SILVER MINES LIMITED — Capital/Financing Update 2014

Aug 4, 2014

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5[th] August, 2014

To: Company Announcement Officer

SVL EXECUTES MOU WITH OWNER OF OPERATING MEXICAN SILVER MINE.

• MOU executed with private owner of a silver‐rich polymetallic operation in Zacatecas state, Central Mexico, the largest silver producing region in the world.

• SVL has exclusive 90 day period to complete detailed due diligence on the project which includes an operating plant, mining leases, exploration leases and associated infrastructure.

• Once due diligence is completed successfully and delivers in line with expectations SVL has the right to earn 50% of project, including plant, for an investment of $US2 million over 3 years.

• SVL and current owners to form JV as 50/50 partners once SVL earn‐in is complete.

• Processing plant current throughput is stated to be 125 000 tonnes per annum, with ability to expand.

• Extensive exploration leases within the region in close proximity to existing plant.

Silver Mines Limited (ASX:SVL) is pleased to announce that it has executed a Memorandum of Understanding (MOU) with a Mexican based private mining company to Farm‐In and then form a Joint Venture over the Veta Grande silver‐gold‐lead‐zinc project and adjacent projects in Zacatecas state, central Mexico. SVL has an exclusive 90 day period to complete additional detailed due diligence on the project which includes an operating plant, associated mining infrastructure and extensive exploration leases in the surrounding area.

The terms of the Farm‐in include SVL spending $US2 million over a three (3) year period, including a minimum of $US250 000 in the first year. Once SVL has met its expenditure commitment, which can be done at any time during the three (3) year Farm‐In period, it will then form a Joint Venture with the owners on a 50/50 basis. SVL has the right to withdraw at any time during the Farm‐In period.

The Company considers this to be an excellent opportunity to enter the most prolific silver producing region of the world and solidifies our North American strategy by potentially having a stake in a producer in the near term. As the minerals sector in Australia continues to face headwinds particularly with ever increasing costs and regulatory burdens to the detriment of the sector, new opportunities in offshore destinations must be sort out by companies like Silver Mines. To this end SVL made a strategic decision in late 2013 to target North America as a highly prospective, lower cost environment to expand our project portfolio. This opportunity in Mexico, the largest silver producing nation in the World, augers well in realising our strategy and provides the Company with renewed focus to grow.

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About the Project

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 licenses some of which are currently being exploited. There are currently no JORC (2102) mineral resources on any of the licenses.

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Figure 1 – Veta Grande Plant site.

The plant (Figure 1) has an annual throughput estimated to be 125 000 tonnes, based on preliminary information provided by the owners and operators, and is capable of producing base and precious metal concentrates containing silver, gold, lead and zinc. Further detail on the production from the plant as well as input head grades, recoveries and costs will be reviewed during the coming 90 day exclusive due diligence period, as well as all available technical, financial and legal information relating to the project so that SVL can make a fully informed decision.

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The Zacatecas Mining District covers a belt of epithermal deposits that contain silver, gold and base metals (lead, zinc and copper) located in the southern Sierra Madre Occidental physiographic Province in north‐central Mexico. The Zacatecas Mining District occurs in a structurally complex setting, associated with siliceous sub‐volcanic and volcanic rocks underlain by sedimentary and meta‐sedimentary rocks.

The geologic units of the Zacatecas area include Triassic meta‐sedimentary rocks of the Zacatecas Formation and overlying basic volcanic rocks and intercalated meta‐ sediments of the Upper Jurassic or Lower Cretaceous Chilitos Formation.

Figure 2 ‐ The Veta Grande vein system relative to other regional mineralised trends.

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The dominant structural features that localize mineralization are of Tertiary age, and are interpreted to be related to the development of a volcanic centre and to northerly trending basin‐and‐range structures.

The Veta Grande is a classic epithermal silver‐gold deposit. In colonial times, only the richest portions of the oxidized veins were mined, however, later sulphide mineralization was also exploited. Metal distribution in the veins varies, however the Veta Grande system is predominately silver bearing with gold and base metals, and many parts of the extensive vein system remain under explored, particularly with modern methods and drilling.

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Figure 3 – exploration and mining leases adjacent to plant site, which form part of the project portfolio.

The silver‐base metal systems are hosted by remarkably long veins with an orientation of N 45° to 85° W, and dips of 50° to 70° SW and 65° to 75° NE. The veins occasionally display a horsetail structure, while others form zones of sheeted, essentially parallel, stingers of variable thickness along with stockwork type zones. The lengths of the main veins vary from 4 to 16 km, with widths of <1m up to 30m. The exploration leases included in the package under review contain a 4km long continuous stretch of the known vein system (Figure 3).

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About Mexico

Mexico is the leading producer of silver in the world, a position it has held for the last four (4) years. The state of Zacatecas, in central Mexico (Figure 4), where SVL is focused, is the number one producer of silver in Mexico, with 42.2% of the total national production. Zacatecas is also Mexico’s leading producer of lead, zinc and cadmium and is an important producer of copper and gold.

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Figure 4 – the State of Zacatecas and its proximity to major centres.

Zacatecas is home to one of the largest producing primary silver mines in the world, the Fresnillo Mine, owned by Fresnillo plc, which produced 22.8 million ounces of silver in 2013. Information provided by the Zacatecas State Government highlights the tremendous exploration opportunity which exists with over 60% of the state still un‐pegged for exploration.

The USGS 2011 Country Report on Mexico highlights the importance of the minerals sector to the national economy and the legal framework that exists whereby “ natural resources, and minerals in particular, are considered part of the national patrimony of Mexico under its Constitution. The law allows a 100% private equity ownership stake in the exploration, production, and development of mineral resources ”.

According to a report published by Deloitte (2012) on the Mining Industry in Mexico, the country ranks fourth (4[th] ) in the world for mining investment attraction and is first in Latin America. Foreign investment in mining and exploration in Mexico is dominated by Canadian explorers and miners with Australian companies accounting for a very small proportion of foreigners active in the country and SVL considers this to offer a very attractive opportunity.

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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