SILVER MINES LIMITED — Capital/Financing Update 2014

Sep 1, 2014

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2[nd] September, 2014

To: Company Announcement Officer

UPDATE ON MEXICO.

• Due diligence progressing well with operational, technical and legal information being provided by owners and is under review.

• Current owners advise the processing plant has capacity to treat up to 15 000 tonnes per month operating on a 24 hour basis. Depending on the character of feed and flotation performance.

• Owners advise current production head grades of 200-400g/t silver.

• The processing plant has been operating on a semi-continuous basis for over 15 years producing concentrates containing silver, gold, lead and zinc

• Previous exploration by Canadian Junior Oro Silver Resources Ltd (Oro) in 2008 (see Oro news release dated June 18, 2008) yielded highly encouraging results from channel sampling. These include:

• Vetagrande vein ‐ surface:

  • 12.3m @ 694 g/t silver, 0.30 g/t gold and 1.1% zinc

• Vetagrande vein ‐ production ramp:

  • 7.0m @ 314 g/t silver, 0.20 g/t gold and 0.6% zinc

• La Flor vein ‐ production ramp:

  • 4.0m @ 235 g/t silver, 1.47 g/t gold, 3.1% zinc and 0.88% lead

Silver Mines Limited (ASX:SVL) is pleased to announce that due diligence is proceeding well with a review of historical exploration results and surrounding projects demonstrating the Veta Grande project has tremendous exploration potential and the ability to increase existing production.

The Veta Grande Project is located in Zacatecas State, central Mexico and consists of a processing plant and associated infrastructure as well as a number of mining and exploration concessions some of which are currently being exploited. The concessions cover approximately 4km[2] and encompass 4km of strike length over multiple vein systems.

PRODUCTION

The Veta Grande processing plant has been operating on a semi-continuous basis for well over fifteen years. The plant can treat up 200,000 tonnes per annum operating on a 24hr basis and can produce flotation concentrates containing silver, gold, lead and zinc. Throughput rate and concentrate production are governed by the physical and mineralogical characteristics of plant feed. The tailings impoundment adjacent to the plant reportedly contains approximately 2 Million tonnes of tailings.

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Production records from mid-2012 to mid-2014 indicate that over a period of 25 months the plant treated approximately 269,000 tonnes of material to produce 979 tonnes of silver-gold concentrate, as summarised in Table 1.

Table 1. Veta Grande plant: Operating summary 2012-2014

Feed Grade	Concentrate Grade	Recovery
Au(g/t) Ag (g/t)	Au(g/t) Ag (g/t)	Au(%) Ag (%)
0.1 78	8.3 9,003	33 44

The current owners state the plant is operating at close to 15,000 tonnes per month, with plant feed containing 200-400g/t silver and accessory gold.

PREVIOUS EXPLORATION AND POTENTIAL

There is little record of previous exploration in the project area. It is stated the Penoles mined and explored the area from 1975-1988.

More recently and of particular interest to Silver Mines is work undertaken by Oro Silver Resources Ltd, a Canadian junior who evaluated the project as part of an option farm-in during 2008.

Significant assay results of select intervals across veins at the Vetagrande project include:

Vetagrande vein ‐ surface:

• 6.0m @ 337 g/t silver and 0.1% zinc

• 12.3m @ 694 g/t silver, 0.30 g/t gold and 1.1% zinc

• 2.0m @ 455 g/t silver, 0.25 g/t gold and 0.6% zinc

Predilecta vein ‐ surface: 2.0m @ 27 g/t silver and 0.56 g/t gold

Armados vein ‐ surface: 3.9m @ 403 g/t silver

Vetagrande vein ‐ production ramp:

• 7.0m @ 314 g/t silver, 0.20 g/t gold and 0.6% zinc

• 7.2m @ 314g/t silver and 0.1% zinc

La Flor vein ‐ production ramp:

• 4.0m @ 235 g/t silver, 1.47 g/t gold, 3.1% zinc and 0.88% lead

Oro’s news release dated June 18, 2008 contained the following….

Oro Silver Resources Ltd. (“Oro Silver”) reports final assay results for the channel sampling program recently completed at the Vetagrande mine. A total of 262 samples were collected in thirty‐one channels across and along 6 sub‐parallel veins mapped both on surface and underground, representing an area 1 kilometre long by 500 metres wide testing the principal vein zones.

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Results from the sampling indicate a potential near surface resource and are consistent with historic grades reported by Industrias Peñoles S.A. de C.V. in the 1980’s for the Vetagrande mine (see Oro Silver’s press release dated January 18, 2008). Seventeen channels were completed on surface exposures of the sub‐parallel Vetagrande, Predilecta, Armados, San Jose, La Flor and Esperanza veins. The remaining fourteen channels were taken from production ramps near surface on the Vetagrande and La Flor veins (approximately 25 metres below surface). The channel samples are predominantly 1 metre in width and are collected across the veins.

The veins strike to the northwest‐southeast and dip steeply to the southwest (65 to 70 degrees). The Vetagrande mine consists of multiple sub‐parallel silver and base metal‐rich epithermal veins, characteristic of the Zacatecas mining district. Locations of some of the channels are illustrated in the attached plan‐view figure (Figure 1 below).

Figure 1 : Map copied from Oro Silver Resources Ltd news release June 18, 2008.

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A number of listed Canadian companies are active in the Zacatecas silver district. Several of these companies have reported resources in accordance with requirements and guidelines of the Canadian Institute if Mining (CIM) for inclusion in National Instrument 43-101 (Technical Reports). Accordingly these resource estimates are reported in accordance with JORC Code. The resource statements are available via company websites and SEDAR and are summarized in Table 2.

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Table 2. Mineral Resources in the Zacatecas silver district

		Million Tonnes Ag (g/t) Au (g/t) Cu (%) Pb (%) Zn (%)
Deposit	Category
	Indicated Inferred	1.15 96 0.2 2.89 134 0.2
San Acacio1
	Indicated Inferred	0.52 4.38 66 0.42 3.98 48
El Compass2
San Roberto and Mala Noche3	Indicated Inferred Indicated Inferred	11.42 46 1.57 0.19 0.93 5.9 34 1.43 0.1 0.7 2.07 42 0.47 0.28 0.45 3.33 1.3 33 0.6 0.15 0.7 3.3
San Rafael Zinc Zone3

1. San Acacio: Defiance Silver Corporation http://www.defiancesilver.com 2. El Compass: Marlin Gold Mining Ltd. http://www.marlingold.com 3. San Roberto, Mala Noche and San Rafael: Capstone Mining Corp. http://capstonemining.com

The Company considers the Veta Grande project to be an excellent opportunity to enter the most prolific silver producing region in the world and offers the potential of having a stake in a silver producing asset in the near term that offers excellent potential for future discoveries and growth.

To support the due diligence process in the short term the Company ,on August 28 2014, issued a convertible security with the face value of A$116K to Bergen Global Opportunity Fund II, LLC, on the terms of the attached Appendix 3B. This is the only debt instrument the Company has at present.

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 report that relates to Mineral Reserves, Mineral Resources and Exploration Results is based on information compiled by Mr Charles Straw, Managing Director of SVL. Mr Straw is a Member of The Australasian Institute of Mining and Metallurgy. Mr Straw has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Straw consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

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