Silver Mines
LSE : SVLP

October 05, 2011 09:31 ET

Annual Financial Report

                                                 
                                                 SILVER MINES LIMITED

                                                  A.C.N. 107 452 942
     
     
                                                          
                                                          
                                                  STATUTORY REPORT
                                                          
                                                    30 JUNE 2011
     
     
     
     
     
     
Contents



                                                                                        Page

Directors' Report                                                                          2
Auditor's Independence Declaration                                                        15
Statement of Comprehensive Income                                                         16
Statement of Financial Position                                                           17
Statement of Changes in Equity                                                            18
Statement of Cash Flows                                                                   19
Notes to the Financial Statements                                                         20
Directors' Declaration                                                                    41
Independent Audit Report                                                                  42
Corporate Directory                                                                       44

                                                 SILVER MINES LIMITED
                                                   DIRECTORS' REPORT


The Directors present their report on the Company for the year ended 30 June 2011.

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
Malcolm Harvey Bird - Non Executive Director
Charles Straw - Managing Director (appointed 2 August 2010)
David John Straw - Non Executive Director (retired 2 August 2010)

Principal Activities

During  the 12 months to 30 June 2011 Silver Mines Limited continued to aggressively explore its NSW tenements  (Map
1).  The  majority of work and expenditure again focused on the 100% owned Webb's Silver Project on EL5674.  Results
from  all projects, in particular Webbs, continue to add value to our property portfolio of silver focussed projects
in NSW with two projects added and many new drilling targets defined.

Highlights for 2011 Financial Year

    *   Delivery of an updated Resource Estimate1 for Webbs (Table 1) containing over 10 million ounces of silver
        at an average grade of 256 g/t silver, making Webbs the highest grade undeveloped silver project in Australia.


-----------------------------------------------------------------------------
JORC Category        Tonnes         Ag g/t      Cu %        Pb %         Zn %
-----------------------------------------------------------------------------
Inferred             1,066,000      240         0.27        0.83         1.83
-----------------------------------------------------------------------------
Indicated            167,000        360         0.32        0.55         1.91
-----------------------------------------------------------------------------
TOTAL                1,233,000      256         0.28        0.79         1.84
-----------------------------------------------------------------------------
Table 1: Resource estimate for Webb's Silver Project at 70g/t Ag lower cut-off.
               
    *   Completion of 1,236m of diamond drilling (DDH) in 11 holes and 5,551m of reverse circulation (RC) drilling
        in 76 holes. Results from this drilling will support, upgrade and extend the existing resource.
               
    *   Positive Scoping Study completed with significant upside potential demonstrated at Webbs.
        
    *   An  Exploration Target of between 4.0 million and 7.0 million tonnes at 200-260g/t silver for the Webbs
        Silver project. This target has the potential to contain between 26 - 57Moz of silver.
        
    *   Regional Exploration North of Webbs returning high grade silver and base metals in rock chips ;
            - Silver values in rock chips up to 2,950 g/t, copper to 1.7%, lead to 15.1% and zinc to 28.9%.
            - Silver rich mineralised zones potentially up to 20m wide have been identified along with
              narrow bonanza lode type mineralisation commonly in association with old workings.

Webbs Silver Project (EL5674)

The  Company  completed a number of drilling programs totalling 1,236m of diamond drilling (DDH)  in  11  holes  and
5,551m  of  reverse  circulation  (RC)  drilling in 76 holes.  The new  drilling  was  again  highly  successful  in
delineating  additional high grade silver rich polymetallic mineralisation in the Webbs trend.   The  first  program
(1,526m  of RC drilling in 19 holes) along with previous drilling culminated in the delivery of an updated  Resource
Estimate1  for Webbs containing over 10 million ounces of silver at an average grade of 256g/t silver, making  Webbs
the highest grade undeveloped silver project in Australia.

The  Webbs  project  continues  to deliver with drilling during the year again providing  further  exciting  results
demonstrating  the  potential of the project to grow. These results are likely to increase  the  JORC  category  and
tonnage  of  the  existing resource. The Company has a defined exploration target extending to 250m  below  surface.
Initial  testing of this target has focussed on near surface potential down to 120m below surface in and around  the
current resource and along strike to the north and south. Many high grade zones along the Webbs trend remain open at
depth.

Drilling

During the year the Company drilled at total of 6,967m of RC and DDH drilling in 87 holes. Better results from  this
drilling are presented in Table 2.

-----------------------------------------------------------------------------------
Hole ID     From         To        Int         Ag         Cu         Pb         Zn
              (m)        (m)       (m)        g/t         %          %          %
----------------------------------------------------------------------------------- 
RC098         86         108        20        405        0.6        1.7        2.1
Incl.         86         89         3         1220       1.5        4.8        3.1
RC100         73         91         18        548        0.4        1.2        1.2
Incl.         74         84         10        904        0.7        2.0        2.1
Incl.         79         80         1         5970       4.6        7.7        9.5
RC107         25         28         3         478        0.9        2.6        2.4
RC112         48         54         6         461        0.7        2.1        1.7
Incl.         52         53         1         1420       2.1        4.0        2.2
RC115         86         90         4         581        1.1        3.0        3.6
RC116         113        117        4         342        0.1        0.7        1.6
RC121         65         73         8         358        0.5        1.7        2.7
Incl.         66         68         2         933        1.1        3.7        4.2
RC124         53         58         5         344        0.4        2.7        2.4
RC127         173        180        7         834        0.7        0.2        2.4
Incl.         174        177        3         1773       1.4        0.1        3.0
RC130         56         60         4         650        0.5        0.3        2.6
RC135         51         62         11        414        0.3        0.3        2.0
Incl.         56         58         2         1623       1.1        0.1        4.0
RC137         59         63         4         309        0.5        1.0        1.2
RC153         10         12         2         425        0.7        2.1        1.4
RC172         161        164        3         377        0.8        0.1        2.3
DDH006        81.7       84.7       3         408        0.59       2.54       1.93
DDH006        96.15      102.15     6         275        0.39       0.39       2.19
DDH011        88.6       98.55      9.95      417        0.42       0.15       1.85
Incl.         94.6       98.55      3.95      916        0.90       0.16       3.42
DDH012        74.02      77.79      3.77      468        0.43       1.11       2.20
Incl.         74.02      74.43      0.41      3730       3.45       3.19       10.35
DDH013        21.24      29         7.76      485        0.52       1.83       2.36
Incl.         21.24      22.98      1.74      1463       1.66       0.88       3.16
------------------------------------------------------------------------------------
Table 2:  Selected  drilling results from the Webb's Silver Project at 100g/t  Ag  
          lower cut-off allowing for 3m on internal dilution

The  Company  has committed to additional drilling of approximately 10,000m of RC and 3,000m of DDH drilling.  These
programs will be completed in late 2011. The Company anticipates that an updated resource estimate will be completed
by the end of 2011.
                                                

Exploration Target

Silver Mines has defined an exploration target at Webbs of between 4.0 million and 7.0 million tonnes at 200-260g/t
silver for the Webbs Silver project. This target has the potential to contain between 26 and 57Moz of silver.

In accordance with Clause 18 of the JORC Code, readers are advised that the defining of an exploration target
provides the following;

'the potential quantity and grade is conceptual in nature, that there has been insufficient exploration to define
Mineral Resources (aside from the resources included and previously reported) and that it is uncertain if further
exploration will result in the determination of a Mineral Resource'.

The  quantity and grade of the exploration target (aside from the resources included) is based on conservative upper
and  lower  limits  applied to a base case estimate. The base case estimate was made by using  average  thicknesses,
grade and density data derived from the Webbs resource model and other relevant data.
Mineral potential can be demonstrated in these zones based on one or more of; geology, geochemistry, geophysics  and
drilling.

Scoping Study

The  Company completed a scoping study based on open cut mining of the Webbs Ag-Cu-Pb-Zn deposit at during the year.
The  results of the study highlight positive operating revenue from the base case model of approximately $A49Million
(pre  capital, i.e. plant costs; and pre-tax) over an initial project life of 15 months Operating revenue  increases
significantly to approximately $A85Million dollars using a silver price of $A40/oz and extends the project  life  to
20  months  based only on the current resource. These projections demonstrate that capital pay back  is  potentially
very rapid, based on current estimates, with any extension to project life offering significant additional revenues.

Further  to  this,  SVL considers the Webbs Silver project's upside potential can be defined in  the  following  key
areas;

    * the delineation of additional resources inside current pit shells;
        
    * the delineation of additional near surface resources adjacent to and along strike from existing pit shells;
        
    * improvements in metallurgical recovery and smelter terms;
    
    * decreases in capital and operating costs and
        
    * outlining of additional resources at depth, potentially amenable to underground mining and in  parallel
      structures east and west of the main identified lode system which contains the existing resource and exploration
      target.
        
The  scoping  study  was intended to be a high level technical and financial review of the potential  of  the  Webbs
Silver  project  to  be  developed  into a mining operation. The Company is  very  pleased  with  the  outcomes  and
recommendations delivered. The project will continue to be aggressively evaluated as per our Company strategy.


2012 PLAN

The  Company  anticipates  that  evaluation of the Webb's project will remain the key  focus  for  2012.  Additional
drilling is planned and will be used to produce a new resource estimate for the project. It is expected the resource
will continue increase with regard to tonnage and that JORC category will be upgraded.

Diamond  drilling  will  also  provide  added confidence to the resource with  improved  geological  and  structural
understanding.  Diamond  core  will also be used for metallurgical testwork and in the acquisition  of  geotechnical
data. Metallurgical testwork to pre-feasibility level is expected to be completed in early 2012 and will lead into a
pre-feasibility study for the project.

The  Company  is  also planning additional drilling at Webbs which will focus on testing depth extensions  to  zones
which  offer  potential to substantially increase tonnages of high grade material possibly amenable  to  underground
mining.

Additional drilling is also planned at several targets within EL5674.

OTHER PROJECTS

Webbs West (EL7602)

This project is located immediately west and north of EL5674 and has potential for Webbs style deposits to occur  in
north-south structures in metasediments adjacent to the Mole Granite.

Exploration  during  the year has been limited to desktop studies reviewing existing data such  as  stream  sediment
sampling  and  aeromagnetics.  Planned follow up work will include investigation of old  workings,  ridge  and  spur
mapping and sampling in anomalous catchments identified in stream sediment sampling.

Mole River (ELs 6114 and 6771)

Exploration  Licenses 6114 and 6771 are centered approximately 35km north east of the Webbs Silver  project  and  is
part  of  a contiguous group of tenements 100% owned by SVL, known as the Mole Project. The project area hosts  over
100  documented metalliferous occurrences which occur along a broad northwest trend approximately 25km long and  3km
wide.  The  geology of the Mole Project area is dominated by Permian aged sediments which are intruded by the  Early
Triassic  Mole  Granite. The Mole Granite is considered to be the source for the silver rich mineralisation  at  the
Webbs  Silver  project  as well as the multitude of other metalliferous deposits in the local region.  Silver  Mines
considers the Mole Project area to have the potential to host Webbs style silver rich polymetallic deposits.

New Results

Recent  exploration  conducted on EL6771 and EL6114 has included Induced Polarisation (IP) and rock  chip  sampling.
These  programs  were generally conducted over areas of old workings and possible extensions to know mineralisation.
Approximately 10.6 line km of IP along 10 grid lines spaced 200m apart was undertaken in EL6771. Numerous  zones  of
high chargeability at or near surface were identified and are indicative of sulphide mineralisation. These zones are
commonly  coincident  or along trend from areas of old workings and associated elevated geochemistry  in  rock  chip
samples. Many of the IP targets remain to be closed off along strike and to the west.

Rock  chip  sampling  was  undertaken  at a reconnaissance level and focused  on  old  workings,  associated  dumps,
mineralized outcrops and possible strike and parallel trends. A total of 165 samples were collected and analysed for
a  suite of metals. The bulk of these samples returned anomalous to highly elevated levels of Ag, Pb, Zn, and Cu  in
common  association with As, Bi and locally elevated Sb, Sn and W. The higher grades of silver commonly occurs  with
5% to plus 10% combined lead-zinc and copper up to 1.7%.

Mineralised  samples  are commonly massive-semi massive sulphides from lodes generally less than  1.5m  wide  (where
visible). However, well mineralized samples are also associated with altered wallrock that is often 'bleached'  with
veins and disseminations of sulphides - similar visually to Webbs. Many of these zones are up to several metres wide
with  one  zone  possibly up to 20m wide. These 'wide' zones have been observed at the Burra, Creek 1,  Ecuador,  Mt
Morgan  and  Pearmans prospect areas. The mineralised structures observed generally strike northwest and  have  sub-
vertical  dips.  A  linear  zone  over  1.4km  long has been defined by anomalous  geochemistry  and  coincident  IP
chargeability extending in a northwest direction from the Ecuador prospect to Mt Morgans SE. This broad  mineralised
corridor remains open to the north and south along strike.

Silver  Mines believe the style of mineralisation identified during this program is similar to that which occurs  at
the Webbs Silver deposit, based on a number of similarities, including;

    *  Metal association - bonanza Ag associated with high Cu, Sb, Bi, Pb and Zn, plus;
    *  The style of mineralisation is also similar - defined as narrow zones of 'bonanza 
       lode' enveloped in lower grade altered and mineralized country rock.

The  Company  is  highly  encouraged by the new results and considers the area to be a high  priority  target.   The
possibility  of  delineating additional high grade silver rich polymetallic mineralisation within possible  trucking
distance to the Webbs project also provides impetus to aggressively explore the area.

Webbs Consols (ELs 6772 and 6239)

These two tenements contain two groups of known deposits - the westerly Webbs Consols group, and the eastern Tangoa-
Wellingrove group. The Webbs Consols group, embracing (south to north) the Castlereagh, Mount Galena, Webbs  Consols
and Lucky Lucy workings, is considered to comprise discrete, pipe-like shoots whose plunge is probably controlled by
easterly   or   north-easterly  cross-cutting  features.  Exploration  to  date  suggests  that  high-grade   silver
mineralisation  may  extend  along  strike of the known historical workings with  results  from  recent  geochemical
programs. The Company is reviewing the projects at present with a view to drilling in 2012.

Walla Walla (EL 6269 - Australia Oriental Minerals NL Joint Venture)

The Walla Walla prospect is located on EL6269 approximately 100km north of Canberra.

EL6269 hosts a number of historic workings and prospects that targeted lead, silver, zinc, copper, tin and tungsten.
Mineralisation at Walla Walla is classified as epigenetic shear or vein type which is hosted in deformed  Ordovician
sediments.  The  ore  forming fluids and metals are likely to be derived from the nearby Wyangala  Batholith.  Walla
Walla  is  part  of a wider, but sporadically developed, magmatic-hydrothermal mineralising system,  not  previously
recognised in this area.

Under  a  Farm-In Agreement, Silver Mines Ltd (SVL) has earned a 75% interest in EL 6269, held by Australia Oriental
Minerals NL (AOM).  The Company is in the process of finalising a Joint Venture Agreement with AOM.

Exploration  during  the year has concentrated on drilling at the old Walla Walla Pb-Ag-Zn  mine  and  a  review  of
exiting data with a focus on geochemical data.

During the year Silver Mines completed 942m of RC drilling in 9 holes, targeting IP anomalies in the old Walla Walla
mine  area.  The  drilling intersected narrow, relatively near surface1-3m wide zones of silver rich  mineralisation
containing Cu, Pb, Zn and Sn. Better intersection are shown in Table 3.

Additional potential to develop mineralisation at greater widths may exist along strike and/or at depth.

                                                                                                       
--------------------------------------------------------------------------------------
  Hole ID      from     to      Int      Ag      Au      Cu       Pb      Zn      Sn
               (m)     (m)      (m)     g/t     g/t       %       %       %        %
--------------------------------------------------------------------------------------
WWRC001         68      70       2      223     0.05    0.26     4.98    2.77    0.47
WWRC002         97      98       1      208     0.09    0.32     2.27    4.00    0.29
WWRC003         74      76       2      109     0.13    0.13     4.68    2.57    0.18
WWRC004        109     112       3      118     0.01    0.05     2.90    2.46    0.09
WWRC009         97      98       1      103     0.01    0.01     1.86    0.45    0.18
--------------------------------------------------------------------------------------
            Table 3: Selected drilling results from the Walla Walla Project

Target  generation  was  undertaken by reviewing existing geochemical, geophysical and geological  data.  This  work
revealed several targets with strong Ag, Cu, Pb, Zn, Sn, As associations. These and other targets require additional
follow up which may include mapping, sampling leading to geophysics and drilling.

Boro (EL7640)

The  Boro  project  is  located  approximately 60km northeast of Canberra.  The  project  represents  an  area  with
significant historical silver and associated base metal production. The exploration model for the area is  targeting
silver rich deposits with significant base metal credits. The deposit styles include VHMS and skarn mineralisation.

The  objectives for Silver Mines are to identify the potential for significant silver-base metal resources and  test
identified targets by drilling.

A  though  review and collation of all relevant previous exploration data into digital datasets has been  completed.
Recommend  follow  up  work  is focused on drilling to target wide near surface zones  of  silver  and  base  metals
intersected in scant drilling by previous explorers. One such hole drilled in 1995 intersected 28m @ 0.2%  Cu,  1.5%
Pb, 0.1% Zn and 53g/t Ag from 22m. This zone is totally open along strike and at depth.

Leadville (ELA4240)

The  Leadville  project  area  is located on the northern margin of the Lachlan Orogen approximately  15km  east  of
Dunedoo in central-eastern NSW.

The  Leadville project has demonstrated potential to host several deposit styles and commodities. The primary target
model  for Silver Mines are skarn type and volcanic hosted sulphide polymetallic deposits rich in silver,  +/-  base
metals  +/-gold.  Deposits  in  the area are hosted by Siluro-Devonian felsic metavolcanic  and  locally  calcareous
metasedimentary  rocks which have been intruded by the Gulgong Granite. Mineralisation generally occurs  as  steeply
dipping pipe like shoots of massive sulphide and smaller veins. The existence of large low grade deposits cannot  be
discounted.

Numerous  metallic occurrences and deposits are recorded in the area including significant historic  workings.  From
1887  to 1893 total recorded production is approximately 17,500t @ recovered grades of around 600g/t Ag and 10%  Pb.
From  1912-1927 and 1932-1937 approximately 31,000t of pyrite was also produced along with minor amounts of  silver-
lead  and  copper-zinc  ore. Mineralisation is likely to be litho-structurally controlled with identified  prospects
trending mostly north to northwest.

Drilling completed by previous explorers in 1990's returned encouraging intersections (Table 4) which warrant follow
up. A detailed review of existing data will guide further exploration at the project.
                                                

 -------------------------------------------------------------------
 Hole     From      To     Int     Cu     Pb      Zn      Ag     Au
           (m)     (m)     (m)     %       %      %      g/t     g/t
 -------------------------------------------------------------------
 DH34    88.85      97    8.15    0.22   1.03    6.29    447    0.41
 DH35      143     144       1    2.38   1.41    5.88    690    2.70
 DH42       81      88       7    0.07   4.00    8.48     68    0.35
 -------------------------------------------------------------------
 Table 4: Selected drilling results from the Leadville Project


TENEMENT SUMMARY

-------------------------------------------------------------------------------------------------------
Title No.    Title Name       Company     Grant Date  Last renewal   Expiry Date     Units       Status
-------------------------------------------------------------------------------------------------------
                                                         
 EL 6239   Webb's Consols       SVL        17-May-04     22-Feb-11     16-May-12         4           
------------------------------------------------------------------------------------------------------- 
 EL 6772   Webb's Consols       SVL         8-May-07     23-Mar-10      8-May-11        35      Renewal
                                                                                                Pending
------------------------------------------------------------------------------------------------------- 
 EL 6771    Clive Project       SVL         9-May-07     23-Mar-10      9-May-11        25      Renewal
             - Mole River                                                                       Pending
-------------------------------------------------------------------------------------------------------  
 EL 6114    Pyes Creek -        SVL        14-Aug-03     23-Mar-10     13-Aug-11         6      Renewal
              Mole River                                                                        Pending
------------------------------------------------------------------------------------------------------- 
 EL 5674    Webb's Silver       SVL        13-Jan-00     1-Nov-10      12-Jan-12         4           
------------------------------------------------------------------------------------------------------- 
 EL 7602    Webb's Silver       SVL        17-Aug-10                   17-Aug-12        13          
------------------------------------------------------------------------------------------------------- 
 EL 7640            Boro        SVL        02-Dec-10                   02-Dec-12        15          
------------------------------------------------------------------------------------------------------- 
 ELA4240       Leadville        SVL                                                     93     Awaiting
                                                                                                  Grant
-------------------------------------------------------------------------------------------------------  

Competent Persons' Statements.

1  The  information in this Document that relates to Exploration Results, Mineral Resources or Ore Reserves is based
on  information compiled by Mr Robin Rankin, who is a Member of the Australasian Institute of Mining and  Metallurgy
(MAusIMM)  and  registered  as  a  Chartered Professional Geologist (CPGeo). Robin Rankin  is  Principal  Consulting
Geologist  and  operator  of the independent geological consultancy GeoRes. He 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' (the  JORC Code). He consents to the inclusion  in  the
report of the matters based on his information in the form and context in which it appears.

2  The  information in this Document that relates to Exploration Results, Mineral Resources or Ore Reserves is based
on  information  compiled  by  Mr David Hobby, consulting geologist to SVL, who is  a  Member  of  The  Australasian
Institute  of  Mining  and  Metallurgy.  Mr Hobby 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'  for
Reporting  of  Exploration Results, Mineral Resources and Ore Reserves'. Mr Hobby 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 $2,081,624 (2010: loss $491,500).

Dividends

No  dividend  has  been  paid since the end of the previous financial year and no dividend is  recommended  for  the
current year (2010: 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 2011, the Company announced on 6 September 2011 a non-renounceable pro-rata offer for the issue of  up
to 13,610,561 new options on the basis of one (1) new option for every ten (10) shares held by eligible shareholders
on the record date of 14 September 2011 at an issue price of 1 cent per new option, to raise up to $136,016.

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 is currently the Principal of  Dayton
Way  Financial  Pty  Ltd,  a  boutique financial services company, based in Sydney, which  focuses  on  the  natural
resources sector.

Prior  to  his  current position he was Executive Chairman of Martin Place Securities from 2002 to 2010,  where  his
responsibilities included management of corporate finance and sharebroking activities within the firm.

David  has previously been a Partner and Director of several stock exchange member firms, including Clarke & Co  and
McNab Clarke.  He became a member of the Stock Exchange of Melbourne and subsequently the Australian Stock Exchange.

His past experience in directorships of public companies includes the Hudson Group of Companies and Reef Mining Ltd.

He  is  currently Chairman of Sinovus Mining Ltd and a director of Empire Energy Group Ltd, a producer  of  oil  and
natural gas in USA.

Other listed company directorships held during past 3 years:
------------------------------------------------------------
Earth Heat Ltd
Sinovus Mining Ltd
Empire Energy Group Ltd

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.

Other listed company directorships held during past 3 years:
------------------------------------------------------------
Nil

Malcolm Harvey Bird, Non Executive Director
Malcolm has over 35 years experience in the stock broking industry with an emphasis on mining investments.  He was a
founder and director of Morning Star Gold NL and Central West Gold NL for 23 years and has an extensive knowledge of
mineral exploration in NSW.

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

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 2011:

-----------------------------------------------------------------------------------------------------------------------
                                                                                   Non-cash                   
                        Salary &         Non-          Super-     Retirement    share-based        Other          
                            Fees     monetary       annuation       benefits       payments      bonuses       Total
-----------------------------------------------------------------------------------------------------------------------
D Sutton        2011      48,000            -               -              -        402,556            -     450,556
                2010      36,000            -               -              -              -            -      36,000
----------------------------------------------------------------------------------------------------------------------- 
D Straw         2011      10,000            -               -              -              -            -      10,000
(retired 
2 August
2010)           2010      30,000            -               -              -              -            -      30,000
----------------------------------------------------------------------------------------------------------------------- 
K Slater        2011           -            -               -              -              -            -           -
(resigned 
9 December
2010)           2010      11,000            -               -              -              -            -      11,000 
-----------------------------------------------------------------------------------------------------------------------  
M Bird          2011      30,000            -               -              -        402,556            -     432,556
                2010      30,000            -               -              -              -            -      30,000
-----------------------------------------------------------------------------------------------------------------------  
C Straw         2011     224,750            -               -              -        402,556            -     627,306
(appointed 
2 August
2010)           2010     106,200            -               -              -              -            -     106,220
-----------------------------------------------------------------------------------------------------------------------  


Remuneration of the 5 named executives who receive the highest remuneration for the year ended 30 June 2011:

-----------------------------------------------------------------------------------------------------------------------
                                                                                                         
                                                                                   Non-cash                    
                        Salary &         Non-          Super-      Retirement   share-based        Other          
                            Fees     monetary       annuation        benefits      payments      bonuses       Total
----------------------------------------------------------------------------------------------------------------------- 
                                                                                                               
K Lynn          2011      44,000            -               -              -         88,778            -     132,778
                2010      60,000            -               -              -              -            -      60,000
-----------------------------------------------------------------------------------------------------------------------

                                                
Options and rights granted as part of remuneration
Pursuant  to  resolutions  passed at the Company's Annual General Meeting held on 30  November  2010  the  following
options and rights were issued:

        Options:        D Sutton        2,000,000
                        M Bird          2,000,000
                        C Straw         2,000,000

        Rights:         D Sutton        1,000,000
                        M Bird          1,000,000
                        C Straw         1,000,000

The options were issued at an exercise price of $0.50 each with an expiry date being 5 years after the date of issue
as  approved  at  the  Company's Annual General Meeting on 30 November 2010.  The rights were granted  at  no  cost,
however,  will  only  vest  upon  the  satisfaction of relevant performance conditions  pursuant  to  the  Company's
Performance Rights Plan also as approved at the Company's Annual General Meeting on 30 November 2010.

For  details  of  Directors'  and executives' interests in options and rights at year end,  refer  note  17  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  2011
and the number of meetings attended by each Director.

---------------------------------------------------------------------------------------------
Name                                                                       Board meetings
                                                                      Eligible       Attended
D Sutton                                                                  7             7
M Bird                                                                    7             7
C Straw                                                                   7             7
D Straw (retired 2 August 2010)                                           0             0
---------------------------------------------------------------------------------------------

In  light  of the current activities and size of the Company, it is not presently considered necessary for  separate
Audit,  Nomination 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:

-  20,000,000 shares at 9 cents per share to professional and sophisticated investors, 6 July 2010;
-  6,000,000 unlisted options at 50 cents to Directors pursuant to resolutions passed at Company Annual
   General Meeting, 30 November 2010;
-  2,500,000  unlisted  options  at 50 cents to employees pursuant to resolutions  passed  at  Company  Annual
   General Meeting, 30 November 2010;
-  3,000,000  rights issued to Directors pursuant to resolutions passed at Company Annual General Meeting,  30
   November 2010;
-  10,000,000 shares at 24 cents per share to professional and sophisticated investors, 7 December 2010;
-  1,000,000 unlisted options at 7 cents to professional and sophisticated investors, 7 December 2010;
-  1,300,000 unlisted options at 17 to professional and sophisticated investors, 7 December 2010;
-  2,000,000 unlisted options at 24 to professional and sophisticated investors, 7 December 2010;
-  2,000,000 unlisted options at 40 to professional and sophisticated investors, 7 December 2010;
-  1,000,000 shares at 7 cents upon the conversion of unlisted options, 5 April 2011;
-  300,000 shares at 17 cents upon the conversion of unlisted options, 5 April 2011; and
-  29,624,002 shares at 12 cents upon the conversion of listed options, at various times during the  financial
   year up to 1 May 2011.

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 to insure and indemnify the Directors and Officers  of
the Group.

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 15 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 2011

                                         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  2011, 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                                            30 September 2011

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

                                                 SILVER MINES LIMITED
                                          STATEMENT OF COMPREHENSIVE INCOME
                                           FOR THE YEAR ENDED 30 JUNE 2011


                                                         ---------------------------------------
                                                         Notes       2011             2010
                                                                       $                $
                                                         ---------------------------------------
                                                                                      
Revenues from ordinary activities                         2          79,737           14,305
                                                                                      
Expenses from ordinary activities                                                     
                                                                                      
- Accounting/ company secretarial                                    (70,792)         (60,220)
- Wages                                                              (22,020)         (33,330)
- Share registry                                                     (49,472)         (14,379)
- Securities exchange fees                                           (45,494)         (14,983)
- Bank fees                                                          (6,193)          (1,874)
- Auditors                                                           (16,650)         (20,167)
- Directors emoluments                                               (1,394,258)      (107,000)
- Office expenses                                                    (44,885)         (24,672)
- IT & communications                                                (51,555)         (12,396)
- Rent                                                               (7,020)          (28,467)
- Management fees                                                    (140,000)              -
- Depreciation                                                       (31,924)         (43,201)
- Insurance                                                          (13,296)         (26,092)
- Marketing                                                          (86,801)         (21,655)
- Professional advisors                                              (14,771)         (5,080)
- Plus market listing fees                                           (42,369)         (35,704)
- Other expenses from ordinary activities                            (123,861)        (56,585)
                                                                  -----------------------------
Total expenses                                             3         (2,161,361)      (505,805)

                                                                  -----------------------------
Loss before income tax expense                                       (2,081,624)      (491,500)
                                                                                      
Income tax expense                                         4                  -              -
                                                                  -----------------------------
Loss for the year                                                    (2,081,624)      (491,500)
Other comprehensive income                                                    -              -
                                                                  -----------------------------
Total comprehensive loss for the year net of tax                     (2,081,624)      (491,500)
                                                                  -----------------------------
                                                                  ----------------------------- 
                                                                                      
                                                                                      
                                                                          ----------------------
                                                                          Cents            Cents
                                                                          ----------------------
                                                                                      
Basic earnings per share                                   23             (0.02)          (0.01)
Diluted earnings per share                                 23             (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 2011


                                                         ---------------------------------------------
                                                           Notes              2011            2010
                                                                                $               $
                                                         ---------------------------------------------
Current assets                                                                         
Cash and cash equivalents                                  5                3,371,757         388,302
Receivables                                                6                1,201,356         119,354
                                                                          ---------------------------
                                                                                                     
Total current assets                                                        4,573,113         507,656
                                                                          ---------------------------
                                                                                                     
Non-current assets                                                                                   
Other financial assets                                     7                  120,550          60,550
Intangible assets                                                                                    
- Deferred exploration & development                       8                7,675,327       5,076,059
Property plant & equipment                                 9                   47,880          64,855
Investments                                                10                 100,000               -
                                                                          ---------------------------
                                                                                                     
Total non-current assets                                                    7,943,757       5,201,464
                                                                          ---------------------------
                                                                                                     
Total assets                                                               12,516,870       5,709,120
                                                                          ---------------------------
                                                                                                     
                                                                                                     
Current liabilities                                                                                  
Payables                                                   11                 142,120         470,773
Provisions                                                 12                  32,598           5,410
                                                                          ---------------------------
                                                                                                     
Total current liabilities                                                     174,718         476,183
                                                                          ---------------------------
                                                                                                     
Non-current liabilities                                                                              
Payables                                                   11                  57,903          77,224
                                                                          ---------------------------
                                                                                                     
Total non-current liabilities                                                  57,903          77,224
                                                                          ---------------------------
                                                                                                     
Total liabilities                                                             232,621         553,407
                                                                          ---------------------------
                                                                                                     
Net assets                                                                 12,284,249       5,155,713
                                                                          ---------------------------
                                                                          ---------------------------  
                                                                                                     
Equity                                                                                               
Contributed equity                                         13              14,861,829       7,174,526
Reserves                                                   14               1,522,857               -
Accumulated losses                                         15             (4,100,437)     (2,018,813)
                                                                          ---------------------------
                                                                                                     
Total equity                                                               12,284,249       5,155,713
                                                                          ---------------------------
                                                                          --------------------------- 
                                                                                                      



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 2011

                                    ------------------------------------------------------------------------------------
                                                               Share-based                                 
                                    Notes     Ordinary           payment       Share option    Accumulated           
                                               shares            reserve         reserve         losses           Total
                                                 $                  $               $               $               $
                                    ------------------------------------------------------------------------------------
                                                                                                                
                                                                                                                       
Balance at 30 June 2007                       5,612,981             -               -         (307,742)       5,305,239
                                                                                                                       
Share-based payments during the                                                                                      
year                                                  -             -               -                 -               -
Costs of funds raised                          (41,581)             -               -                 -        (41,581)
Loss attributable to members of                       
the Company                                           -             -               -         (546,480)       (546,480)
                                             ---------------------------------------------------------------------------
Balance at 30 June 2008                       5,571,400             -               -         (854,222)       4,717,178
                                                                                                                       
Share-based payments 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
                                                                                                                       
Share-based payments during the year          1,499,325             -               -                 -       1,499,325
Costs of funds raised                          (72,591)             -               -                 -        (72,591)
Loss attributable to members of the Company           -             -               -         (491,500)       (491,500)
                                             ---------------------------------------------------------------------------
Balance at 30 June 2010                       7,174,526             -               -       (2,018,813)       5,155,713
                                                                                                                       
Share-based payments during the                                                                                        
year                                          4,200,000             -       1,522,857                 -       5,722,857
Conversion of options                         3,826,391             -               -                 -       3,826,391
Costs of funds raised                         (339,088)             -               -                 -       (339,088)
Loss attributable to members of                                                                                        
the Company                                           -             -               -       (2,081,624)     (2,081,624)
                                             ---------------------------------------------------------------------------
Balance at 30 June 2011                      14,861,829             -       1,522,857       (4,100,437)      12,284,249
                                             ---------------------------------------------------------------------------
                                             --------------------------------------------------------------------------- 
                                                                                                                



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 2011


                                                                ------------------------------------
                                                                Notes          2011            2010
                                                                                 $               $
                                                                ------------------------------------ 
                                                                                     
Cash flows from operating activities                                                 
Interest received                                                             79,737          14,574
Interest paid                                                                (4,824)         (4,818)
Payments to suppliers and employees                                      (1,051,428)       (308,949)
                                                                ------------------------------------
                                                                                                    
Net cash outflows from operating activities                  20            (976,515)       (299,193)
                                                                ------------------------------------
                                                                                                    
Cash flows from investing activities                                                                
Payments for exploration bonds                                              (60,000)          15,000
Payments for property plant & equipment                                     (14,948)               -
Payments for exploration expenditure                                     (3,593,387)     (1,110,749)
Payments for investments                                                   (100,000)               -
Proceeds from sale of property plant & equipment                                   -           2,437
                                                                ------------------------------------
                                                                                                    
Net cash outflows from investing activities                              (3,768,335)     (1,093,312)
                                                                ------------------------------------
                                                                                                    
Cash flows from financing activities                                                                
Proceeds from the issue of shares                                          8,086,714       1,499,325
Payments for fund raising costs                                            (339,088)        (72,591)
Payments for borrowings - finance leases                                    (19,321)        (19,322)
                                                                ------------------------------------
                                                                                                    
Net cash inflows from financing activities                                 7,728,305       1,407,412
                                                                ------------------------------------
                                                                                                    
Net Increase in cash held                                                  2,983,455          14,907
Cash at the beginning of the financial year                                  388,302         373,395
                                                                ------------------------------------
                                                                                                    
Cash at the end of the financial year                        5             3,371,757         388,302
                                                                ------------------------------------
                                                                ------------------------------------ 
                                                                                     


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 2011


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 Limited as an individual entity.  The financial report was authorised for issue on 30  September
      2011 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 authoritative 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 judgments 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                              33 1/3% straight line
       Office furniture and equipment                   33 1/3% straight line
       Motor vehicles                                   20% 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.
       
       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)     New accounting standards for application in future periods

The  AASB  has  issued  new  and amended accounting standards and interpretations  that  have  mandatory
application  dates for future reporting periods. The Group has decided against early adoption  of  these
standards.  A discussion of those future requirements and their impact on the Group follows:

    * AASB 9: Financial Instruments (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  Group  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 vale 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 1053: Application of Tiers of Australian Accounting Standards and AASB 2010-2: Amendments to
        Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 1, 2, 3, 5, 7, 8, 101, 102, 107,
        108, 110, 111, 112, 116, 117, 119, 121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and
        Interpretations 2, 4, 5, 15, 17, 127, 129 & 1052] (applicable for annual reporting periods commencing on or after 1
        July 2013).
        AASB  1053  establishes a revised differential financial reporting framework consisting  of  two
        tiers  of  financial  reporting  requirements  for  those  entities  preparing  general  purpose
        financial statements:
        i.  Tier 1: Australian Accounting Standards; and
        ii. Tier 2: Australian Accounting Standards - Reduced Disclosure Requirements.
        This  Standard deems the Group to be a Tier 1 entity and hence there is no accounting impact  to
        be considered going forward.
      * 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 Group.
      * 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 amends  AASB  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 Group.
      * AASB 2010-3: Amendments to Australian Accounting Standards arising from the Annual Improvements Project
        [AASB 3, AASB 7, AASB 121, AASB 128, AASB 131, AASB 132 & AASB 139] (applicable for annual reporting periods
        commencing on or after 1 July 2010).
          -  requiring that recognition and/or adjustment of contingent consideration for acquisitions preceding 1 July
             2009 be recognised against the cost of acquisition;
          -  clarifying the accounting for replacement share-based payments awarded to the acquiree's employees as part
             of the cost of the combination service, or in the case of non-replaced and unvested share-based payments 
             of the acquiree that do not form part of the exchange, an allocation to both the cost of acquisition 
             and post-combination services on the basis of a market-based measure; and
          -  making sundry transitional amendments to various Standards.
          This Standard is not expected to impact the Group.
      
      * AASB 2010-4: Further Amendments to Australian Accounting Standards arising from the Annual Improvements
        Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] (applicable for annual reporting periods
        commencing on or after 1 January 2011).
        This  Standard details numerous non-urgent but necessary changes to Accounting Standards arising
        from the IASB's annual improvements project. Key changes include:
          -  clarifying the application of AASB 108 prior to an entity's first Australian-Accounting-Standards financial
             statements;
          -  adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of the
             quantitative disclosures to better enable users to evaluate an entity's exposure to risks arising from 
             financial instruments;
          -  amending AASB 101 to the effect that disaggregation of changes in each component of equity arising from
             transactions recognised in other comprehensive income is required to be presented, but is permitted to be 
             presented in the statement of changes in equity or in the notes;
          -  adding a number of examples to the list of events or transactions that require disclosure under AASB 134;
             and
          -  making sundry editorial amendments to various Standards and Interpretations.
        This Standard is not expected to impact the Group.
      * 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 Group.
      
        The  Group  does  not  anticipate the early adoption of any of the above  Australian  Accounting
        Standards.
 
                                                
                                                                       --------------------------------
                                                                             2011             2010
                                                                               $                $
                                                                       --------------------------------
2.      REVENUE                                                                   
                                                                                      
                                                                                      
Revenue from operating activities                                                     
Interest received                                                            79,737           14,305
                                                                       -------------------------------- 
                                                                       --------------------------------
3.      OPERATING EXPENSES                                                                      
                                                                                                    
Expenses from operating activities:                                                                 

- Accounting/ company secretarial                                          (70,792)         (60,220)
- Wages                                                                    (22,020)         (33,330)
- Share registry                                                           (49,472)         (14,379)
- Securities exchange fees                                                 (45,494)         (14,983)
- Bank fees                                                                 (6,193)          (1,874)
- Auditors                                                                 (16,650)         (20,167)
- Directors emoluments                                                  (1,394,258)        (107,000)
- Office expenses                                                          (44,885)         (24,672)
- IT & communications                                                      (51,555)         (12,396)
- Rent                                                                      (7,020)         (28,467)
- Management fees                                                         (140,000)                -
- Depreciation                                                             (31,924)         (43,201)
- Insurance                                                                (13,296)         (26,092)
- Marketing                                                                (86,801)         (21,655)
- Professional advisors                                                    (14,771)          (5,080)
- Plus market listing fees                                                 (42,369)         (35,704)
- Other expenses from ordinary activities                                 (123,861)         (56,585)
                                                                       --------------------------------
                                                                       
Total                                                                   (2,161,361)        (505,805)
                                                                       --------------------------------
                                                                       --------------------------------   
                                                                                                    
4.      INCOME TAX                                                                              
                                                                                                    
(a)        Temporary differences                                                                    
           Current tax                                                            -                -
           Deferred tax                                                           -                -
                                                                       --------------------------------  
                                                                                                    
           Total                                                                  -                -
                                                                       --------------------------------
                                                                       --------------------------------  
                                                                                                    
(b) Reconciliation of income tax expense to prima facie tax payable                                     
                                                                                                    
    Operating loss before income tax                                        (2,081,624)        (491,500)
                                                                        --------------------------------    
                                                                        --------------------------------
                                                                                                        
    Prima facie income tax benefit at 30% on operating loss                     624,487          147,450
    Add tax effect of:                                                                                  
    Tax losses and temporary differences not recognised                       (624,487)        (147,450)
    Non temporary differences                                                         -                -
                                                                        --------------------------------    
                                                                                                        
    Income tax attributable to operating loss                                         -                -
                                                                        --------------------------------  
                                                                        --------------------------------  

    Directors  are  of  the view that there is insufficient probability that the  Company  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.
                                                          

                                                                       ---------------------------  
                                                                           2011             2010
                                                                            $                $
(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         4,100,437       2,018,813
    deferred tax asset adjusted for non temporary differences
                                                                         
    Potential tax benefit at 30%                                         1,230,131         605,644
                                                                       ---------------------------
                                                                       ---------------------------  
                                                                                            
(e) Unrecognised temporary differences                                                    
                                                                                      
    Non deductible amounts as temporary differences                      -                -
    Accelerated deductions for book compared to tax                      -                -
                                                                       ---------------------------    
    Total                                                                1,230,131        605,644
                                                                       ---------------------------
                                                                       --------------------------- 
    Potential effect on future tax expense                               1,230,131        605,644
                                                                       ---------------------------
                                                                       ---------------------------  
           
                                                                                      
5.      CASH AND CASH EQUIVALENTS                                                 
                                                                                      
Cash at bank and on hand                                                 3,371,757        388,302
                                                                       ---------------------------
                                                                       ---------------------------  

                                                                                      
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                                                              3,371,757        388,302
The effective interest rates on term deposits were 4.8% (2010:         ---------------------------   
4.0%).                                                                 ---------------------------
                                                                                      
6.      RECEIVABLES                                                               
                                                                                      
Other debtors                                                             207,237         119,354
Provision for doubtful debts                                                    -               -
Prepayments                                                               994,119               -
                                                                       ---------------------------
                                                                        1,201,356         119,354
                                                                       ---------------------------
                                                                       ---------------------------
7.      OTHER FINANCIAL ASSETS                                                    
                                                                                      
Non-current                                                                           
Performance guarantee bonds                                               120,550          60,550
                                                                       ---------------------------
                                                                       ---------------------------
                                                                                      
8.      INTANGIBLE ASSETS                                                         
                                                                                      
Non-current                                                                           
Exploration expenditure                                                               
Costs carried forward in respect of areas of interest in:                             
Exploration and evaluation phase                                                      
Opening balance                                                         5,076,059        3,965,310
Expenditure in the period                                               2,599,268        1,110,749
Expenditure written off                                                         -                -
                                                                       ----------------------------
                                                                                      
                                                                        7,675,327        5,076,059
                                                                       ----------------------------
                                                                       ----------------------------


                                                          
                                                                 ------------------------------------
                                                                            2011              2010
                                                                             $                 $
                                                                 ------------------------------------
                                                          
9.      PROPERTY, PLANT AND EQUIPMENT                                                           
                                                                                                    
Plant and equipment - at cost                                                88,022           88,022
Financial lease assets                                                       96,607          147,843
Assets acquired                                                              14,948                -
Assets sold                                                                       -         (16,366)
Less: Accumulated depreciation                                            (151,697)        (154,644)
                                                                 ------------------------------------
                                                                 ------------------------------------  
                                                                                                    
                                                                             47,880           64,855
                                                                 ------------------------------------
                                                                 ------------------------------------  
      
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 &                  
                                                         Equipment         Motor Vehicles     Total
                                                             $                  $               $
                                                       ----------------------------------------------  
                                                                                       
Carrying value at start of year                            10,109           54,746           64,855
Additions                                                  14,948                -           14,948
Disposals                                                       -                -                -
Depreciation                                             (12,600)         (19,324)         (31,924)
                                                       ----------------------------------------------
Carrying value at end of year                              12,457           35,422           47,880
                                                       ----------------------------------------------
                                                       ----------------------------------------------  

                                                                          ---------------------------
                                                                             2011             2010
                                                                               $                $
                                                                          ---------------------------
10.     INVESTMENTS                                                                             
                                                                                                    
Investment in Precious Metals Investments Ltd                               100,000                -
                                                                          ---------------------------
                                                                          ---------------------------
                                                                                                    
11.     PAYABLES                                                                                
                                                                                                    
Current                                                                                             
                                                                                                    
Trade creditors and accruals                                                142,120          470,773
                                                                          ---------------------------
                                                                          ---------------------------  
Non Current                                                                                         
                                                                                                    
Hire purchase creditors                                                      57,903           77,224
                                                                          ---------------------------
                                                                          ---------------------------  
                                                                                                    
12.     PROVISIONS
                                                                                                    
Employee entitlements                                                        32,598            5,410
                                                                          ---------------------------
                                                                          ---------------------------
                                                                                                    
Number of employees at year end                                                   1                3
                                                                          ---------------------------
                                                                          ---------------------------
                                                                          
                                             
                                                                         ---------------------------------
                                                                                2011                  2010
                                                                                 $                     $
                                                                         ---------------------------------
13.     CONTRIBUTED EQUITY                                                                            
                                                                                                          
   (a)  Issued and paid up capital                                                                        
                                                                                                          
        Balance at the beginning of the financial year                      7,174,526             5,747,792
        Issue of shares to raise capital                                    4,200,000             1,499,325
        Conversion of options                                               3,826,391                     -
        Share issue costs                                                   (339,088)              (72,591)
                                                                         -----------------------------------
                                                                                                            
        Balance at the end of the financial year                           14,861,829             7,174,526
                                                                         -----------------------------------
                                                                         -----------------------------------  
                                                                                                          
        Consisting of 135,105,664 ordinary shares (2010: 74,181,662 ordinary shares)
                    
                                                                                                  
   (b)  Movements in ordinary share capital                                                              

------------------------------------------------------------------------------------------------------------------
                                                                             Number of   Issue           
                        Date         Details                                    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                               -                  (782,105)
                        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                                                    (9,283)
                                                                            ----------                 ----------
                       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
                                                                                                                 
                        6 July 2010  Placement                              20,000,000     $0.09        1,800,000
                    7 December 2010  Placement                              10,000,000     $0.24        2,400,000
           Various up to 1 May 2011  Options exercised                      29,624,002     $0.12        3,554,880
                       5 April 2011  Options exercised                       1,000,000     $0.07           70,000
                       5 April 2011  Options exercised                         300,000     $0.17           51,000
                                     Option placement                                      $0.01          150,511
                                     Transaction costs                                                  (339,088)
                                                                           -----------                 ----------
                       30 June 2011  Balance                               135,105,664                 14,861,829
                                                                           -----------                 ----------
                                                                           -----------                 ----------
      
      (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 2011 details of Unlisted Options are as follows:
            
                 ---------------------------------------------------------------------------------------------------
                         Details                  Number               Exercise price              Expiry date
                 ---------------------------------------------------------------------------------------------------   
                 Unlisted options               1,000,000                 17 cents                    27 August 2011
                 Unlisted options               5,000,000                 35 cents                        1 May 2012
                 Unlisted options               3,500,000                 20 cents                       6 July 2012
                 Unlisted options               2,000,000                 24 cents                    27 August 2012
                 Unlisted options               2,000,000                 40 cents                    27 August 2013
                 Unlisted options               8,500,000                 50 cents                  23 December 2015
                 Performance rights             3,000,000                                                           
                                             -------------
                 Total                          25,000,000
                                             -------------
                                             -------------
             
      (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.
      
                                                                           ------------------------
                                                                             2011             2010
                                                                            Number           Number
                                                                           ------------------------
Movements in options                                                                    
                                                                                        
Balance at the beginning of the financial year                                4,517,503      19,620,000
Performance rights issued                                                     3,000,000               -
Options lapsed                                                                (950,483)    (19,620,000)
Options exercised                                                          (29,618,152)               -
Options issued                                                               44,551,132       4,517,503
                                                                           -----------------------------
                                                                                                        
Balance at the end of the financial year                                     21,500,000       4,517,503
                                                                           -----------------------------
                                                                           -----------------------------   
                                                                                       
                                                                            -----------------------------
                                                                              2011             2010
                                                                                $                $
                                                                            -----------------------------
14.     RESERVES                                                                   
                                                                                       
Share option reserve                                                           847,857                -
Performance rights reserve                                                     675,000                -
                                                                            -----------------------------
                                                                                                        
                                                                             1,522,857                -
                                                                            -----------------------------
                                                                            -----------------------------    
                                                                            
                                                                                       
15.     ACCUMULATED LOSSES                                                                 
                                                                                               
Opening balance                                                              2,018,813         1,527,313
Net loss for year                                                            2,081,624           491,500
                                                                             ---------------------------
                                                                                                        
Closing balance                                                              4,100,437         2,018,813
                                                                             ---------------------------
                                                                             ---------------------------
                                                                                                        
16.     AUDITOR'S REMUNERATION                                                             
                                                                                       
Remuneration for audit or review of the financial reports of the                       
Company:
Current auditors of the Company:                                                       
Audit and review of the financial statements                                           
- Moyes Yong & Co                                                               16,650            4,800
- Graham Abbott & Associates                                                         -           15,367
Other services                                                                       -                -
                                                                             ---------------------------
                                                                                                              
                                                                                16,650           20,167
                                                                             ---------------------------   

                                                          
17.     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
        C Straw                             Managing Director - appointed 2 August 2010
                                            
        Specified executives                
                                            
        K Lynn                              Company Secretary
        -------------------------------------------------------------------------------------
      
(b)    Relevant interests in ordinary shares and options at the date of this report:

       SHARES
       
        ------------------------------------------------------------------------------------------------------------
                                                                                    Net change of             
                                                Balance            Net change          associated          Balance
        Ordinary shares                       1 July 2010             other             entities        30 June 2011
        ------------------------------------------------------------------------------------------------------------
        Directors                                                                                                  
        D Sutton                                 1,951,627            316,487                  -          2,268,114
        M Bird                                     579,525             52,325                  -            631,850
        C Straw                                    150,000            578,532                  -            728,532
        D Straw                                    512,301          (512,301)                  -                  -
        ------------------------------------------------------------------------------------------------------------
      
      OPTIONS and PERFORMANCE RIGHTS
      
       ------------------------------------------------------------------------------------------------------------
        Employee                                                                                    
        options and                                                    Options and                            
        performance             Balance           Granted as           performance        Net change      Balance
        rights                1 July 2010        remuneration         rights lapsed         other      30 June 2011
       ------------------------------------------------------------------------------------------------------------
        Directors                                                                                                  
                                                                                                                   
        D Sutton                  500,000           3,000,000                -                 -          3,500,000
        M Bird                    500,000           3,000,000                -                 -          3,500,000
        C Straw                   500,000           3,000,000                -                 -          3,500,000
        D Straw                   500,000                   -                -         (500,000)                  -
                                                                                                                   
        Specified executives                                                                                       
                                                                                                                   
        K Lynn                    500,000           1,000,000                -                 -          1,500,000
       ------------------------------------------------------------------------------------------------------------
                                                          
       
(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.
      
       

       
      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 2011:

----------------------------------------------------------------------------------------------------------------------
                                                                                  Non-cash                       
                                                                                share-based                     
                         Salary &       Non-         Super-       Retirement      payments        Other          
                           Fees       monetary      annuation      benefits                      bonuses       Total
----------------------------------------------------------------------------------------------------------------------
D Sutton        2011      48,000            -               -              -        402,556            -     450,556
                2010      36,000            -               -              -              -            -      36,000
----------------------------------------------------------------------------------------------------------------------
D Straw         2011      10,000            -               -              -              -            -      10,000
(retired 
2 August
2010)           2010      30,000            -               -              -              -            -      30,000
----------------------------------------------------------------------------------------------------------------------
K Slater        2011           -            -               -              -              -            -           -
(resigned 
9 December
2010)           2010      11,000            -               -              -              -            -      11,000
----------------------------------------------------------------------------------------------------------------------
M Bird          2011      30,000            -               -              -        402,556            -     432,556
                2010      30,000            -               -              -              -            -      30,000
----------------------------------------------------------------------------------------------------------------------
C Straw         2011     224,750            -               -              -        402,556            -     627,306
(appointed 
2 August
2010)           2010     106,200            -               -              -              -            -     106,220
----------------------------------------------------------------------------------------------------------------------

      
       Remuneration of the 5 named executives who receive the highest remuneration for the year ended
       30 June 2011:
       
--------------------------------------------------------------------------------------------------------------------
                                                                                  Non-cash                       
                         Salary &       Non-         Super-       Retirement     share-based      Other          
                           Fees       monetary      annuation      benefits       payments       bonuses       Total
--------------------------------------------------------------------------------------------------------------------
                                                                                                               
K Lynn          2011      44,000            -               -              -         88,778            -     132,778
                2010      60,000            -               -              -              -            -      60,000
--------------------------------------------------------------------------------------------------------------------

      (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 at grant date is determined using the Black-Scholes formula. The model inputs  were
      a  share price of $0.26, an exercise price of $0.50, expected volatility of 52%, a term of 5 years and a risk-
      free interest rate of 6%.
      
      Performance  rights granted as part of remuneration have been valued using probability criteria  attaching  to
      each  of  the  performance  conditions  applying  under the Company's  Performance  Rights  Plan  approved  by
      shareholders at the Company's Annual General Meeting on 30 November 2010.
      
      Performance criteria:
      (i)   That the share price of the Company has increased by more than 50% for a period of 5 days since inception
            of the plan (probability 100%);
      (ii)  That  a  JORC  resource of 15 million ounces of silver is achieved by the Company by 31 December  2011
            (probability 50%);
      (iii) That Directors remain as directors until 30 September 2012 (probability 100%).
      (iv)  Overall probability calculated at 75%of the above three criteria occurring.
                                                 
       
18.     RELATED PARTY TRANSACTIONS
      
      Related parties of the Company fall into the following categories:
      
      18.1    Trading transactions
      
      During the year, the Company entered into the following trading transactions with related parties:
      
        (i)     Centric  Minerals  Management  Pty Ltd (CMM) was paid $209,089 (2010: nil)  to  provide  management,
                administrative services (including provision of office space and facilities) and geological consulting services to
                the Company from 1 December 2010.  As at balance date the company owed $24,253 (2010: nil) to CMM.  Messrs Sutton
                and Straw are directors of CMM.
                
        (ii)    Dayton Way Financial Pty Ltd, an entity controlled by Mr Sutton, received $125,394 (2010: $8,500) from the
                Company in relation to fees associated with raising equity for the Company.
                
        (iii)   Davcha Resources Pty Ltd, an entity controlled by Mr Straw, received $39,405 (2010: nil) from the Company
                in relation to geological consulting services for the Company.
                
        (iv)    Strategy-Matters International Pty Ltd, an entity controlled by Mr Lynn, received $123,475 from the Company
                in relation to accounting and secretarial services for the Company.
                
        (v)     During the financial year the Company paid $1,191,594 (2010: nil) for drilling services to New Competitive
                Drilling Pty Ltd (NCD), an entity involved in drilling services to the exploration sector.  This amount represented
                a prepayment for the drilling of 17,023 metres at $70 per metre.  During the financial year the Company utilised
                3,358 meters at $70 per metre of this prepayment.  Therefore as at 30 June 2011 the Company has 13,665 metres at $70
                per metre representing $956,534 available for future drilling.  Messrs Sutton and Straw are directors and Mr Lynn is
                company secretary of NCD.
                
      18.2      Other related party transactions
      
      18.2.1    Equity interests in related parties
      
        (i)     The Company holds 250,000 fully paid ordinary shares at 40 cents each in Precious Metals Investments Ltd
                (PMI), an entity involved in exploration for precious metals.  Messrs Sutton, Straw and Lynn are directors of PMI.
                                                
      
19.     SEGMENT INFORMATION
      
      Business segments
      
       The Company operates in the mining industry in Australia only. Operations comprise mineral exploration.
      
                                                                      ------------------------------
                                                                          2011             2010
                                                                           $                $
20.     RECONCILIATION OF OPERATING LOSS AFTER INCOME TAX TO NET      ------------------------------  
           CASH FLOWS FROM OPERATING ACTIVITIES
                                                                                     
Operating loss after income tax                                       (2,081,624)        (491,500)
Depreciation                                                               31,924           43,201
Profit on sale of property, plant & equipment                                   -         (21,464)
                                                                      ------------------------------
                                                                      (2,049,700)        (469,763)
                                                                                                  
Movements in working capital:                                                                     
(Increase) in receivables                                                (87,883)         (68,838)
Increase/(decrease) in payables                                         (328,654)          241,932
Increase/(decrease) in provisions                                          27,188          (2,524)
Increase in reserves                                                    1,462,534                -
                                                                                                  
Net cash outflows from operating activities                             (976,515)        (299,193)
                                                                       ------------------------------
                                                                       ------------------------------
                                                                                     
21.     COMMITMENTS FOR EXPENDITURE                                              
                                                                                     
Operating leases                                                                     
Non-cancellable operating lease rentals are payable as follows:                      
Due within one year                                                        57,903           77,224
Due beyond one year and within five years                                       -                -
                                                                         -----------------------------
                                                                                     
                                                                           57,903           77,224
                                                                         -----------------------------
                                                                         -----------------------------
      
      The  Company leases vehicles 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.
                                           
      
      
22.     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                                                           
                                            average                                                            
                                           effective   Floating                                Non-            
                                            interest   interest      Fixed interest rate     interest          
                                              rate       rate             maturing            bearing       Total
                                          ----------------------------------------------------------------------------
                                                                    Within 1     Over 1                        
                                                                      year        year
                                               %           $           $            $            $            $
                                          ----------------------------------------------------------------------------
        2011                                                                                                         
        FINANCIAL ASSETS                                                                                             
        Cash assets                           4.8            -      3,281,561         -       90,196     3,371,757
        Performance guarantee bonds           6.0            -         50,000         -       70,550       120,550
        Other financial assets                               -              -         -    1,301,356     1,301,356
                                                    --------------------------------------------------------------
                                                             -      3,331,561         -    1,462,102     4,793,663
                                                    --------------------------------------------------------------
        FINANCIAL LIABILITIES                                                                                        
        Payables (Current)                                   -              -         -     (174,718)     (174,718)
        Payables (Non-current)                               -              -   (57,903)            -      (57,903)
                                                    --------------------------------------------------------------
        NET FINANCIAL ASSETS                                 -      3,331,561   (57,903)    1,287,384    4,561,042
        (LIABILITIES)                           
                                                    --------------------------------------------------------------
                                                    --------------------------------------------------------------  
                                                          

                                          ----------------------------------------------------------------------------
                                            Weighted                                                           
                                            average                                                            
                                           effective   Floating                                Non-            
                                            interest   interest      Fixed interest rate     interest          
                                              rate       rate             maturing            bearing       Total
                                          ----------------------------------------------------------------------------
                                                                    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                                   
        (LIABILITIES)                                          -     (87,881)     (16,674)      119,354        14,799
                                                       --------------------------------------------------------------
                                                       --------------------------------------------------------------   
      
      (b)   Reconciliation of net financial assets per statement of financial position:
      
                                                                                  --------------------------------
                                                                                        2011             2010
                                                                                         $                $
                                                                                  --------------------------------
                                                                                                   
       Net financial assets per above                                                  4,561,042           14,799
       Property plant & equipment                                                         47,880           64,855
       Deferred exploration & development                                              7,675,327        5,076,059
                                                                                  --------------------------------
       
       Net assets per statement of financial position                                 12,284,249        5,155,713
                                                                                  --------------------------------
                                                                                  --------------------------------
      
      (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.
       
                                                                      ---------------------------
                                                                          2011             2010
                                                                          Cents           Cents
                                                                      ---------------------------
23.     EARNINGS PER SHARE                                                
                                                                                     
       Basic earnings per share                                          (0.02)           (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        106,124,631     67,220,332
       denominator in calculating basis earnings per share and       --------------------------
       alternative basis earnings per share                          --------------------------
                                                                                     
       Weighted average number of ordinary shares and potential      142,007,466     73,865,153
       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   (2,081,624)     (491,500)
       share                                                        --------------------------
                                                                    --------------------------
                                                                                     
     
                                                          
                                                     
24.     LEASED ASSETS
      
      The  Company leases vehicles under non-cancellable operating leases. The leases provide the Company  with  the
      option  to  purchase  equipment at a beneficial price.  At 30 June 2011, the net  carrying  amount  of  leased
      vehicles was $57,903 (2010:  $77,224).
      
      
25.     EVENTS SUBSEQUENT TO REPORTING DATE
      
      Since  30 June 2011, the Company announced on 6 September 2011 a non-renounceable pro-rata offer for the issue
      of  up to 13,610,561 new options on the basis of one (1) new option for every ten (10) shares held by eligible
      shareholders on the record date of 14 September 2011 at an issue price of 1 cent per new option, to  raise  up
      to $136,016.
      
      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.
      
      
26.     COMPANY DETAILS                                                        
                                                                                     
       The registered office and principal place of business of the Company is
           
       Silver Mines Limited
       Level 5
       17-19 Bridge Street
       Sydney NSW 2000
       Australia
       
       
       Telephone:                   +61 2 9253 0900
       Fax:                         +61 2 9253 0901
              
                                                      

                                                SILVER MINES LIMITED
                                               DIRECTORS' DECLARATION


The directors declare that:

1       the  financial  statements and notes, as set out on pages 16 to 40 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  2011  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 2011
      
                                            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 2011 and the Statement of Comprehensive Income, Statement 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 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.  Those 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 2011, 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 2011 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 11 to 13 of the directors' report for the year ended  30
June  2011.   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  2011,  complies  with
section 300A of the Corporations Act 2001.




Moyes Yong & Co Partnership                                      William M Moyes - Partner

Chartered Accountants                                            30 September, 2011

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  - Managing Director                       Level 7
Malcolm Bird - Non-Executive Director                    Norwich House
                                                         6 O'Connell Street
Company Secretary                                        Sydney NSW 2000
Kevin Martin Lynn                                        
                                                         Company's Solicitor
Australian Company Number                                Macpherson + Kelly
107 452 942                                              Level 11
                                                         56 Pitt Street
Registered Office                                        Sydney NSW 2000
Level 5                                                  tel: +61 2 8298 9533
17-19 Bridge Street                                      fax: +61 2 9252 6276
Sydney NSW 2000
Phone: +61 2 9253 0900
Fax: +61 2 9253 0901
E-mail: info@silverminesltd.com.au
Website: www.silverminesltd.com.au

Bank
National Australia Bank Limited
255 George St
Sydney NSW 2000

Share Registry
Boardroom Ltd
Level 7
207 Kent Street
Sydney NSW 2000

Contact Information

  • Silver Mines