Silver Mines Limited ACN 107 452 942 Notice of Annual General Meeting & Explanatory Statement Annual General Meeting to be held at the Christie Conference Centre, Ming Room, Level 2, 3 Spring Street, Sydney, NSW, on 29 November 2011 at 2.00 pm (Sydney Time). --------------------------------------------------------------------------------------------------------------------- This Notice of Annual General Meeting, Explanatory Statement and Proxy Form should be read in its entirety. If shareholders are in doubt as to how they should vote, they should seek advice from their accountant, solicitor or other professional adviser without delay. --------------------------------------------------------------------------------------------------------------------- Notice of Annual General Meeting ---------------------------------------------------------------------------------------------------------------- NOTICE IS HEREBY GIVEN that the 2011 Annual General Meeting of Silver Mines Limited ACN 107 452 942 ("Company") will be convened at Christie Conference Centre, Ming Room, Level 2, 3 Spring Street, Sydney, NSW, on 29 November 2011 at 2.00 p.m. (Sydney Time). If you are unable to attend the meeting, we encourage you to complete and return the enclosed Proxy Form. The completed Proxy Form must be received by the Company at least 48 hours before the commencement of the meeting. An Explanatory Statement, which accompanies and forms part of this Notice, describes the various matters to be considered. Terms used in this Notice will, unless the context otherwise requires have the same meaning as explained in the Explanatory Statement. AGENDA Financial Statements and Reports -------------------------------- To receive and consider the Annual Financial Report of the Company, together with the Directors' and Auditor's Reports for the period ending 30 June 2011. Resolution 1 - Non-binding approval of Remuneration Report To consider and, if thought fit, pass the following resolution as an ordinary resolution: "That, for all purposes, Shareholders adopt the Remuneration Report set out in the Directors' Report for the year ended 30 June 2011." Note: (a) The vote on this resolution is advisory only and does not bind the Directors or the Company. (b) The Company's key management personnel and their closely related parties must not cast on the report on the Remuneration Report unless they are appointed in writing as a proxy for a member eligible to vote on the resolution and that proxy specifies how to vote on the resolution. (c) The Chairman will vote all undirected proxies in favour of this resolution. If you wish to vote "against" or "abstain" you should mark the relevant box on the attached Proxy Form. Resolution 2 - Re - election of Director To consider and, if thought fit, pass the following resolution as an ordinary resolution: "That, for all purposes, Mr Malcolm Bird, being a Director of the Company who retires in accordance with the Company's Constitution and being eligible offers himself for election, be elected as a Director." Resolution 3 - Ratify an Issue of Securities To consider and, if thought fit, to pass, the following resolution as an ordinary resolution: "That, for the purpose of Listing Rule 7.4 of the Listing Rules of the ASX Limited and for all other purposes, the Company ratify the issue and allotment of 10,000,000 shares and 5,000,000 attaching options, exercisable at 35 cents per share, expiring 1 May 2012, to sophisticated and professional investors." Short Explanation: Approval is sought under Listing Rule 7.4 to allow the Company to ratify the issue and allotment of these securities. Please refer to the Explanatory Statement for details. Voting Exclusion Statement The Company will disregard any votes cast on Resolution 3 by any person who participated in the issue and any associate of any such person. However, the Company need not disregard a vote if: (i) the vote is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or (ii) the vote is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. Resolution 4 - Approve of an Issue of Securities To consider and, if thought fit, pass the following resolution as an ordinary resolution: "That, pursuant to and in accordance with Listing Rule 7.1 of the Listing Rules of ASX Limited and for all other purposes, the Company be authorised to allot and issue up to 40 million fully paid ordinary shares of the capital of the Company at an issue price no less than 80% of the volume weighted average price for 5 trading days prior to the date the issue is made and up to 40 million options on the terms and conditions set out in the Explanatory Statement accompanying this notice." Voting Exclusion Statement The Company will disregard any votes cast on Resolution 4 by a person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the resolution is passed and an associate of that person. However, the Company need not disregard a vote if: (i) the vote is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or (ii) the vote is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. By Order of the Board of Directors Kevin Lynn Company Secretary 19 October 2011 Explanatory Statement ----------------------------------------------------------------------------------------------------------------- This Explanatory Statement has been prepared for the information of Shareholders in relation to the business to be conducted at the Company's 2011 Annual General Meeting. The purpose of this Explanatory Statement is to provide Shareholders with all information known to the Company which is material to a decision on how to vote on the resolutions in the accompanying Notice of Annual General Meeting. This Explanatory Statement should be read in conjunction with the Notice of Annual General Meeting. The Explanatory Statement consists of the following sections: 1. Financial Statements and Reports 2. Resolution 1: Non-binding approval of Remuneration Report 3. Resolution 2: Re - Election of Mr Malcolm Bird as a Director 4. Resolution 3: Ratify an Issue of Securities 5. Resolution 4: Approve of an Issue of Securities 6. Annexure A - Questions from Shareholders 1. Financial Statements and Reports The Annual Financial Report, Directors' Report and Auditor's Report for the Company for the period ending 30 June 2011 will be laid before the meeting. There is no requirement for Shareholders to approve these reports. However, the Chairman will allow a reasonable opportunity for Shareholders to ask questions or make comments about those reports and the management of the Company. Shareholders will also be given a reasonable opportunity to ask the auditor questions about the conduct of the audit and the preparation and content of the auditor's report. In addition to taking questions at the meeting, written questions to the Chairman about the management of the Company, or to the Company's auditor may be made about: * the preparation and content of the Auditor's Report; * the conduct of the audit; * accounting policies adopted by the Company in relation to the preparation of the financial statements; and * the independence of the auditor in relation to the conduct of the audit. To assist the Board and the auditor of the Company in responding to your questions please submit any questions you may have using the enclosed Question Form at Annexure A of the Explanatory Statement so that it is received no later than 2.00 p.m. (Sydney Time) on 23 November 2011 to: Kevin Lynn Chief Financial Officer Silver Mines Limited Level 5, 17 - 19 Bridge Street Sydney, NSW 2000 Australia - or - Fax: +61 2 9253 0901 As required under section 250PA of the Corporations Act, at the Annual General Meeting, the Company will distribute a list setting out the questions directed to the auditor received in writing, being questions which the auditor considers relevant to the content of the auditor's report or the conduct of the audit of the financial report for the period ended 30 June 2011. The Chairman will allow a reasonable opportunity to respond to the questions set out on this list. 2. Resolution 1: Adoption of Remuneration Report The Corporations Act 2001 requires that the Company propose a resolution that the Remuneration Report of the Company be adopted. The Remuneration Report is set out in the Director's Report contained in the Company's 2011 Annual Report. The Remuneration Report sets out the Company's remuneration arrangements for the executive and non- executive Directors and executive employees of the Company. A reasonable opportunity will be given for discussion of the Remuneration Report at the meeting. Shareholders should note that the vote on this resolution is advisory only and does not bind the Company or the Directors. The Board will consider the outcome of the vote and comments made by Shareholders on the Remuneration Report at this meeting when reviewing the Company's Remuneration policies. If 25% or more of the votes that are cast are voted against the adoption of the Remuneration Report at two consecutive Annual General Meetings Shareholders will be required at the second of those Annual General meetings on a resolution (a "spill resolution") that another meeting be held within 90 days at which all of the Company's Directors other that the Managing Director must stand for re-election. Key management personnel (including Directors) and their closely related parties must not cast on the report on the Remuneration Report unless as holders of directed proxies for Shareholders eligible to vote on the resolution and that proxy specifies how to vote on the resolution. The Company encourages all shareholders to cast their votes on this resolution. The Chairman will vote all undirected proxies in favour of this resolution. If you wish to vote "against" or "abstain" you should mark the relevant box in the attached Proxy Form 3. Resolution 2: Re-election of Director This Resolution deals with the re-election of Mr Malcolm Bird as Directors of the Company. In accordance with ASX Listing Rule 14.4 and the Company's Constitution, at every Annual General Meeting, one third of the Directors for the time being must retire from office and are eligible for re- election. The Directors to retire are: (a) those who have been in office for 3 years since their appointment or last re-appointment; (b) those who have been longest in office since their appointment or last re-appointment; or (c) if the Directors have been in office for an equal length of time, by agreement. In addition, the Company's Constitution requires that any Director appointed by the Board, either to fill a casual vacancy or as an addition to the Board, must retire at the next Annual General Meeting following his or her appointment, but is eligible for re-election at that Annual General Meeting. In accordance with the Company's Constitution, Mr Malcolm Bird retires and being eligible, has offered himself for election or re-election. The remaining Directors, Mr David Sutton and Mr Charles Straw recommend to Shareholders that Mr Bird be re-elected as a Director. Details of Mr Birds' background and experience is set out in the 2011 Annual Report. 3 Resolution 3 - Ratification of the Allotment and Issue of Securities Background On 7 December 2010, the Company issued by way of placement, issued a total of 10 million shares and 5 million free attaching options exercisable at 35 cents per share, expiring 1 May 2012 to professional and sophisticated investors. Regulatory Requirements - ASX Listing Rule 7. 1 and 7.4 The Company did not breach Listing Rule 7.1. Resolution 3 is required to be approved in accordance with ASX Listing Rule 7.4. Approval is sought under ASX Listing Rule 7.4 to allow the Company to ratify the issue and allotment of 10 million shares and 5 million attaching options exercisable at 35 cents per share, expiring 1 May 2012 to professional and sophisticated investors. The reason for an approval under ASX Listing Rule 7.4 is to reinstate the capacity of the Company to issue up to 15% of its securities in the next 12 months without the approval of its shareholders. The following information is provided to Shareholders for the purpose of obtaining shareholder approval pursuant to the ASX Listing Rules: (a) the number of securities allotted by the Company was 10 million shares and 5 million attaching options exercisable at 35 cents per share, expiring 1 May 2012 to professional and sophisticated investors; (b) the allottees of the Securities were professional and sophisticated investors; (c) the options are unlisted; (d) the Securities were allotted for 24 cents per share with half a free attaching option; and (e) the funds raised on the exercise of the options were used to continue drilling programs at the Company's New England projects and working capital. Directors' Recommendation The Board recommends Shareholders vote in favour of Resolution 3. Terms of the Options (a) Subject to condition (g) the Options are exercisable wholly or in part at any time from day of issue and will expire on 1 May 2012; (b) Each Option shall entitle the option holder to acquire one (1) share in the capital of the Company; (c) Each Option may be exercised by delivering to the registered office of the Company a notice in writing during the period referred to in condition (a) stating the intention of the Option holder to exercise a specified number of Options, accompanied by an option certificate, if applicable, and a cheque made payable to the Company for the subscription monies due, subject to the funds being duly cleared funds. The exercise of only a portion of the Options held does not affect the holder's right to exercise the balance of any Options remaining; (d) All shares issued on exercise of the Options will rank pari passu in all respects with the Company's then issued shares. These Options will be unlisted; (e) The Options are transferable; (f) Any notice of exercise of an Option received by the Company will be deemed to be a notice of the exercise of that Option as at the date of the receipt; (g) There are no participating rights or entitlements inherent in the Options and holders will not be entitled to participate in new issues of securities Offered to Shareholders of the Company during the currency of the Options. However, the Company will ensure that for the purpose of determining entitlements to any such issue, the record date will be at least 10 Business Days after the issue is announced so as to give holders the opportunity to exercise their Options before the date for determining entitlement to participate in any issue; (h) Share allotted pursuant to the exercise of the Options will be allotted following receipt of all the relevant documents and payment and will rank equally with existing issued shares; and (i) In the event of a reconstruction (including consolidations, subdivision, reduction or return) of the issued capital of the Company, all rights of the option holder shall be reconstructed in accordance with the ASX Listing Rules. 4. Resolution 4 - Approval of an Issue of Securities Background - Listing Rule 7.1 Resolution 4 of the Notice of Meeting proposes the issue and allotment of up to 40 million fully paid ordinary Shares and 40 million Options in the capital of the Company per the ASX Listing Rules. In compliance with the information requirements of ASX Listing Rule 7.3, members are advised of the following particulars in relation to the proposed issue: 1. Maximum number of Securities to be issued - up to 40 million Shares and 40 million Options. 2. Date by which the Company will issue and allot shares and options- no later than 3 months after the date of the meeting. 3. Price at which shares are to be issued - minimum being no less than 80% of the average market price calculated in accordance with ASX Listing Rule 7.3.3. Options -Nil: 4. Basis upon which allottees will be determined - the allottees will be determined by the Board having regard to a number of issues, including: a. the level of demand for placement Shares; b. the identification of sophisticated and professional investors (who are not related parties) with a long term commitment to the Company; and, c. other issues which the Board may consider appropriate from time to time. 5. Terms of issue - the Company will apply for listing of Options. 6. Intended use of funds raised - the issue of Shares will provide additional funding required by the Company for the following purposes: a. exploration programs on the Company's leases - 80%; b. general working capital - 20%. 7. Dates of allotment - allotment will occur progressively. Pursuant to the placement proposed under Resolution 4, no single Shareholder/Placee will be permitted to exceed 20% of the issued capital of the Company and therefore no change in control of the Company is anticipated. This prohibition will be included in the placement Information Statement. It is proposed that the placement be made to selected allottees pursuant to a placement Information Statement. Terms of the Options (a) Subject to condition (g) the Options are exercisable wholly or in part at any time from day of issue and will expire on the date that is 12 months from the date of issue; (b) The exercise price will be no less than: i. the average closing sale price per Share (weighted by reference to volume) recorded on the stock market of ASX during the five trading days immediately preceding the day on which the Board resolves to offer an Option (excluding special crossings and overnight sales); or ii. in circumstances where there has been no trading in the Shares during the five trading days immediately preceding the day on which the Board resolves to offer an Option, the last sale price recorded on the stock market of ASX (excluding special crossings and overnight sales); (c) Each Option shall entitle the option holder to acquire one (1) share in the capital of the Company; (d) Each Option may be exercised by delivering to the registered office of the Company a notice in writing during the period referred to in condition (a) stating the intention of the option holder to exercise a specified number of Options, accompanied by an option certificate, if applicable, and a cheque made payable to the Company for the subscription monies due, subject to the funds being duly cleared funds. The exercise of only a portion of the Options held does not affect the holder's right to exercise the balance of any Options remaining; (e) All shares issued on exercise of the Options will rank pari passu in all respects with the Company's then issued shares. The Company may seek listing of the Options, in the event the Oprions are not listed, the Options will be unlisted; (f) The Options are transferable; (g) Any notice of exercise of an Option received by the Company will be deemed to be a notice of the exercise of that Option as at the date of the receipt; (h) There are no participating rights or entitlements inherent in the Options and holders will not be entitled to participate in new issues of securities offered to Shareholders of the Company during the currency of the Options. However, the Company will ensure that for the purpose of determining entitlements to any such issue, the record date will be at least 10 Business Days after the issue is announced so as to give holders the opportunity to exercise their Options before the date for determining entitlement to participate in any issue; (i) Shares allotted pursuant to the exercise of the Options will be allotted following receipt of all the relevant documents and payment and will rank equally with existing issued Shares; and (j) In the event of a reconstruction (including consolidations, subdivision, reduction or return) of the issued capital of the Company, all rights of the option holder shall be reconstructed in accordance with the ASX Listing Rules. 5. OTHER INFORMATION There is no other information known to the Company that is material to a Shareholder's decision on how to vote on the resolutions set out in the Notice. However, should any Shareholder be in doubt as to how they should vote on any resolution and/or as to how a resolution may affect them, they should seek advice from their accountant, solicitor or other professional adviser as soon as possible. Queries as to the lodgement of proxies and other formalities in relation to the meeting should be directed to the Company Secretary. 6. ACTION TO BE TAKEN BY SHAREHOLDERS Enclosed with the Notice of Meeting and this Explanatory Statement is a Proxy Form for use by Shareholders. All Shareholders are invited and encouraged to attend the meeting or, if they are unable to attend in person and are eligible to vote, to complete, sign and return the Proxy Form to the Company in accordance with the instructions contained on the Proxy Form and the Notice of Meeting. Lodgement of a Proxy Form will not preclude a Shareholder from attending and voting at the meeting in person. Proxy and Voting Entitlement Instructions ---------------------------------------------------------------------------------------------------------------- The Proxy Form (and any power of attorney or other authority, if any, under which it is signed) or a copy or facsimile which appears on its face to be an authentic copy of the Proxy Form (and the power of attorney or other authority) must be lodged: In person or by Mail: or Fax: +61 2 9253 0901 Silver Mines Limited Level 5, 17 - 19 Bridge Street Sydney, NSW 2000 Australia not later than 48 hours before the time for holding the meeting, i.e. no later than 2.00 p.m. (Sydney Time) on Sunday 27 November 2011. Any Proxy Form received after that time will not be valid for the scheduled meeting. Voting Entitlement ------------------ The Company may specify a time, not more than 48 hours before the meeting, at which a "snap-shot" of shareholders will be taken for the purposes of determining shareholder entitlements to vote at the meeting. The Company's Directors have determined that all shares of the Company that are quoted on ASX at 2.00 p.m. (Sydney Time) on Sunday 27 November 2011 shall, for the purposes of determining voting entitlements at the Annual General Meeting, be taken to be held by the persons registered as holding the shares at that time. Accordingly, transactions registered after that time will be disregarded in determining entitlements to attend and vote at the meeting. Appointment of a Proxy ---------------------- A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint a proxy. The proxy may, but need not be, a member of the Company. If you wish to appoint the Chairman of the meeting as your proxy, mark the box. If the person you wish to appoint as your proxy is someone other than the Chairman of the meeting please write the name of that person. If you leave this section blank, or your named proxy does not attend the meeting, the Chairman of the meeting will be your proxy. A proxy need not be a shareholder of the company. You are entitled to appoint up to two persons as proxies to attend the meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the Company or you may photocopy this form. To appoint a second proxy you must on each Proxy Form state (in the appropriate box) the percentage of your voting rights which are the subject of the relevant proxy. If both Proxy Forms do not specify that percentage, each proxy may exercise half your votes. Fractions of votes will be disregarded. Votes on Resolutions -------------------- You may direct your proxy how to vote by placing a mark in one of the boxes opposite each Resolution. All your shareholding will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on any Resolution by inserting the percentage or number of shares you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on a given Resolution, your proxy may vote as he or she chooses. If you mark more than one box on a Resolution your vote on that Resolution will be invalid. Proxy and Voting Entitlement Instructions ----------------------------------------- Signing Instructions -------------------- You must sign this form as follows in the spaces provided: Individual: where the holding is in one name, the holder must sign. Joint Holding: where the holding is in more than one name, all of the Shareholders should sign. Power of Attorney: to sign under Power of Attorney, you must have already lodged this document with the company's share registry. If you have not previously lodged this document for notation, please attach a certified photocopy of the Power of Attorney to this form when you return it. Companies: where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place. If a representative of the corporation is to attend the meeting a "Certificate of Appointment of Corporate Representative" should be produced prior to admission. A form of the certificate is either included in the Notice or may be obtained from the company's share registry. To view the proxy form, please open the link in a new window: [ http://media3.marketwire.com/docs/PROXYSILVER.pdf ]

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