Silver Mines
LSE : SVLP

January 31, 2012 06:55 ET

Second Quarterly activities report and Appendix 5B to 31 December 2011

31st January, 2012
Silver Mines Ltd.
Quarterly activities report and Appendix 5B

ACTIVITIES REPORT - FOR THE QUARTER ENDED 31st DECEMBER 2011.

HIGHLIGHTS DURING THE QUARTER



    
    -       Results from diamond drill holes continue to demonstrate near surface silver rich mineralisation in
            good agreement with nearby RC drilling.
        
    
    -       Results from deeper diamond drilling confirm depth extensions and the deposit remains open at depth in
            many areas.
        
    
    -       Diamond drilling results being incorporated into the resource database for new resource estimate.
        
    -       Geological and structural Interpretations for the resource model being used to plan further drilling.
    
    -       Desktop review of metallurgy by expert consultants indicates several process options available,
            including possible production of silver doré bars.
        
    
    -       Samples from Webbs South being collected for metallurgical testwork.
        
        
        
        



ACTIVITIES DURING THE QUARTER
Webbs Silver Project - EL5674

    1.      Diamond Drilling

Silver Mines continued to report excellent diamond drilling intersections during the quarter and subsequent to
the quarter. The drilling includes infill and extensional drilling. These results were published in several ASX
announcements released during the quarter.

Better intersections from the drilling include:
                                                       
    -       DDH016 intersects:
                        *  14m @ 1704g/t Ag, 1.6% Cu, 0.9% Pb and 6.8% Zn from 83m;
                         Incl. 3.5m @ 5830g/t Ag, 5.3% Cu, 0.6% Pb and 8.8% Zn from 83m
                         Incl. 1.0m @ 11212g/t Ag, 9.7% Cu, 0.5% Pb and 9.5% Zn from 85m
                        
    -       DDH017 intersects:
                        *  25.9m @ 337g/t Ag, 0.29% Cu, 0.17%Pb and 2.93% Zn from 169.8m
                         Incl.  9.0m @ 686g/t Ag, 0.52% Cu, 0.16% Pb and 5.56% Zn from 169.8m
                         Incl.  1.0m @ 2560g/t Ag, 0.80% Cu, 0.30% Pb and 10.8% Zn from 176.4m
                         and 1.05m @ 1210g/t Ag, 1.47% Cu, 0.30% Pb and 3.60% Zn from 187.0m
                    
    -       DDH018 intersects:
                        *  3.65m @ 624g/t Ag, 0.50% Cu, 0.27% Pb and 2.97% Zn from 80.75m;
                         Incl.  1.0m @ 1110g/t Ag, 0.92% Cu, 0.06% Pb and 5.08% Zn from 80.75m
                        
    -       DDH019 intersects:
                        *  7.3m @ 538g/t Ag, 0.4% Cu, 1.9% Pb and 3.0% Zn from 40.7m;
                        Incl. 0.6m @ 2270g/t Ag, 2.1% Cu, 16.1% Pb and 4.9% Zn from 46.9m
                    
    -       DDH020 intersects:
                        *  14m @ 147g/t Ag, 0.2% Cu, 0.8% Pb and 3.4% Zn from 83m;
                            
    -       DDH021 intersects:
                        *  6.9m @ 213g/t Ag, 0.12% Cu, 0.79%Pb and 0.83% Zn from 21.1m
                         Incl. 1.0m @ 1130g/t Ag, 0.46% Cu, 1.50% Pb and 1.51% Zn from 26.0m
                    
    -       DDH022 intersects:
                        *  17.4m @ 194g/t Ag, 0.18% Cu, 0.46% Pb and 1.43% Zn from 30m;
                         Incl. 9.0m @ 308g/t Ag, 0.28% Cu, 0.44% Pb and 1.77% Zn from 35m


Diamond drillhole data is presented in Table 1. All diamond results for Webbs South have now been received.
Silver Mines awaits results for drillholes DDH026-031 from Webbs Main.


    2.      Metallurgical Testwork
Silver Mines has engaged Mineralurgy Pty Ltd to oversee a metallurgical testwork program for the Webbs Silver
Project. Mineralurgy is represented by world recognised metallurgical consultant, Mr Peter Munro who is
regarded as an expert on silver-lead-zinc metallurgy having worked extensively on complex polymetallic projects
in Australia and overseas.

Mineralurgy conducted a review of metallurgical data related the Webbs project, including testwork conducted by
Silver Mines and previous explorers. Comparisons were also made to projects with similar mineralisation to
Webbs.  The review proposed conceptual flow sheets with regard to likely production and marketability of
various concentrates. Conceptual flow-sheets to produce silver bullion were also evaluated. The advantages and
disadvantages of all scenarios were considered with reference to assumed capital costs, operating costs and
revenue flows.

The design of metallurgical testwork programs and sample selection is now being finalised.

During the quarter Silver Mines conducted preliminary sighter testwork to investigate the cyanide solubility of
silver at Webbs, and thereby the potential to produce silver doré. All samples were pulverised to -75 microns.
The results indicate that silver extraction from old tailings samples average 75% and ranged from 56-85%. Tests
on fresh diamond core samples from DDH019 yielded a lower average silver extraction of 27% and ranged from 20-
36%. The increased silver extraction in the tailings samples is likely due to the fact the stockpile contains
material from 2-10mm in size which has been exposed at surface for 50-100 years resulting in the partial
oxidation of tetrahedrite. This has liberated much of the contained silver thereby increasing its cyanide
solubility.

Results from this early stage evaluation are considered very encouraging as they demonstrate that at least some
of the silver at Webbs is cyanide soluble thereby indicating the production of silver doré may be possible. The
increased recovery of silver from the oxidised tailings could indicate that a weakly oxidative pre-treatment of
concentrate followed by cyanide leaching may recover appreciable silver. Additional detailed testwork is
required but the results demonstrate this is a potential treatment route worth investigating.

    3.      Resource Update
Silver Mines resource consultants are in the final stages of completing a new resource model for the Webbs
silver deposit. Unfortunately some delays have been experienced due the decision to incorporate several key
diamond drillhole intersections into the resource. These delays were further exacerbated by the Christmas
break, the processing of core, the receipt of assay data and the incorporation and interpretation of the new
data in the resource database. The new resource estimate will be released as soon as it becomes available which
is expected in the very near term.



PLANNED ACTIVITIES for the MARCH QUARTER 2012

The March Quarter will continue to be an exciting time for Silver Mines with the following key programs
underway or planned to commence;
    
    -       New resource estimate for the Webbs deposit
    -       Complete diamond core assaying in preparation for selection of metallurgical samples for Webbs Main
    -       Commence metallurgical testwork program
    -       Exploration drilling on regional targets.
    -       Plan and prepare for deeper drilling at Webbs
    -       Continued rehabilitation of drill sites at Webbs



Please direct any queries regarding the content of this report to Charles Straw (CEO) on +61 2 9253 0900 or
cstraw@silverminesltd.com.au.

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 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.


Table 1. Diamond drilling: Hole details and intersections

Hole ID       MGA          MGA     Dip    Azi    Hole     From     To     Int#     Ag      Cu       Pb      Zn
              East        North           MGA    Depth     (m)     (m)     (m)    (g/t)    (%)      (%)     (%)
DDH016       6751766     358879    -70    285    117.5    62.0    66.0    4.0     326     0.30     0.57    3.32
DDH016              incl.                                 65.0    66.0    1.0     832     0.53     0.41    2.70
DDH016                                                    83.0    97.0    14.0    1704    1.63     0.93    6.84
DDH016              incl.                                 83.0    86.5    3.5     5830    5.27     0.63    8.79
DDH016              incl.                                 85.0    86.0    1.0    11212    9.70     0.49    9.50
DDH016              incl.                                 92.0    92.6    0.6     3430    2.49     4.95   10.00
DDH017       6751662     358922    -55    270     216    169.8   195.7    25.9    337     0.29     0.17    2.93
DDH017              incl.                                169.8   179.7     9      686     0.52     0.17    5.91
DDH017              incl.                                176.4   177.4     1      2560    0.8      0.3     10.8
DDH017               and                                  187    188.1    1.05    1210    1.47     0.3     3.6
DDH018       6751848     358926    -55    284    143.2   80.75    84.4    3.65    624     0.5      0.27    2.97
DDH019       6751778     358892    -50    285    57.4     40.7    48.0    7.3     538     0.40     1.95    3.04
DDH019              incl.                                 42.2    43.0    0.8     1940    0.82     1.29    7.53
DDH019               and                                  46.9    47.5    0.6     2270    2.12     16.2    4.89
DDH020       6751776     358898    -60    285    138.3    83.0    97.0    15.0    147     0.16     0.76    3.44
DDH020              incl.                                 91.0    92.0    1.0     509     0.44     0.21    4.61
DDH021       6751893     358921    -55    299    83.6     21.1     28     6.9     213     0.12     0.77    0.83
DDH021              incl.                                  26      27      1      1130    0.46     1.50    1.51
DDH022       6751714    358873.4   -50    298    64.9      30     47.4    17.4    194     0.18     0.46    1.43
DDH022              incl.                                  35      44      9      308     0.28     0.44    1.77
DDH023       6751619    358863.8   -55    295    189.2    82.9   84.75    1.85    142     0.19     1.06    0.88
                    incl.                                 83.9   84.75    0.85    239     0.32     1.61    1.39
DDH024       6752652     358986    -81    283    59.6                      Did not reach target           
DDH025       6752650    358996.4   -78    265    46.6     43.6    46.6    3.0      28     0.04     0.34    0.42
                                                                        Hit old workings at 46.6m

# Down-hole intersections are NOT true widths due to the geometry of the lodes and angle of intersection of the
drill hole. True widths are estimated to be approximately 45% of down-hole interval in holes with dips of -55 
degrees and approximately 33% of down-hole intervals in holes with dips of -70 degrees.

Sampling and Assaying
HQ diamond core samples are cut lengthways to produce half core. Samples are usually taken at 1m intervals or
as geology dictates.  Silver Mines have opted to utilise the services of ALS-Chemex (Brisbane), a globally
respected company servicing the mining industry. Samples are dispatched by TNT Couriers from Glen Innes to ALS.
Core is crushed to -6mm and a 1kg split is then pulverised to provide the assay pulp. Routine assaying is
conducted by ALS Method ICP41 This is acid digest with an ICP-AES finish analysing for Ag, As, Bi, Cu, Fe, Pb,
S, Sb, Sn, W and Zn. When elements exceed upper detections limits of 100ppm for Ag and 1% for Cu, Pb and Zn
they are reanalysed by and appropriate ore grade acid technique (ALS method OG46). For silver above 1500g/t a
gravimetric technique is used. Certified Standards and blanks are routinely submitted in each assay batch to
monitor QA-QC.
                                                                                                       Rule 5.3
                                                  Appendix 5B

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


Name of entity
SILVER MINES LIMITED

ABN                                                             Quarter ended ("current quarter")
45 107 452 942                                                            31 December 2011

Consolidated statement of cash flows
                                                         Current quarter          Year to date (6 months)
Cash flows related to operating activities               $A'000                   $A'000

1.1      Receipts from product sales and related debtors                           
        
1.2      Payments for   (a)  exploration & evaluation     (895)                    (1,826)
                        (b)  development                                           
                        (c)  production                                            
                        (d)  administration               (180)                    (451)
1.3      Dividends received                                                        
1.4      Interest and other items of a similar nature      28                       58
         received
1.5      Interest and other costs of finance paid         (1)                      (2)
1.6      Income taxes paid                                                         
1.7      Other (provide details if material) Pre paid                              
         drilling
                                                          
         Net Operating Cash Flows                         (1,048)                  (2,221)
                                                                                   
         Cash flows related to investing activities
1.8      Payment for purchases of: (a)  prospects                                  
                      (b)  equity investments              -                        -
                      (c)  other fixed assets              -                        -
                                                                                  
1.9      Proceeds from sale of:    (a)  prospects          -                        -
                      (b)  equity investments              -                        -
                      (c)  other fixed assets              -                        -
1.10     Loans to other entities                                                   
1.11     Loans repaid by other entities                                            
1.12     Other (provide details if material)                                       
                                                           -                        -
         Net investing cash flows
1.13     Total operating and investing cash flows         (1,048)                  (2,221)
         (carried forward)

1.13     Total operating and investing cash flows         (1,048)                  (2,221)
         (brought  forward)
                                                                                   
         Cash flows related to financing activities
1.14     Proceeds from issues of shares, options, etc.     113                      304
1.15     Proceeds from sale of forfeited shares                                    
1.16     Proceeds from borrowings                                                  
1.17     Repayment of borrowings                                                   
1.18     Dividends paid                                                            
1.19     Other (provide details if material)                                       
         Net financing cash flows                          113                      304
                                                                                   
         Net increase (decrease) in cash held             (935)                    (1,917)
        
1.20     Cash at beginning of quarter/year to date         2,389                    3,371
1.21     Exchange rate adjustments to item 1.20                                    
1.22     Cash at end of quarter                            1,454                    1,454

Payments to directors of the entity and associates of the directors
Payments to related entities of the entity and associates of the related entities
                                                                                 Current quarter
                                                                                 $A'000
                                                                                 
1.23     Aggregate amount of payments to the parties included in item 1.2        21
                                                                                 
1.24     Aggregate amount of loans to the parties included in item 1.10
         
1.25     Explanation necessary for an understanding of the transactions
         
         Director Fees
         
         
Non-cash financing and investing activities
2.1    Details of financing and investing transactions which have had a material effect on consolidated
       assets and liabilities but did not involve cash flows
       
       
       -
       

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



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

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

Estimated cash outflows for next quarter
                                                                      $A'000
4.1    Exploration and evaluation                                      -
       
4.2    Development                                                     
       
4.3    Production                                                      
       
4.4    Administration                                                  350
       
                                                                       
       Total                                                           350

Reconciliation of cash

Reconciliation of cash at the end of the quarter (as    Current quarter          Previous quarter
shown in the consolidated statement of cash flows) to   $A'000                   $A'000
the related items in the accounts is as follows.
5.1    Cash on hand and at bank                          33                       94
5.2    Deposits at call                                  1,421                    2,295
5.3    Bank overdraft                                    -                        -
5.4    Other (provide details)                           -                        -
       Total: cash at end of quarter (item 1.22)         1,454                    2,389

Changes in interests in mining tenements

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

                            Total number        Number quoted       Issue price per      Amount paid up per
                                                                    security (see note   security (see note 3)
                                                                    3) (cents)           (cents)
7.1     Preference                                                                       
        +securities
        (description)
7.2     Changes during                                                                   
        quarter
        (a)  Increases
        through issues
        (b)  Decreases
        through returns of
        capital, buy-
        backs, redemptions
7.3      +Ordinary           136,106,468         136,105,618                              
        securities                              
        
7.4     Changes during                                                                   
        quarter                                                                          
        (a)  Increases               850                 850        35 cents per share   35 cents per share
        through issues      
                            
        
        (b)  Decreases
        through returns of
        capital, buy-backs
7.5     +Convertible debt                                                                
        securities
        (description)
7.6     Changes during                                                                   
        quarter
        (a)  Increases
        through issues
        (b)  Decreases
        through securities
        matured, converted
7.7     Options                                                    Exercise price       Expiry date
        (description and                                                                 
        conversion factor)                                                               
                               2,000,000           -               Unlisted Options,    Expiry 27 August
                                                                   exercise price 24    2012.Vest 27 February
                                                                   cents,               2011
                                                                                           
                               2,000,000           -               Unlisted Options,    Expiry 27 August 2013.
                                                                   exercise price 40    Vest - 27 August 2011
                                                                   cents, Expiry 27     
                                                                   August 2013.         
                                                                   Vest - 27 August     
                                                                   2011                 
                                                                                        
                               5,000,000           -               Unlisted Options,    Expiry Date 1 May 2012
                                                                   exercise price  35   
                                                                   cents,               
                                                                                        
                               8,500,000           -               Unlisted Employee    Expiry Date 23
                                                                   Options, exercise    December  2015
                                                                   price  50 cents,     
                                                                   Unlisted             
                                                                                        
                               3,500,000           -               Employee Options,    Expiry Date 6 July
                                                                   exercise price  20   2012
                                                                   cents,
                                                                   
                                                                   
                               3,000,000           -               Performance Rights
                           
                           
                           
7.8     Issued during                                                                    
        quarter
7.9     Exercised during                                                                 
        quarter
7.10    Expired during                                                                   
        quarter
7.11    Debentures                                                                       
        (totals only)
7.12     Unsecured notes                                                                  
        (totals only)
        

Compliance statement

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

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


Sign here:       ............................................................Date: .. January 2012..............
                              (Company secretary)
Print name:      ...Kevin Lynn......................................................

Notes

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

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

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

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

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


                                                == == == == ==

Contact Information

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