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration  of
independence to the directors of Silver Mines Limited.

As  lead audit principal for the audit of the financial statements of Silver Mines Limited for the financial  period
ended  30  June  2010, I declare that to the best of my knowledge and belief, that there have been no contraventions
of:
    
    (i)  the auditor's independence requirements of the Corporations Act 2001 in relation to the audit; and
    
    (ii) any applicable code of professional conduct in relation to the audit.

        




Moyes Yong & Co Partnership                                      William M Moyes - Partner

Chartered Accountants                                            30th September 2010

Level 7, Norwich House
6 O'Connell Street
Sydney  NSW  2000
                                                                  

                                                 SILVER MINES LIMITED
                                                          
                                          STATEMENT OF COMPREHENSIVE INCOME
                                           FOR THE YEAR ENDED 30 JUNE 2010


                                                                                     
                                                         Notes             2010             2009
                                                                            $                $
                                                                                      
Revenues from ordinary activities                          2             14,305           44,705
                                                                                      
Expenses from ordinary activities                                                     
                                                                                      
- Accounting/ Company secretarial                                       (60,220)         (37,624)
- Wages                                                                 (33,330)         (20,724)
- Share registry                                                        (14,379)         (25,829)
- Stock exchange fees                                                   (14,983)         (18,773)
- Bank fees                                                              (1,874)          (4,178)
- Auditors                                                              (20,167)         (17,200)
- Directors emoluments                                                 (107,000)        (127,455)
- Office expenses                                                       (24,672)         (23,006)
- IT & communications                                                   (12,396)          (6,783) 
- Rent                                                                  (28,467)         (44,978)
- Depreciation                                                          (43,201)         (66,026)
- Insurance                                                             (26,092)         (32,107)
- Professional advisors                                                  (5,080)         (12,870)
- Plus Market Listing fees                                              (35,704)        (215,437)
- Other expenses from ordinary activities                               (78,240)         (64,806)
                                                                       ---------        ---------
Total expenses                                                         (505,805)        (717,796)
                                                                       ---------        ---------
                                                                       
                                                                       ---------        ---------
Loss before income tax expense                             3           (491,500)        (673,091)
                                                                       ---------        ---------
                                                                                      
Income tax expense                                         4                  -                -
                                                                       ---------        ---------
Loss for the year                                                      (491,500)        (673,091)
Other comprehensive income                                                    -                -
                                                                       ---------        ---------
Total comprehensive loss for the year net of tax                       (491,500)        (673,091)
                                                                       ---------        ---------
                                                                                      
                                                                                      
                                                                                      
                                                                          Cents            Cents
                                                                                              
Basic earnings per share                                  21              (0.01)           (0.01)
Diluted earnings per share                                21              (0.01)           (0.01)





The statement of comprehensive income is to be read in conjunction with the notes to the financial statements.
                                                
                                                
                                                
                                                
                                                SILVER MINES LIMITED
                                                          
                                           Statement of Financial Position
                                                 AS AT 30 JUNE 2010


                                                                                      
                                                         Notes              2010            2009
                                                                              $               $
                                                                                       
Current Assets                                                                         
Cash and cash equivalents                                  5             388,302         373,395
Receivables                                                6             119,354          50,516
                                                                       ---------      ----------
                                                                                       
Total Current Assets                                                     507,656         423,911
                                                                       ---------      ----------
                                                                                       
Non-Current Assets                                                                     
Other financial assets                                     7              60,550          75,550
Intangible assets                                                                      
- Deferred exploration & development                       8           5,076,059       3,965,310
Property plant & equipment                                 9              64,855         124,422
                                                                       ---------      ----------
                                                                                       
Total Non-Current Assets                                               5,201,464       4,165,282
                                                                       ---------      ----------
                                                                                       
Total Assets                                                           5,709,120       4,589,193
                                                                       ---------      ----------
                                                                                       
                                                                                       
Current Liabilities                                                                    
Payables                                                  10             470,773         228,841
Provisions                                                11               5,410           7,934
                                                                       ---------      ----------
                                                                                       
Total Current Liabilities                                                476,183         236,775
                                                                       ---------      ----------
                                                                                       
Non Current Liabilities                                                                
Payables                                                  10              77,224         131,939
                                                                       ---------      ----------
                                                                                       
Total Non Current Liabilities                                             77,224         131,939
                                                                       ---------      ----------
                                                                                       
                                                                         553,407         368,714
                                                                       ---------      ----------
Total Liabilities
                                                                                       
Net Assets                                                             5,155,713       4,220,479
                                                                       ---------      ----------
                                                                       ---------      ----------
                                                                                       
Equity                                                                                 
Contributed equity                                        12           7,174,526       5,747,792
Accumulated losses                                        13          (2,018,813)     (1,527,313)
                                                                       ---------      ---------- 
                                                                                       
Total Equity                                                           5,155,713       4,220,479
                                                                       ---------      ----------
                                                                       ---------      ----------
                                                                                       



The statement of financial position is to be read in conjunction with the notes to the financial statements.

                                                SILVER MINES LIMITED
                                                          
                                                          
                                           STATEMENT OF CHANGES IN EQUITY
                                           FOR THE YEAR ENDED 30 JUNE 2010


                                   Notes     Ordinary      Share Based    Share Option    Accumulated        Total
                                               Shares      Payment        Reserve         Losses            
                                                           Reserve           $                               
                                                  $                                            $               $
                                                                                                             
                                                                                                                    
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                      -             -              -        (546,480)      (546,480)
the Company
                                        ---------------------------------------------------------------------------
                                                                                                                    
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
                                                                                                                    
Shares Issued during the year                1,499,325             -              -               -      1,499,325
Costs of funds raised                          (72,591)            -              -               -        (72,591)
Loss attributable to members of                      -             -              -        (491,500)      (491,500)
the Company
                                        ---------------------------------------------------------------------------
Balance at 30 June 2010                      7,174,526             -              -      (2,018,813)      5,155,713
                                        ---------------------------------------------------------------------------
                                        ---------------------------------------------------------------------------
                                                                                                             


                                                          
The statement of changes in equity is to be read in conjunction with the notes to the financial statements.
                                                          
                                                SILVER MINES LIMITED
                                                          
                                                          
                                               STATEMENT OF CASH FLOWS
                                           FOR THE YEAR ENDED 30 JUNE 2010


                                                                                    
                                                           Notes          2010            2009
                                                                            $               $
                                                                                     
Cash Flows From Operating Activities                                                 
Interest received                                                       14,574          44,705
Payments to suppliers and employees                                   (313,767)       (600,440)
                                                                   ------------  --------------
                                                                                     
Net cash outflows from operating activities                  18       (299,193)       (555,735)
                                                                   ------------  --------------
                                                                                     
Cash Flows From Investing Activities                                                 
Exploration bonds                                                       15,000          35,000
Property plant & equipment                                                   -          (2,417)
Proceed from sale of property plant & equipment                          2,437               -
Exploration expenditure                                             (1,110,749)       (771,836)
                                                                   ------------  --------------
                                                                                     
Net cash outflows from investing activities                         (1,093,312)       (739,253)
                                                                   ------------  --------------
                                                                                     
Cash Flows From Financing Activities                                                 
Proceeds from the issue of shares                                    1,499,325         185,675
Fund raising costs                                                     (72,591)         (9,283)
Borrowings - finance leases                                            (19,322)              -
                                                                   ------------  --------------
                                                                                     
Net cash inflows from financing activities                           1,407,412         176,392
                                                                   ------------  --------------
                                                                                     
Net Increase in Cash Held                                               14,907      (1,118,596)
Cash at the Beginning of the Financial Year                            373,395       1,491,991
                                                                   ------------  --------------
                                                                                     
Cash at the End of the Financial Year                         5        388,302         373,395
                                                                   ------------  --------------
                                                                   ------------  --------------
                                                                                     





The statement of cash flows is to be read in conjunction with the notes to the financial statements.
                                                          

                                                SILVER MINES LIMITED
                                          NOTES TO THE FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED 30 JUNE 2010

    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 30th September 2010 by
      the Board of Directors.
      
      The Company primarily is involved in the exploration for minerals in Australia.
      
(b)   Basis of Preparation
      The financial report is a general purpose financial report which has been prepared in accordance with
      Australian Accounting Standards, Australian Accounting Interpretations and other authoritive pronouncements
      of the Australian Accounting Standards Board and the Corporations Act 2001.  Compliance with Australian
      Accounting Standards ensures the financial statements and notes also comply with International Financial
      Reporting Standards.

      The financial report is presented in Australian dollars which is also the functional currency.  The financial
      report is prepared on an accruals basis and is based on historical costs modified where applicable, by the
      measurement of fair value of selected non current assets, financial assets and financial liabilities.
      
      The preparation of a financial report requires management to make judgments, estimates and assumptions that
      affect the application of accounting policies and the reported amounts of assets and liabilities, income and
      expenses. The estimates and associated assumptions are based on historical experience and various other
      factors that are believed to be reasonable under the circumstances, the results of which form the basis of
      making the judgments about carrying values of assets and liabilities that are not readily apparent from other
      sources. Actual results may differ from these estimates.
      
      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 affects only that period or in
      the period of the revision and future periods if the revision affects both current and future periods.
      
      Material  accounting  policies set out below have been applied consistently to all periods  presented  in  the
      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 Company.
          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 Company 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 2010 the Company raised
      (before costs): $1,800,000 through the issue of 20,000,000 shares at 9 cents per share to professional and
      sophisticated investors 7 July 2010; $50,511 by way of pro rata offer dated 7July 2010 through the issue of
      5,051,132 options at 1 cents per option;  $43,670 by way of short fall offer to professional and
      sophisticated investors pursuant to the pro rata offer dated 7July 2010 through the issue of 4,367,030
      options at 1 cents per option; $56,330 by way of options to professional and sophisticated investors through
      the issue of 5,632,970 options at 1 cent per option dated 13 August 2010.The directors are not aware of any
      uncertainties which would cast doubt of the Company's ability to continue as a going concern.
      
(u)     Adoption of New and Revised Accounting Standards

      Certain new accounting standards and interpretations have been published that are not mandatory
      for 30 June 2010 reporting periods. The Company's assessment of the impact of these new standards
      and interpretations is set out below:

      *   AASB 9: Financial Instruments and AASB 2009-11: Amendments to Australian Accounting Standards arising
          from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and
          Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013).

          These standards are applicable retrospectively and amend the classification and measurement
          of financial assets.  The Company has not yet determined the potential impact on the
          financial statements.

          The changes made to accounting requirements include:
            - simplifying the classifications of financial assets into those carried at amortised cost and those carried
              at fair value;
            - simplifying the requirements for embedded derivatives;
            - removing the tainting rules associated with held-to-maturity assets;
            - removing the requirements to separate and fair value embedded derivatives for financial assets carried at
              amortised cost;
            - allowing an irrevocable election on initial recognition to present gains and losses on investments in
              equity instruments that are not held for trading in other comprehensive income.  Dividends in respect of these
              investments that are a return on investment can be recognised in profit or loss and there is no impairment or
              recycling on disposal of the instrument; and
            - reclassifying financial assets where there is a change in an entity's business model as they are initially
              classified based on:
                     a. the objective of the entity's business model for managing the financial assets; and
                     b. the characteristics of the contractual cash flows.
      *  AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1
         January 2011).
         This standard removes the requirement for government related entities to disclose details of
         all transactions with the government and other government related entities and clarifies the
         definition of a related party to remove inconsistencies and simplify the structure of the
         standard.  No changes are expected to materially affect the Company.
          
      *   AASB 2009-4: Amendments to Australian Accounting Standards arising from the Annual Improvements Project
          [AASB 2 and AASB 138 and AASB Interpretations 9 & 16] (applicable for annual reporting periods commencing from 1
          July 2009) and AASB 2009-5: Further Amendments to Australian Accounting Standards arising from the Annual
          Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] (applicable for annual reporting periods commencing
          from 1 January 2010).

                                                
          These standards detail numerous non-urgent but necessary changes to accounting standards
          arising from the IASB's annual improvements project.  No changes are expected to materially
          affect the Company.
      
      *   AASB 2009-8: Amendments to Australian Accounting Standards - Company Cash-settled Share-based Payment
          Transactions [AASB 2] (applicable for annual reporting periods commencing on or after 1 January 2010).
          
          These amendments clarify the accounting for Company cash-settled share-based payment
          transactions in the separate or individual financial statements of the entity receiving the
          goods or services when the entity has no obligation to settle the share-based payment
          transaction.  The amendments incorporate the requirements previously included in
          Interpretation 8 and Interpretation 11 and as a consequence, these two Interpretations are
          superseded by the amendments.  These amendments are not expected to impact the Company.
          
      *   AASB 2009-9: Amendments to Australian Accounting Standards - Additional Exemptions for First-time
          Adopters [AASB 1] (applicable for annual reporting periods commencing on or after 1 January 2010).

          These amendments specify requirements for entities using the full cost method in place of the
          retrospective application of Australian Accounting Standards for oil and gas assets, and
          exempt entities with existing leasing contracts from reassessing the classification of those
          contracts in accordance with Interpretation 4 when the application of their previous
          accounting policies would have given the same outcome.  These amendments are not expected to
          impact the Company.
          
      *    AASB 2009-10: Amendments to Australian Accounting Standards - Classification of Rights Issues [AASB 132]
          (applicable for annual reporting periods commencing on or after 1 February 2010).

          These amendments clarify that rights, options or warrants to acquire a fixed number of an
          entity's own equity instruments for a fixed amount in any currency are equity instruments if
          the entity offers the rights, options or warrants pro-rata to all existing owners of the same
          class of its own non-derivative equity instruments.  These amendments are not expected to
          impact the Company.
          
      *   AASB 2009-12: Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137,
          139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on
          or after 1 January 2011).
          
          This standard makes a number of editorial amendments to a range of Australian Accounting
          Standards and Interpretations, including amendments to reflect changes made to the text of
          International Financial Reporting Standards by the IASB.  The standard also amendsAASB 8 to
          require entities to exercise judgment in assessing whether a government and entities known to
          be under the control of that government are considered a single customer for the purposes of
          certain operating segment disclosures.  These amendments are not expected to impact the
          Company.
          
      *   AASB 2009-13: Amendments to Australian Accounting Standards arising from Interpretation 19 [AASB 1]
          (applicable for annual reporting periods commencing on or after 1 July 2010).
          
          This standard makes amendments to AASB 1 arising from the issue of Interpretation 19.  The
          amendments allow a first-time adopter to apply the transitional provisions in Interpretation
          19.  This standard is not expected to impact the Company.          
                                                

      *   AASB 2009-14: Amendments to Australian Interpretation - Prepayments of a Minimum Funding Requirement
          [AASB Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January 2011).
          
          This standard amends Interpretation 14 to address unintended consequences that can arise from
          the previous accounting requirements when an entity prepays future contributions into a
          defined benefit pension plan.
          
      *   AASB Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments (applicable for
          annual reporting periods commencing on or after 1 July 2010).
          
          This Interpretation deals with how a debtor would account for the extinguishment of a
          liability through the issue of equity instruments.  The Interpretation states that the issue
          of equity should be treated as the consideration paid to extinguish the liability, and the
          equity instruments issued should be recognised at their fair value unless fair value cannot
          be measured reliably in which case they shall be measured at the fair value of the liability
          extinguished.  The Interpretation deals with situations where either partial or full
          settlement of the liability has occurred.  This Interpretation is not expected to impact the
          Company.

          The Company does not anticipate the early adoption of any of the above Australian Accounting
          Standards.


                                                

                                                                                     
                                                                         2010             2009
                                                                            $                $
    2.      REVENUE                                                                   
                                                                                      
                                                                                      
Revenue from operating activities                                                     
Interest received                                                        14,305           44,705
                                                                      ---------        ---------
                                                                      ---------        ---------
                                                                                      
    3.      OPERATING EXPENSES                                                        
                                                                                      
The operating loss from operating activities:                                         

- Accounting/ Company secretarial                                       (60,220)         (37,624)
- Wages                                                                 (33,330)         (20,724)
- Share registry                                                        (14,379)         (25,829)
- Stock exchange fees                                                   (14,983)         (18,773)
- Bank fees                                                              (1,874)          (4,178)
- Auditors                                                              (20,167)         (17,200)
- Directors emoluments                                                 (107,000)        (127,455)
- Office expenses                                                       (24,672)         (23,006)
- IT & communications                                                   (12,396)          (6,783)
- Rent                                                                  (28,467)         (44,978)
- Depreciation                                                          (43,201)         (66,026)
- Insurance                                                             (26,092)         (32,107)
- Professional advisors                                                  (5,080)         (12,870)
- Plus Market Listing fees                                              (35,704)        (215,437)
- Other expenses from ordinary activities                               (78,240)         (64,808)
                                                                      ---------        ---------
                                                                      
Total                                                                  (505,805)        (717,796)
                                                                      ---------        ---------
                                                                      ---------        ---------
                                                                                      
    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                                   (491,500)        (673,091)
                                                                      ---------        ---------
                                                                      ---------        ---------
                                                                                          
    Prima facie income tax benefit at 30% on operating loss             147,450          201,927
    Add tax effect of:                                                                    
    Tax losses and temporary differences not recognised                (147,450)        (201,927)
    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.
                                                          
                                                
      
                                                                           2010             2009
                                                                            $                $
(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      2,018,813        1,527,313
deferred tax asset adjusted for non temporary differences
                                                                        605,644          458,194
Potential tax benefit at 30%
                                                                                            
(e) Unrecognised temporary differences                                                    
                                                                                      
    Non deductible amounts as temporary differences                           -                -
    Accelerated deductions for book compared to tax                           -                -
                                                                    ----------------------------
    Total                                                               605,644          458,194
                                                                    ----------------------------
                                                                        605,644          458,194
                                                                    ----------------------------
           Potential effect on future tax expense
                                                                                      
    5.      CASH AND CASH EQUIVALENTS                                                 
                                                                                      
Cash at bank and on hand                                                388,302          373,395
                                                                    ----------------------------
                                                                    ----------------------------
                                                                                      
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                                                             388,302          373,395
                                                                    ----------------------------
                                                                    ----------------------------
The effective interest rates on term deposits were 4.0% (2009:                        
5.08%).
                                                                                      
    6.      RECEIVABLES                                                               
                                                                                      
Other Debtors                                                           119,354           50,516
Provision for Doubtful Debts                                                  -                -
                                                                    ----------------------------
                                                                                      
                                                                        119,354           50,516
                                                                    ----------------------------
                                                                    ----------------------------
    7.      OTHER FINANCIAL ASSETS                                                    
                                                                                      
Non-Current                                                                           
Performance guarantee bonds                                              60,550           75,550
                                                                    ----------------------------
                                                                    ----------------------------
                                                                                      
    8.      INTANGIBLE ASSETS                                                         
                                                                                      
Non-Current                                                                           
Exploration expenditure                                                               
Costs carried forward in respect of areas of interest in:                             
Exploration and evaluation phase                                                      
Opening balance                                                       3,965,310        3,193,474
Expenditure in the period                                             1,110,749          771,836
Expenditure written off                                                       -                -
                                                                    ----------------------------
                                                                      5,076,059        3,965,310
                                                                    ----------------------------
                                                                    ----------------------------

                                                          
                                               
                                                          
                                                                         2010             2009
                                                                            $                $
                                                                      --------------------------
                                                                                      
                                                                                      
                                                          
    9.      PROPERTY, PLANT AND EQUIPMENT                                             
                                                                                      
                                                                                      
Plant and equipment - at cost                                            88,022           85,605
Financial Lease Assets                                                  147,843          147,843
Assets acquired                                                               -            2,417
Assets sold                                                             (16,366)               -
Less: Accumulated depreciation                                         (154,644)        (111,443)
                                                                    -------------- -------------
                                                                                                   
                                                                         64,855          124,422
                                                                    -------------- -------------
                                                                    -------------- -------------
      
      
      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                          33,279          91,144          124,422
Additions                                                     -               -                -
Disposals                                                     -         (16,366)         (16,366)
Depreciation                                            (23,170)        (20,032)         (43,201)
                                                      ----------       ---------      -----------
                                                                                       
Carrying value at end of year                            10,109          54,746           64,855
                                                      ----------       ---------      -----------
                                                      ----------       ---------      -----------

                                                                           2010             2009
                                                                            $                $
    10.     PAYABLES                                                                  
                                                                                      
Current                                                                               
                                                                                      
Trade creditors and accruals                                            470,773          228,841
                                                                       ---------      -----------
                                                                       ---------      -----------
                                                                                      
Non Current                                                                           
                                                                                      
Hire Purchase Creditors                                                  77,224          131,939
                                                                       ---------      -----------
                                                                       ---------      -----------
                                                                                      
    11.     PROVISIONS
                                                                                      
Employee Entitlements                                                     5,410            7,934
                                                                       ---------      -----------
                                                                       ---------      -----------
                                                                                      
Number of Employees at year end                                               3                1
                                                                       ---------      -----------
                                                                       ---------      -----------
                                                      
                                                      
                                                
                                                          
                                                                           2010             2009
                                                                            $                $
    12.     CONTRIBUTED EQUITY                                                                
                                                                                              
(a)     Issued and paid up capital                                                            
                                                                                              
Balance at the beginning of the financial year                        5,747,792        5,571,400
Issue of shares to raise capital                                      1,499,325          185,675
Share Issue Costs                                                       (72,591)          (9,283)
                                                                      ----------       ----------
                                                                                                      
Balance at the end of the financial year                              7,174,526        5,747,792
                                                                      ----------       ----------
                                                                      ----------       ----------
                                                                                              
Consisting of 74,181,662 ordinary shares (2009: 48,802,505 ordinary shares)
                                                                                      
      
      (b)     Movements in ordinary share capital                                                         
                                                                                                          
                  Date                Details                                Number of    Issue                 $
                                                                                shares    price
                  25 September 2006   Seed Capital                          13,820,005    $0.080        1,142,005
                                                                                                                 
                    19 January 2007   Tenement Acquisition Shares            5,375,000    $0.060          375,000
                    19 January 2007   IPO Shares                            20,652,500    $0.200        4,130,500
                   21 February 2008   Placement                              3,600,000    $0.210          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
                                                                                                                 
                     28 August 2009   Placement                                695,000    $0.035           24,325
                  16 September 2009   Placement                              3,200,000    $0.035          112,000
                     2 October 2009   Placement                              7,900,000    $0.040          316,000
                    9 December 2009   Placement                              1,957,687    $0.046           90,000
                   11 December 2009   Placement                              6,250,000    $0.080          500,000
                        7 June 2010   Placement                              5,376,470    $0.085          457,000
                                      Transaction Costs                                                   (72,591)
                                                                           -----------                -----------
                       30 June 2010   Balance                               74,181,662                  7,174,526
                                                                           -----------                -----------

      
      (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
                 
            * At 30 June 2010 there were 4,517,503 unlisted options at 12 cents per share expiring 1 May 2011.

            * At the date of these Statements there are 30,568,635 unlisted options at 12 cents per share expiring 1 May
              2011.
                 

      (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.
            
                                                                           2010            2009
                                                                         Number          Number
Movements in options                                                                    
                                                                                        
Balance at the beginning of the financial year                       19,620,000     19,620,000
Options Lapsed                                                      (19,620,000)             -
Options Exercised                                                             -              -
Options Issued                                                        4,517,503              -
                                                                   ------------  -------------
Balance at the end of the financial year                              4,517,503     19,620,000
                                                                   ------------  -------------
                                                                   ------------  -------------
                                                                                      
                                                                           2010           2009
                                                                              $              $
    13.     ACCUMULATED LOSSES                                                         
                                                                                       
Opening balance                                                       1,527,313        854,222
Net loss for year                                                       491,500        673,091
                                                                   ------------  -------------
                                                                                              
Closing balance                                                       2,018,813      1,527,313
                                                                   ------------  -------------
                                                                   ------------  -------------
                                                                                       
                                                          
                                                          
    14.     AUDITOR'S REMUNERATION                                         2010           2009
                                                                              $              $
Remuneration for audit or review of the financial reports of the                       
Company:
Current auditors of the Company:                                                       
Audit and review of the financial statements                                           
- Graham Abbott & Associates                                             15,367          19,192
- Moyes Yong & Co                                                         4,800               -
Other services                                                                -               -
                                                                   ------------   -------------
                                                                                               
                                                                         20,167          19,192
                                                                   ------------   -------------
                                                                   ------------   -------------
                                                          
                                                
                                                          
    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
        ----------------------------------------------------------------------------------------
        M Bird                              Director - Non-Executive
        ----------------------------------------------------------------------------------------
        D Straw                             Director - Non-Executive - retired 2 August 2010
        ----------------------------------------------------------------------------------------
        K Slater                            Director - Non-Executive - resigned 9 December 2009
        ----------------------------------------------------------------------------------------
        
        ----------------------------------------------------------------------------------------
        Specified Executives                
        ----------------------------------------------------------------------------------------
        
        ----------------------------------------------------------------------------------------
        C Straw                             Managing Director - Appointed 2 August 2010
        ----------------------------------------------------------------------------------------
        K Lynn                              Company Secretary
        ----------------------------------------------------------------------------------------
        
      
(b)     Relevant Interests in Options and Ordinary Shares at the Date of this Report

        ------------------------------------------------------------------------------------------------------------

        Ordinary shares                         Balance      Net change other     Net change of              Balance
                                            1 July 2009                              Associated         30 June 2010
                                                                                       Entities
        ------------------------------------------------------------------------------------------------------------   
        Specified Directors                                                                                         
        ------------------------------------------------------------------------------------------------------------
        D Sutton                              1,497,450            454,177                                 1,951,627
        ------------------------------------------------------------------------------------------------------------
        C Straw                                 150,000                                                      150,000
        ------------------------------------------------------------------------------------------------------------
        D Straw                                       0            512,301                                   512,301
        ------------------------------------------------------------------------------------------------------------
        M Bird                                6,085,000            367,035          (5,872,510)              579,525
        ------------------------------------------------------------------------------------------------------------
      
      OPTIONS
      
        ------------------------------------------------------------------------------------------------------ 
        Employee                Balance          Granted as      Options Lapsed     Net Change         Balance
        Options             1 July 2009        Remuneration                              Other    30 June 2010
        ------------------------------------------------------------------------------------------------------ 
        
        ------------------------------------------------------------------------------------------------------
        Specified Directors                                                                                   
        ------------------------------------------------------------------------------------------------------
        
        ------------------------------------------------------------------------------------------------------
        D Sutton                  500,000                 -           500,000               -                -
        ------------------------------------------------------------------------------------------------------
        M Bird                    500,000                 -           500,000               -                -
        ------------------------------------------------------------------------------------------------------
        D Straw                   500,000                 -           500,000               -                -
        ------------------------------------------------------------------------------------------------------
        K Slater                  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 2010
      
     ----------------------------------------------------------------------------------------------------------
                                   Salary         Non      Super-     Retirement   Equity    Other        Total
                                   & Fees         Monetary annuation  benefits     Options   Bonuses
     ----------------------------------------------------------------------------------------------------------
     D Sutton                                          
     2010                          36,000         -        -          -             -         -          36,000
     ----------------------------------------------------------------------------------------------------------
     2009                          30,000         -        -          -             -         -          30,000
     ----------------------------------------------------------------------------------------------------------
     D Straw                                           
     2010                          30,000         -        -          -             -         -          30,000
     ----------------------------------------------------------------------------------------------------------
     2009                          30,000         -        -          -             -         -          30,000
     ----------------------------------------------------------------------------------------------------------
     K Slater                                                                                          
     2010                          11,000         -        -          -             -         -          11,000
     ----------------------------------------------------------------------------------------------------------
     2009                          30,000         -        -          -             -         -          30,000
     ----------------------------------------------------------------------------------------------------------
     M Bird                                                                                               
     2010                          30,000         -        -          -             -         -          30,000
     ----------------------------------------------------------------------------------------------------------
     2009                          30,000         -        -          -             -         -          30,000
     ----------------------------------------------------------------------------------------------------------
                                                                                                            
       
       Remuneration of the 5 named executives who receive the highest remuneration for the year ended
       30 June 2010
       
     ----------------------------------------------------------------------------------------------------------
                                   Salary         Non      Super-     Retirement   Equity    Other        Total
                                   & Fees         Monetary annuation  benefits     Options   Bonuses
     ----------------------------------------------------------------------------------------------------------
     K Lynn                        60,000         -         -         -             -        -           60,000
     2010                          
     ----------------------------------------------------------------------------------------------------------
     2009                          36,000         -         -         -             -        -           36,000
     ---------------------------------------------------------------------------------------------------------- 
     C Straw                      106,200         -         -         -             -        -          106,200 
     2010                                                                                            
     ----------------------------------------------------------------------------------------------------------
     2009                         160,560         -         -         -             -        -          160,560
     ----------------------------------------------------------------------------------------------------------
                                                                                                      
       
      (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.
      On the 30 November 2009, shareholders approved the payment of Directors fees in the form of shares for
      Directors fees accrued to 30 June 2009; each director received 367,025 shares equivalent to $22,500 in fees
      for the period to 30 June 2009. 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.
      
                                                
       
    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:
      
                                                                         2010             2009
                                                                           $                $
        D Sutton                                                         8,500           9,284
      
      Payments  to  Mr Sutton represent capital raising fees to Dayton Way Financial Services 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.
      
                                                                          2010             2009
                                                                           $                $
    18.    RECONCILIATION OF OPERATING LOSS AFTER INCOME TAX TO NET                 
           CASH FLOWS FROM OPERATING ACTIVITIES
                                                                                     
Operating loss after income tax                                       (491,500)        (673,091)
Depreciation                                                            43,201           66,026
Profit on sale of Property, Plant & Equipment                          (21,464)               -
Increase/(decrease) in Receivables                                     (68,838)         102,923
Increase/ (decrease) in Payables                                       241,932          (54,860)
(Increase) / decrease in Provisions                                     (2,524)           3,267
                                                                     ----------      ----------- 
Net cash outflows from operating activities                           (299,193)        (555,735)
                                                                     ----------      -----------
                                                                     ----------      -----------
                                                                                     
                                                                                     
    19.     COMMITMENTS FOR EXPENDITURE                                              
                                                                                     
Operating Leases                                                                     
Non-cancellable operating lease rentals are payable as follows:                      
Due within one year                                                 77,224           53,000
Due beyond one year and within five years                                -           78,939
                                                                    ------          ------- 
                                                                    77,244          131,939
                                                                    ------          -------
                                                                    ------          -------
      
      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.

                                                

    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
                                                   %                        $            $            $             $
        2010                                                                                                         
        FINANCIAL ASSETS                                                                                             
        Cash assets                             4.0%           -      388,302            -            -       388,302
        Performance guarantee bonds               -            -            -       60,550            -        60,550
        Other financial assets                    -            -            -            -      119,354       119,354
                                                       ---------     --------      -------      -------     ---------
                                                               -      388,302       60,550      119,354       568,206
                                                       ---------     --------      -------      -------     ---------
                                                                                                                     
        FINANCIAL LIABILITIES                                                                                        
        Payables (Current)                                     -     (476,183)           -            -      (476,183)
        Payables (Non Current)                    -            -            -      (77,224)           -       (77,224)
                                                       ---------     --------      -------      -------     ---------
        NET FINANCIAL ASSETS                      -            -      (87,881)     (16,674)     119,354        14,799
        (LIABILITIES)                                  ---------     --------      -------      -------     ---------
                                                       ---------     --------      -------      -------     ---------
                                     
                                                
                                                

                                                          
                                            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                       -          -       373,395      (56,389)    (186,259)      130,747
                                                       ---------     --------      -------      -------     ---------
                                                       ---------     --------      -------      -------     ---------
        (LIABILITIES)                              
                                                          
      
      (b)   Reconciliation of net financial assets per statement of financial position:
      
                                                                                        2010             2009
                                                                                         $                $
                                                                                                   
       Net financial assets per above                                                 14,799            130,747
       Property Plant & Equipment                                                     64,855            124,422
       Deferred Exploration & Development                                          5,076,059          3,965,310
                                                                                   ---------         ----------
                                                                                   5,155,713          4,220,479
                                                                                   ---------         ----------
                                                                                   ---------         ----------
                                                                                   
       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.
       
                                              
             
       (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.
       
                                                                           2010            2009
                                                                          Cents           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        67,220,332       43,759,121
       denominator in calculating basis earnings per share and       ----------       ----------
       alternative basis earnings per share                          ----------       ----------
                                                                                     
       Weighted average number of ordinary shares and potential      73,865,153       63,379,121
       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    (491,500)        (673,091)
       share                                                          ---------        ---------
                                                                      ---------        --------- 
      
      
      
      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 2010, the net carrying amount of leased vehicles was $77,224 (2009:
      $91,143).
      
      
     23              EVENTS AFTER THE BALANCE SHEET DATE

        There were no significant events after balance date other than the Company raised funds (before costs):

*  $1,800,000 through the issue of 20,000,000 shares at 9 cents per share to professional and sophisticated
   investors 7 July 2010;
*  $50,511 by way of pro rata offer dated 7July 2010 through the issue of 5,051,132 options at 1 cents per
   option;
*  $43,670 by way of short fall offer to professional and sophisticated investors pursuant to the pro rata
   offer dated 7July 2010 through the issue of 4,367,030 options at 1 cents per option;
*  $56,330 by way of options to professional and sophisticated investors through the issue of 5,632,970
   options at 1 cent per option dated 13 August 2010.
      
      
      
      
                                                          
           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 6 to 8 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 2010 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 2010
      
                                            Independent Auditor's Report
                                                  To the members of
                                                Silver Mines Limited
                                                 A.C.N. 107 452 942
                                                          
                                              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
Statement of Financial Position as at 30 June 2010 and the Statement of Comprehensive Income, statements of changes
in equity and statement of cash flows 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.

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 2010, 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 financial position as at 30 June 2010 and of their performance
    for the year ended on that date; and

(b) complying with Australian Accounting Standards 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
2010. 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 2010, complies with
section 300A of the Corporations Act 2001.




Moyes Yong & Co Partnership                                      William M Moyes - Partner

Chartered Accountants                                            30th September, 2010

Level 7, Norwich House
6 O'Connell Street
Sydney NSW 2000


                                                SILVER MINES LIMITED
                                                 CORPORATE DIRECTORY
                                                         
                                                         
Directors                                                Auditors
David Sutton - Non -Executive Chairman                   Moyes Yong & Co
Charles Straw  - Management Director                     Level 7, Norwich House
Malcolm Bird - Non-Executive Director                    6 O'Connell Street
                                                         Sydney NSW 2000
Company Secretary                                        
Kevin Martin Lynn                                        Company's Solicitor
                                                         Macpherson + Kelly
Australian Company Number                                Level 11
107 452 942                                              56 Pitt Street
                                                         Sydney NSW 2000
Registered Office                                        tel: +61 2 9247 4990
11 Rodborough Avenue                                     fax: +61 2 9252 6276
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