SOUTHERN HEMISPHERE MINING LIMITED — Management Reports 2011

Sep 29, 2011

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ASX: SUH TSX-V: SH

Australian Office: Southern Hemisphere Mining Limited PO Box 598 T: +61 8 9481 2122 West Perth F: +61 8 9481 2322 WA 6872 www.shmining.com.au

Chilean Office: Minera Hemisferio Sur SCM Unit 1103 Roger de Flor 2907 Los Condes, Santiago

29 September 2011

Australian Securities Exchange Level 8 Exchange Plaza 2 The Esplanade PERTH WA 6000

Dear Sir/Madam

2011 Annual Management Discussion and Analysis (“MD&A”)

Please refer below for the 2011 Annual MD&A of Southern Hemisphere Mining Limited, as issued in Canada.

This document should be read in conjunction with the 2011 Annual Information Form and the Consolidated Audited Financial Statements for the year ended 30 June 2011.

Yours faithfully

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Derek Hall

Company Secretary

SOUTHERN HEMISPHERE MINING LIMITED

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2011

(All amounts stated in United States dollars, unless otherwise indicated)

This MD&A contains certain “Forward-Looking Statements”, which are prospective and reflect management’s expectations regarding Southern Hemisphere Mining Limited’s (“SHM”, “Southern Hemisphere” or the “Company”) future growth, results of operations, performance and business prospects and opportunities. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “intend”, “estimate”, “may” and “will” or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. All statements, other than statements of historical fact, included herein, including without limitation statements regarding potential mineralization and reserves, estimates of future production, unit costs, costs of capital projects and timing of commencement of operations, exploration results and future plans and objectives of SHM are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from SHM’s expectations are disclosed in its documents filed from time to time with the TSX Venture Exchange and other regulatory authorities and include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore to be mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors.

Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. SHM undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

SOUTHERN HEMISPHERE MINING LIMITED

Background

This discussion and analysis of consolidated operating results and financial condition is prepared as at September 28, 2011, and should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended June 30, 2011 of the Company. Those consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). This management discussion and analysis (“MD&A”) has been prepared in United States dollars, except where otherwise indicated by reference to Canadian dollars (“CAD”), Australian dollars (“AUD”) or Chilean pesos (“CLP”). Additional information relevant to the Company’s activities can be found on SEDAR at sedar.com.

Company Overview

The Company’s common shares trade on the Toronto Stock Exchange – Venture (“TSX-V”) under the symbol “SH” and on the Australian Securities Exchange (“ASX”) under the symbol “SUH”.

The Registered Office of the Company is located at Suite 1750, 1185 West Georgia Street, Vancouver, British Columbia, Canada V6E 4E6. Operations are managed from the Company’s office located at Suite 7, 1200 Hay Street, West Perth, Western Australia, Australia. The Company also maintains an office in Santiago, Chile.

The Company is an exploration and mine development company focused on properties in Chile with the stated strategy of creating shareholder value through the discovery and exploitation of mineral deposits.

The Company has previously identified Los Pumas, a manganese project located in northern Chile, as having potential for development and also has 13 exploration projects, principally prospective for porphyry style copper/copper-gold targets at:

• Belen, approximately 50 km south of the Los Pumas project.

• Chitigua, which is north of the city of Calama, and Meteoritica and Carbonera which are north of BHP’s Spence mine.

• A Central Cluster of concessions, which are within a 50 kms radius of each other to the north and the south of the provincial capital of La Serena.

• The Mantos Grandes project near the town of Ovalle, and the Cunlagua and Las Santas projects close to Antofagasta Mineral’s Los Pelambres mine.

• The San Jose project that is east of the city of Chillan.

In April 2011, the Company completed the purchase of the Arenas Del Sur (“Chanco”) concessions from a related party, Centralian Mining Pty Ltd, by the issue of 1,301,700 common shares of the Company. The concessions are situated within the coastal plain of Central Chile and are prospective for iron sands. A press release dated November 11, 2010 detailing this acquisition was lodged on SEDAR.

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Since the financial year end, the Company has entered into an option agreement to purchase the Llahuin Amapola copper/gold properties. Refer to the news releases lodged on SEDAR July 13, 2011 and July 14, 2011 detailing this acquisition.

Corporate Update

In January 2011, the Company announced the withdrawal of its Los Pumas Environmental Impact Declaration to be replaced by an Environmental Impact Statement (“EIS”). The EIS was lodged in August 2011 with the Arica Regional Committee. Approval is expected in the 1st Quarter of 2012. Refer to the news release lodged on SEDAR January 26, 2011 for further details.

In February 2011, the Company announced positive Preliminary Assessment results for the Los Pumas Project, which were predicated on the basis of a sale price, substantially higher than recently reported prices for manganese ore sales into China and a USD/CLP foreign exchange rate higher than current rates. Refer to the news release lodged on SEDAR February 8, 2011 for further details.

The Company is currently focusing its exploration activities on the Chitigua project, north of Calama and the newly acquired Llahuin project.

Previous Financings

On October 27, 2010, the Company announced the successful completion of a capital raising which was approved by shareholders. The capital raising, comprising the issue of approximately 47.6 million new fully paid ordinary shares at a price of AUD$0.42 per share to raise AUD$20 million before costs, was made to institutional and sophisticated investors in three tranches. These funds are intended to fund a two year exploration program on the Company’s copper / gold concessions as well as front end engineering on the Los Pumas Manganese project and exploration of the Company’s iron sands project. The progress of the Company with respect to these milestones is set out in the “Project Update” below. The funds applied to date have been used for these purposes and are detailed in Note 4 of the June 30, 2011 consolidated financial statements.

Project Update

Minera Hemisferio Sur SCM (“MHS”)

The Company’s wholly owned Chilean subsidiary, MHS, holds the rights to three project areas being:

• Los Pumas

• Chanco

• Belen

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Los Pumas

The Los Pumas Manganese Project in northern Chile has been the main focus of the Company’s exploration and development activities over the last two years. It is located 175 km inland from the port of Arica and is a multiple layered tabular style occurrence with a surface expression over 3.6 km in length. It is the subject of a completed preliminary assessment and awaits environmental approvals, water supply agreements and completion of final pit plans, ongoing testwork and a Feasibility Study..

The Company has undertaken several drilling campaigns on this project and at the end of June 2010 had completed 14,204 metres of Reverse Circulation (“RC”) drilling in 487 holes. In addition to the RC drilling, 652 metres of diamond core drilling has been completed. A program of bulk sampling started in March 2010 with the commencement of the sinking of the first of a series of four winzes. The four winzes have been completed providing approximately 300 tonnes of sample material. Selected samples have been sent to Mintek in Johannesburg for beneficiation test work. Results from the beneficiation test work indicate that the bulk of the Los Pumas mineralisation is amenable to concentration using heavy media separation.

During March 2011, Coffey Mining delivered an Updated Resource Estimate which increased the total measured and indicated resources to 18.3 million tonnes at the slightly lower grade of 7.58% Mn consisting of a measured resource of 5.27 million tonnes at a grade of 7.39% Mn, and an indicated resource of 13.06 million tonnes at a grade of 7.65% Mn. Also reported was an inferred resource of 5.39 million tonnes at a grade of 8.59% Mn. The Updated Resource Estimate was lodged on SEDAR March 25, 2011.

An easement agreement with the local community over the use of their land for the Project has been executed. Agreement has also been reached with the local community owners of land for the Company to purchase water. The water agreement is still however the subject of examination by the judicial system in Chile.

On August 3, 2010, following the advice of the Corporation’s environmental consultants, the Company lodged an Environmental Impact Declaration with the Region XV Committee in Arica, However, as reported in the Company’s news release lodged on SEDAR January 25, 2011, following recent successful challenges by indigenous communities in the Chilean Supreme Court, of other parties’ approved Environmental Impact Declarations, it was decided that it would be prudent for the Company to withdraw its Environmental Impact Declaration and substitute it with an Environmental Impact Statement (EIS). The amended (EIS) was lodged in August 2011 with the Arica Regional Committee. Approval is expected in the 1st Quarter of 2012.

Further heavy media separation metallurgical test work is currently being undertaken by Transmin Metallurgical Consultants in Lima, Peru with results expected during the 4th Quarter of 2011.

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Work is continuing on the Los Pumas Project, however, the current manganese market conditions have reduced the priority of the Project in the Company’s plans. Accordingly, the Feasibility Study has been delayed but will continue to be progressed in line with the testwork results and EIS approval.

Chanco

The Company received shareholder approval at shareholder meetings on November 25, 2010 and April 18, 2011 to complete the purchase of the iron sands properties by issuing 1,301,700 shares of the Company to the vendor, Centralian Mining Pty Ltd. This was a related party transaction.

The iron sands project includes three concession areas, located over a distance of 175 kms, along the Chilean coast, which include coastal dunes and inland backdunes. These locations are centered on the districts of Chanco in the south, Constitution in the center and Litueche in the north.

Preliminary investigations suggest that the magnetite concentrates have high titanium and contaminant levels which may limit use as a steel feedstock. Further beneficiation appears necessary to produce titaniferous magnetite approaching suitable specifications for steel making.

Further exploration is justified to examine the overall heavy mineral grades, the mineral assemblage and the iron content of magnetite concentrates

Belen

The Belen prospect is located 45 kms south of the administrative centre of Putre in the Arica and Parinacota Region and covers an area of approximately 16 square kilometres. Minimal activities were carried out on the Belen project in the year ended June 30, 2011.

Minera Pacifico Sur SCM (“MPS”)

The Company’s wholly owned Chilean subsidiary, MPS, holds the rights to three project areas being:

• El Arrayan

• San Jose

• Las Santas

El Arrayan

The El Arrayan Project concessions are located in the Province of Elqui, which is part of Chile’s Region IV, and are only 37km south east from the regional capital of La Serena and neighbouring major port of Coquimbo.

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SOUTHERN HEMISPHERE MINING LIMITED

The concession area covers approximately 59 square kilometres and is just 15km north-northeast from the Andacollo porphyry copper mine, which is owned by Teck Cominco.

The El Arrayan Project lies within the Coastal Cordillera of north-east Chile in a north-northwest trending structural corridor, that extends for some 150km from south of Andacollo to Los Choros Creek in the north.

The Company completed underground channel sampling, at El Arrayan, from gallery walls and backs approximately 50 metres below surface. Refer to the news release lodged on SEDAR November 10, 2010 for details and analysis results.

The Company reported the results for the first six holes of an RC drilling program which commenced mid December 2010. Refer to the news release lodged on SEDAR February 16, 2011 for details and analysis results.

The Company reported the results for the final four holes of the El Arrayan RC drilling program. Refer to the news release lodged on SEDAR April 15, 2011 for details and analysis results.

Six of the ten holes intersected copper oxides within an andesitic host rock and the best drilling results from drilling program was 26 metres @ 1.54% Cu from 86 metres.

San Jose

Minimal activities were carried out on the San Jose project in the year ended June 30, 2011.

Las Santas

Minimal activities were carried out on the Las Santas project in the year ended June 30, 2011.

Sociedad Servicios E Inversiones Futuro Limitada (“FUT”)

The Company’s wholly owned Chilean subsidiary, FUT holds the legal title to concessions known as the Mantos Grandes project.

In the last quarter of 2010, as part of preparatory exploration field work prior to the commencement of drilling, Southern Hemisphere undertook sampling of underground galleries at the La Demonia site at the Mantos Grandes Project, which is located 85kms by road from the city of Ovalle and approximately 90kms south-east of La Serena.

Underground galleries at the La Demonia site were assessed and channel samples taken along the wall and backs of these headings, which are approximately 35 metres below the surface. These samples were submitted to Andes Analytical Assay Laboratory for analysis.

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SOUTHERN HEMISPHERE MINING LIMITED

The assay results produced a length weighted average grade from the samples of 4.58 g/t Au and 1.56% Cu. The highest copper grade was recorded from sample D20, which contained 4.58% Cu over a four metre interval and the highest gold grade was 14.0 g/t Au over a three metre interval.

Refer to the new release lodged on SEDAR November 10, 2010 for full sampling results.

Minera Panamericana SCM (“MPAM”)

The Company’s wholly owned Chilean subsidiary, MPAM holds legal title to a number of concessions which includes the Chitigua, Santa Gracia, Chacay and Llahuin projects.

Chitigua

The Chitigua project is located on the highly prospective western fault, north of the El Abra mine and south of the Quebrada Blanca Mine. This metallogenic zone includes the Chuquicamata and Escondida mines.

The Chitigua concession covers an area of approximately 200 square kilometres and is located 90 km north of Calama. Access is via the city of Calama that services Codelco’s Chuquicamata, RT, MM and Gaby mines and the El Abra mine.

In April 2010 the Company completed a 420m diamond drill hole and commenced an RC drilling program.

By the end of June 2011 two zones at Chitigua; the Breccia zone and the Church zone, had been drill tested. These zones are 6km apart and are adjacent to the Western Fault. In the Breccia zone five holes were drilled, comprising two diamond drill holes and three RC holes. In the Church zone three holes were drilled, comprising one diamond drill hole and two RC holes. A surface trench to the north east of the drill holes was also sampled.

Refer to the new release lodged on SEDAR November 10, 2010 for full details of these drilling programs and analysis results.

Highlights of the drilling program included 46m @ 0.4% Cu from 3m and 23m @ 0.41% Cu from 63m.

Drilling has been hampered by winter weather conditions and mechanical issues with the drilling equipment. Since the end of the reporting period other drill rigs have been engaged and are expected to begin operations in September.

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Santa Gracia

The Santa Gracia project covers a concession area of 35 square kilometres and is part of the Central Cluster of concessions close to the city of La Serena. These concessions cover two artisanal mines, La Cuyana and San Sebastian, which exploited a copper porphyry. A drilling program has returned low grade results lowering its priority in the Company’s overall strategy.

El Chacay

The El Chacay gold project covers an area of approximately 90 square kilometres and is contiguous with the Santa Gracia concessions. The project is located 30 km from the city of La Serena.

Extensive near-surface artisanal mining activities have been undertaken in the area with selective exploitation of high-grade veins. The Company is testing the opportunity for a large tonnage, low grade gold resource in this area.

Two near-surface trenches have been excavated using a bulldozer and channel samples extracted over the entire lengths of these trenches. The second trench returned the most encouraging results with the whole trench having a cross strike distance of 36.4m averaging a grade of 0.33g/t. Refer to the new release lodged on SEDAR April 15, 2011 for full details of the trenching sample analysis results.

Llahuin

The Llahuin Amapola Group concessions (“Llahuin Project”) are located near the city of Illapel, 250 kms north of Santiago. The Llahuin Project consists of four discrete Exploitation Licences covering an area of 772 hectares.

Along with Chitigua, the Llahuin Project is currently the Company’s main focus with results to date confirming the presence of a large-scale porphyry copper-gold system. The results have prompted the Company to move directly to a resource drilling program.

Refer to the new releases lodged on SEDAR July 18, 2011 and August 18, 2011 for detailed analysis results.

Minera America del Sur SCM (“MSAM”)

The Company’s wholly owned Chilean subsidiary, MSAM holds legal title to a number of concessions, which include the Tres Cruces and Cunlagua projects.

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Tres Cruces

The Tres Cruces project is located on concessions covering an area of approximately 60 square kilometres and is situated 73 kms from the provincial capital of La Serena. It is part of the Central Cluster and is situated within the Coastal Cordillera of north–central Chile.

The target at Tres Cruces is mantle type deposits that are higher grade. 13 RC drill holes were completed prior to June 30, 2011. Some of the holes intercepted mantle style mineralisation but the grades were generally low. While the Company has only completed first-pass scout drilling, the results did not demonstrate sufficient consistency therefore the priority attached to this project has been lowered. Refer to the new release lodged on SEDAR July 8, 2011 for detailed analysis results.

During the year ended June 30, 2011, there was minimal activity on the other MSAM projects, being Carboneras, Romeral (Juan Soldado) and Cunlagua projects.

Future Developments

The main focus of the Company in the coming months will be to carry out further IP (Induced Polarization and Resistivity) surveys and a resource drilling campaign on both the Llahuin project, where a JORC resource is targeted for the calendar year end, and the Chitigua project

In terms of the El Arrayan project, the Company will be looking to acquire surrounding concessions in order to increase prospective areas and project scale.

On the Los Pumas project, the Company will progress the Environmental Impact Statement, approval of which is expected during the first quarter of 2012 and also finalise the Feasibility Study, which is timed to complete with the environmental approval.

Selected Financial Data

The following selected financial information is derived from the consolidated financial statements of the Company.

Results of Operations:

Income Expenses_(1)_ Net loss Dividends per share Basic and diluted loss per share	Year ended June 30, 2011 Year ended June 30, 2010 Year ended June 30, 2009 $ $ $
	670,176 153,996 39,219 4,219,577 1,647,340 727,148 3,549,401 1,493,343 687,929 Nil Nil Nil (0.028) (0.020) (0.020)

(1) Expense are shown net of foreign exchange differences. Historical results have been converted to $USD.

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SOUTHERN HEMISPHERE MINING LIMITED

During the year ended June 30, 2011 the Company reported a net loss of $3,549,401 compared to a net loss of $1,493,343 in 2010. Specific expenses of note during the year ended June 30, 2011 include: - 1) Salaries & Wages ($1,172,332) which have increased as a result of the strengthening of corporate staff levels in Australia. The increase is primarily attributable to engaging two of the directors as full time employees effective from the date of the Company’s listing on the ASX, which occurred part way through the previous year. 2) Write off of Chilean VAT tax receivable ($828,952), a tax credit recognised within the Chilean subsidiaries as a result of exploration activities. This tax credit is recoverable in future periods offsetting profitable operations. However, as this tax credit is recoverable at a currently indeterminable point in the future, the amount has been written off. If in the future, the credit is recovered, then this write off would be reversed. 3) Stock based compensation ($623,023) resulting from the issuance of options during the period with a value determined using the Black-Scholes option pricing model. 4) Professional fees ($560,966) including tax advice and concession manager costs. Over the year, more concessions were taken on by the Company and therefore more costs were incurred in maintaining the land holdings.

As the Company is in the exploration stage of evaluating mineral interests it has no revenue. Interest income is generated from cash on deposit with financial institutions. Funds held during the year increased significantly with the completion of the capital raising and so interest income also rose.

The following is a summary of certain consolidated financial information concerning the Company for each of the last eight reported quarters:

Income Expenses Net Loss Basic and diluted loss per share	30 Jun 11 $ 30 Mar 11 $ 31 Dec 10 $ 30 Sep 10 $ 30 Jun 10 $ 31 Mar 10 $ 31 Dec 09 $ 30 Sep 09 $
	345,562 230,164 52,748 41,702 65,699 61,903 17,878 10,675 2,405,915 574,991 597,769 640,902 332,716 857,685 340,716 131,226 2,060,353 344,827 545,021 599,200 267,017 795,782 322,837 120,551 (0.015) (0.002) (0.005) (0.006) (0.005) (0.008) (0.005) (0.002)

Financial Condition:

Financial Condition:
Working capital Total assets Total liabilities Deficit	June 30, 2011 June 30, 2010 June 30, 2009 $ $ $
	16,102,812 3,725,830 372,481 37,448,248 16,587,142 6,317,079 461,326 166,722 596,265 (7,591,865) (4,042,464) (2,549,120)

Mineral exploration costs comprise the bulk of the Company’s expenditures. The cumulative costs of exploration expenditures capitalised for each project are set out in Note 4 of the June 30, 2011 consolidated financial statements. Details of exploration activities conducted during the year are described in “Project Update” in this MD&A.

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Liquidity and Capital Resources:

At June 30, 2011, the Company had a net working capital balance of $16,102,812 including cash and cash equivalents of $16,456,189. The following table summarizes the Company’s cash and cash equivalents on hand, cash flows and contributed surplus for the years ended June 30, 2011, June 30, 2010 and June 30, 2009.

Cash and cash equivalents Cash used in operating activities Cash used in investing activities Cash used in / (provided by) financing activities	June 30, 2011 June 30, 2010 June 30, 2009 $ $ $
	16,456,189 3,873,703 481,659 1,488,937 1,483,221 670,302 6,602,300 4,670,752 1,555,231 (20,202,745) (9,206,593) (1,341,059)

The Company believes that it currently has sufficient financial resources to conduct anticipated exploration programs and meet anticipated corporate administration costs for the upcoming twelve months. However, exploration activities may change due to ongoing results and recommendations, or the Company may acquire additional properties, which may entail significant funding or exploration commitments. In the event that the occasion arises, the Company may be required to obtain additional financing. The Company has no debt and has relied solely on equity financing to raise the requisite financial resources. While it has been successful in the past, there can be no assurance that the Company will be successful in raising future financing should the need arise.

Dividends

The Company has not paid any dividends in the past and does not anticipate paying dividends in the near future.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Proposed Transactions

The Company has no proposed transactions.

Changes in Accounting Policies

Please refer to the audited consolidated financial statements as at and for the year ended June 30, 2011 lodged on SEDAR for a complete description of the Company’s critical accounting policies.

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International Financial Reporting Standards (“IFRS”)

In February 2008, the Canadian Accounting Standards Board announced 2011 as the changeover date for publicly listed companies to use IFRS, replacing Canadian GAAP. The specific implementation is set for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The effective date for the Company will be July 1, 2011 however it will require the restatement for the June 30, 2011 financial information for comparative purposes.

The Company has developed an IFRS changeover plan which addresses key areas such as accounting policies, financial reporting, information systems, disclosure controls and procedures and other business activities. As part of this changeover plan, the Company is currently identifying differences in accounting policies on an ongoing basis as compared to choices that are in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards.

As the Company is in the exploration stage, it is not anticipated that the any changes in accounting policies will materially impact on the Company’s financial operating results, though there may be an impact in terms of disclosure and presentation.

The Company reviewed its existing accounting system along with its internal and disclosure control process and concluded that they would not need significant modification as a result of the Company’s conversion to IFRS.

The Company has determined that it would rely on certain exemptions allowed under IFRS 1 “First-time Adoption of International Financial Reporting Standards” as of the transition date. Under IFRS 1, the IFRS standards are applied retrospectively at the transitional balance sheet date with all adjustments to assets and liabilities taken to retained earnings unless certain exemptions are applied. The Company intends to apply the following exemptions to its opening balance sheet.

• 1) Business Combinations

• IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 Business Combination retrospectively to business combinations that occurred before the date of transition to IFRS. The Company will take advantage of this election and will apply IFRS 3 to business combinations that occurred on or after July 1, 2011. There is no adjustment required to the financial statements on the transition date.

• 2) IAS 27 – Consolidated and Separate Financial Statements In accordance with IFRS 1, if a company elects to apply IFRS 3 Business Combinations retrospectively, IAS 27 Consolidated and Separate Financial Statements must also be applied retrospectively. As the Company elected to apply IFRS 3 prospectively, the Company has also elected to apply IAS 27 prospectively. Therefore, there is no change to the financial statements on the transition date.

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The Company will meet its IFRS reporting requirements for its transition date.

Critical Accounting Policies and Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of any contingent assets and liabilities as at the date of the financial statements, as well as the reported amounts of revenues earned and expenses incurred during the year. These estimates are based on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. Significant areas where management judgement is applied include recoverability of resource properties, valuation of options and warrants and the ability to continue as a going concern. In the opinion of management, all adjustments necessary for fair presentation of the results for the periods presented are reflected in the June 30, 2011 consolidated financial statements.

The Company’s significant accounting policies are those that affect the financial statements and are summarized in the notes to the consolidated financial statements for the year ended June 30, 2011.

Transactions with Related Parties

• 1) During the year ended June 30, 2011 the Company had certain arrangements in place with related parties to provide administrative, accounting, and management services that the Company required. These services are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the Company and the related parties.

Andes Consulting Pty Ltd - $38,073 Plough Lane Superannuation Pty Ltd - $3,593

Andes Consulting Pty Ltd is an Australian incorporated company controlled by a previous director and shareholder of the Company. Non-executive directors’ fees were paid to the company on a monthly basis.

Plough Lane Superannuation Pty Ltd is an Australian incorporated company controlled by a director of the Company. Superannuation contributions are made to the company on a monthly basis.

• 2) The Company has purchased a number of concessions from Centralian Mining Pty Ltd, an Australian incorporated company controlled by directors Trevor Tennant, James Pearson and former director Eduardo Valenzuela. These concessions are considered prospective for the production of iron from sands. The consideration paid to Centralian Mining Pty Ltd under this agreement was $735,094 in the form of 1,301,700 shares in the Company. These shares have been issued to Centralian Mining Pty Ltd.

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Risks & Uncertainties

The Company is subject to a number of risk factors due to the nature of the mining business in which it is engaged, not least are adverse movements in commodity prices, which are impossible to forecast. The Company seeks to counter this risk, as far as possible, by selecting exploration areas on the basis of their recognised geological potential to host economic deposits.

Nature of Mineral Exploration and Mining

The Company is engaged in a business that involves a variety of operational, financial and regulatory risks that are typical in the natural resource industry.

The Company attempts to mitigate these risks and minimize their effect on its financial performance, but there is no guarantee that the Company will be profitable in the future, and the shares of the Company should be considered speculative in nature.

The business of exploring for manganese, gold and copper involves a high degree of risk. Few properties that are explored are ultimately developed into mines. Southern Hemisphere Mining Limited’s properties are in the exploration or feasibility stage, and at present none of the Company’s properties have a known commercial manganese, gold or copper deposit. Proposed exploration programs are an exploratory search for such deposits. The long term profitability of the Company’s operations will be in part directly related to the cost and success of its exploration programs, which may be affected by a number of factors that are beyond the control of the Company.

In the event that the Company is fortunate enough to discover a manganese, gold or copper deposit, the economics of commercial production depend on many factors, including the cost of operations, the size and quality of the deposit, the proximity to infrastructure, financing costs and Government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use and environmental protection. The effects of these factors cannot be accurately predicted, but any combination of these factors could adversely affect the economics of commencement or continuation of commercial production.

The profitability of the Company’s operations will be dependent, inter alia, on the market price of its products. Prices are affected by numerous factors beyond the control of the Company, including international economic and political conditions, levels of supply and demand, and international currency exchange rates.

Additional risks relevant to the Company are set out in the Company’s 2011 Annual Information Form

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Outstanding Share Data

The Company’s authorized share capital is unlimited common shares without a par value. As at September 28, 2011 there were 153,025,821 issued and outstanding common shares. In addition, there were 12,448,396 stock options outstanding, at exercise prices ranging from CAD$0.20 to AUD$0.54. Details of common shares issued during the year are disclosed in full in Note 7 of the June 30, 2011 consolidated financial statements.

Escrowed Shares

At June 30, 2011, the Company had no shares in escrow on the TSX and 1,301,700 CDIs in escrow on the ASX in relation to the Centralian transaction referred to above.

Licences and Permits, Laws and regulations

The activities of the Company require permits from various government authorities, and are subject to Chilean national and provincial laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health and safety standards, mine safety standards and other matters. Such laws and regulations are subject to change, can become more stringent and compliance can therefore become more costly.

Southern Hemisphere Mining Limited draws on the expertise and commitment of its management team, their advisors, its employees and contractors to ensure compliance with current laws and fosters a climate of open communication and co-operation with all regulatory bodies.

The Company believes that it holds all necessary licences to complete the exploration activities, and will receive all necessary permits under applicable laws and regulations, and believes it is presently complying in all material respects with the terms of such licences and permits. There is no assurance that future changes in such regulation, if any, will not adversely affect the Company’s operations. To the extent such approvals are sought and not obtained, the Company’s planned exploration and development activities may be delayed, curtailed, or cancelled entirely.

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that material information is gathered and reported to senior management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to permit timely decisions regarding public disclosure.

Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that the Company’s disclosure controls and procedures, as defined in Multilateral Instrument 52-109 – Certification of Disclosure in Issuer’s Annual and Interim Filings, are effective to ensure that the information required to be disclosed in reports that are filed or

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SOUTHERN HEMISPHERE MINING LIMITED

submitted under Canadian Securities legislation are recorded, processed, summarized and reported within the time period specified in those rules. In conducting the evaluation it has become apparent that management relies upon certain informal procedures and communication, and upon “hands on” knowledge of senior management. Management intends to formalize certain of its procedures. Due to the small staff, however, the Company will continue to rely on an active Board and management with open lines of communication to maintain the effectiveness of the Company’s disclosure controls and procedures. Lapses in the disclosure controls and procedures could occur and/or mistakes could happen. Should such occur, the Company will take whatever steps necessary to minimize the consequences thereof.

Internal Controls and Procedures over Financial Reporting

Internal control over financial reporting (“ICFR”) is designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and its compliance with GAAP in its financial statements. The Chief Executive Officer and the Chief Financial Officer have evaluated whether there were changes to the Company’s ICFR during the year ended June 30, 2011 that have materially affected, or that are reasonably likely to materially affect, its ICFR. No such changes were identified through their evaluation.

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