Silver Mines Limited FKP House, Level 5 17-19 Bridge Street Sydney, NSW, 2065 P: +61 2 9253 0900 E: [ info@silverminesltd.com.au ] W: [ www.silverminesltd.com.au ] 31 October, 2011 Company Announcements Australian Securities Exchange Limited Level 4, 20 Bridge Street Sydney NSW 2000 By electronic lodgement - 5 pages ASX Code: SVL ACTIVITIES REPORT - FOR THE QUARTER ENDED 30th SEPTEMBER 2011. HIGHLIGHTS DURING THE QUARTER - Reverse Circulation (RC) program completed 98 RC holes drilled during the September Quarter for 7,679m. Results continue to demonstrate near surface silver rich mineralisation at Webbs, and the potential for this to continue at depth where the deposit remains open in many locations. - Diamond Drilling (DD) program with 11 DD holes completed during the September Quarter for 1,568.2m. Results generally support, infill and extend previous drilling. This program is ongoing. - Mineralurgy Pty Ltd appointed to oversee Metallurgical Testwork Program and Develop Process Flow Sheet to Pre-Feasibility Level. - Regional Exploration around Webbs continues to generate excellent targets - Corporate - cash position at the end of the quarter - $2.39 million. On the 6 September 2011, the Company announced a Pro Rata Offer of Options to Shareholders. The Offer was completed in October 2011 with the issue of 6,728,525 options to shareholders and a further 6,882,207 shortfall options to professional and sophisticated investors. The Options have an exercise price of 35 cents and expire 31 October 2012. ACTIVITIES DURING THE QUARTER Webbs Silver Project - EL5674 1. RC Drilling SVL commenced a large program of RC drilling at the Webbs Silver Project in early June 2011. This program is designed to increase tonnage and upgrade the JORC classification of the existing high grade silver resource as well as test near surface potential of exploration targets along the Webbs trend. During the September quarter 98 RC holes were completed for a total of 7,679m. Results were also received for holes drilled prior to the September quarter. Results for all holes from this program have previously been released to the market in ASX Announcements of 1 July 2011, 19 August 2011, 2 September 2011 and 7 October 2011. Please refer to these Announcements for full details. This program has now been completed. Results continue to demonstrate the high grade nature of the deposit extending to surface as well as highlight potential depth extensions as well as the possible development of multiple lode horizons. Additional RC drilling is planned to close up near surface gaps along the trend and test for depth extensions. Better intersections from the drilling include: - RC137 4m@ 309g/t Ag, 0.02% Cu, 0.9% Pb and 1.1% Zn from 56m - RC153 2m @ 425g/t Ag, 0.7% Cu, 2.1% Pb and 1.4% Zn from 10m - RC162 2m @ 206g/t Ag, 0.04% Cu, 0.01% Pb and 0.01% Zn from 20m - RC177 4m @ 153g/t Ag, 0.5% Cu, 2.0% Pb and 3.2% Zn from 17m - RC178 1m @ 705g/t Ag, 2.6% Cu, 7,7% Pb, 11.0% Zn from surface - RC179 3m @ 159g/t Ag, 0.6% Cu, 1.4% Pb, 2.2% Zn from 6m - RC203 2m @ 519g/t Ag, 1.2% Cu, 5.2% Pb, 10.5% Zn from 22m - RC204 1m @ 2129g/t Ag, 1.1% Cu, 0.1% Pb, 4.0% Zn from 27m - RC209 5m @ 496g/t Ag, 0.9% Cu, 1.2% Pb, 1.3% Zn from 10m - RC211 5m @ 161g/t Ag, 0.01% Cu, 1.5% Pb, 3.5% Zn from 10m - RC214 15m @ 258g/t Ag, 0.01% Cu, 0.4% Pb, 2.9% Zn from 39m incl. 2m @ 732g/t Ag, 0.01% Cu, 0.2% Pb and 3.1% Zn from 52m - RC219 8m @ 590g/t Ag, 0.01% Cu, 0.6% Pb, 3.3% Zn from 87m incl. 2m @ 1246g/t Ag, 0.01% Cu, 0.4% Pb and 5.4% Zn from 88m - RC235 - 5m@ 113g/t Ag, 0.01% Cu, 0.1% Pb and 0.1% Zn from 93m - RC235 - 2m @ 282g/t Ag, 0.4% Cu, 2.3% Pb and 3.9% Zn from 111m - RC238 - 3m@ 195g/t Ag, 0.29% Cu, 2.86% Pb and 2.31% Zn from 17m - RC238 - 2m @ 320g/t Ag, 0.21% Cu, 2.07% Pb and 2.46% Zn from 71m - RC243 - 5m @ 182g/t Ag, 0.25% Cu, 1.35% Pb and 1.45% Zn from 32m - RC246 - 2m @ 219g/t Ag, 0.25% Cu, 0.99% Pb and 3.68% Zn from 19m - RC247 - 5m @ 347g/t Ag, 0.29% Cu, 1.73% Pb and 1.82% Zn from 28m - Incl. -1m @ 790g/t Ag, 0.52% Cu, 2.66% Pb and 2.47% Zn from 31m - RC250 10m @ 327g/t Ag, 0.52% Cu, <0.1% Pb and 2.53% Zn from 172m - Incl. - 2m @ 863g/t Ag, 1.31% Cu,< 0.1% Pb and 3.53% Zn from 174m - RC254- 13m @ 731g/t Ag, 0.84% Cu, 2.46% Pb and 2.10% Zn from 81m - Incl. - 4m @ 2095g/t Ag, 2.31% Cu, 5.31% Pb and 4.17% Zn from 86m - RC256 - 21m @ 212g/t Ag, 0.4% Cu, 0.9% Pb and 2.9% Zn from 83m - Incl. - 6m @ 399g/t Ag, 0.9% Cu, 0.6% Pb and 6.1% Zn from 97m - RC257 - 1m @ 268g/t Ag, 0.3% Cu, 2.6% Pb and 2.5% Zn from 17m - RC257 - 1m @ 613g/t Ag, 1.4% Cu, 5.1% Pb and 2.2% Zn from 26m - RC260 - 4m @ 293g/t Ag, 0.8% Cu, 3.0% Pb and 3.3% Zn from 33m - Incl. - 1m @ 746g/t Ag, 2.2% Cu, 6.4% Pb and 6.9% Zn from 35m - RC261 - 4m @ 226g/t Ag, 0.7% Cu, 1.5% Pb and 2.6% Zn from 37m - RC262 - 8m @ 169g/t Ag, 0.4% Cu, 1.7% Pb and 2.4% Zn from 17m - Incl. - 2m @ 283g/t Ag, 0.8% Cu, 2.8% Pb and 4.4% Zn from 23m Updated interpretations of the new drilling results are currently underway and will be incorporated into a new resource estimate expected to be completed by December 2011. 2. Diamond Drilling Diamond commenced in August 2011 and to the end of the September quarter 11 holes had been completed for a total of 1,568.2m. The diamond drilling program is designed to provide additional geological and structural information to assist in resource estimation. This is achieved by twinning or infilling the RC drill pattern. Drill core will also be used for geotechnical assessment and in metallurgical testwork. To date this drilling has resulted in 8 intersections through the mineralised zone. The drill core through these sections is usually quite competent. Strong sericite-quartz-carbonate alteration is present with sulphides; sphalerite-tetrahedrite-galena and chalcopyrite occurring as fracture or breccia fill and locally as massive sulphide veins up to 30cm thick. Diamond drilling has also been used to extend or 'diamond tail' 3 previously drilled RC holes. Two of these holes where abandoned short of target and one intersected weakly developed lode. Processing of the drill core is ongoing. The first batch of results will be released to the market when received. 3. Metallurgical Testwork Silver Mines is pleased to announce that it 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. Peter is regarded as an expert on silver-lead-zinc metallurgy and has worked extensively on complex polymetallic projects in Australia and overseas. Peter will develop and supervise the metallurgical test work program and develop the process flowsheet and design criteria for a potential processing plant for the project. Regional Exploration, New England Area, NE NSW - ELs 6114 and 6771 SVL released results (ASX release - 12 July 2011) from rock chip sampling and induced polarization surveys on its 100% owned Exploration Licenses 6771 and 6114. Results were highly encouraging and revealed numerous new targets associated with silver rich polymetallic mineralisation. These results serve to highlight the potential for Webbs style targets in the region to the north of Webbs in a similar geological setting. - Silver values in rock chips up to 2,950 g/t, copper to 1.7%, lead to 15.1% and zinc to 28.9%. - 165 rock chip samples were collected and approximately 10.6 line km of Dipole-Dipole Induced Polarization (IP) completed. - Mineralisation is associated with sulphide veining and disseminations in altered sediments and granitic rocks, proximal to the Triassic Mole Granite - which is a major source of local silver base metal and tin mineralisation. - Some IP anomalies are proximal to elevated geochemistry and old workings. IP anomalies not associated with old workings remain to be mapped and sampled. - Silver Mines considers the style of mineralisation identified during this program to be similar to that which occurs at the Webbs Silver deposit defined as narrow zones of 'bonanza lode' enveloped in lower grade altered and mineralized country rock. PLANNED ACTIVITIES for the DECEMBER QUARTER 2011 The December Quarter will continue to be an exciting time for Silver Mines with the following key programs underway or planned to commence; - Resource Model upgrade at Webbs incorporating new drilling - Complete diamond core processing, assaying in preparation for selection of metallurgical samples - Commence metallurgical testwork program - Exploration drilling on regional targets. - Plan 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 ]. Charles Straw Managing Director The information in this Document that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mr Charles Straw, CEO of Silver Mines and Mr David Hobby, consulting geologist to SVL, Mr Straw and Mr Hobby are Members of The Australasian Institute of Mining and Metallurgy. Mr Straw and Mr Hobby have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Persons as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration' for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Both Mr Straw and Mr Hobby consent to the inclusion in the report of the matters based on his information in the form and context in which it appears. Silver Mines Limited ACN 107 452 942 Appendix 5B Mining exploration entity quarterly report 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 30 September 2011 Consolidated statement of cash flows Current quarter Year to date (3 Cash flows related to operating activities $A'000 months) $A'000 ---------------------------------------- 1.1 Receipts from product sales and related debtors 1.2 Payments for (a) exploration & evaluation (931) (931) (b) development (c) production (d) administration (271) (271) 1.3 Dividends received 1.4 Interest and other items of a similar nature 30 30 received 1.5 Interest and other costs of finance paid (1) (1) 1.6 Income taxes paid 1.7 Other (provide details if material) Pre paid ---------------------------------------- drilling (1,173) (1,173) Net Operating Cash Flows ------------------------------------------------------------------------------------------------- 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 (1,173) (1,173) (carried forward) ---------------------------------------- 1.13 Total operating and investing cash flows (1,173) (1,173) (brought forward) ---------------------------------------- Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 191 191 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 191 191 ------------------------------------------------------------------------------------------------- Net increase (decrease) in cash held (982) (982) 1.20 Cash at beginning of quarter/year to date 3,371 3,371 1.21 Exchange rate adjustments to item 1.20 ---------------------------------------- 1.22 Cash at end of quarter 2,389 2,389 ------------------------------------------------------------------------------------------------- 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 94 40 ---------------------------------------- 5.2 Deposits at call 2,295 3,331 ---------------------------------------- 5.3 Bank overdraft - - ---------------------------------------- 5.4 Other (provide details) - - ---------------------------------------- Total: cash at end of quarter (item 1.22) 2,389 3,371 ----------------------------------------------------------------------------------------------- Changes in interests in mining tenements ----------------------------------------------------------------------------- Tenement Nature of interest Interest Interest reference (note (2)) at at end of beginning quarter of 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 security (see note note 3) (cents) 3) (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 135,105,618 135,105,618 securities ----------------------------------------------------------------------------- 7.4 Changes during quarter (a) Increases 1,000,000 1,000,000 17 cents per 17 cents per share through issues share (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 cents, February 2011 2,000,000 - Unlisted Options, Expiry 27 August exercise price 40 2013. Vest - 27 cents, Expiry 27 August 2011 August 2013. Vest - 27 August 2011 5,000,000 - Unlisted Options, Expiry Date 1 May exercise price 2012 35 cents, 8,500,000 - Unlisted Employee Expiry Date 23 Options, exercise December 2015 price 50 cents, Unlisted Employee Options, 3,500,000 - exercise price Expiry Date 6 July 20 cents, 2012 Performance 3,000,000 - Rights ----------------------------------------------------------------------------- 7.8 Issued during quarter ----------------------------------------------------------------------------- 7.9 Exercised during 1,000,000 Unlisted Options, Expiry 27 August quarter exercise price 17 2011. cents, ----------------------------------------------------------------------------- 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: .. October 2011.............. (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. == == == == == + See chapter 19 for defined terms.