CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

FOR THE YEAR ENDED DECEMBER 31, 2011

SILVERCREST MINES INC.

Table of Contents

	Page
Independent Auditors’ Report	2
Consolidated Statements of Financial Position	3
Consolidated Statements of Operations and Comprehensive Earnings (Loss)	4
Consolidated Statements of Cash Flows	5
Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)	6
Notes to the Consolidated Financial Statements	7 – 35

1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
SilverCrest Mines Inc.

We have audited the accompanying consolidated financial statements of SilverCrest Mines Inc., which comprise the consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1, 2010 and the consolidated statements of operations and comprehensive earnings (loss), cash flows and changes in shareholders’ equity (deficiency) for the years ended December 31, 2011 and 2010, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of SilverCrest Mines Inc. as at December 31, 2011, December 31, 2010 and January 1, 2010 and its financial performance and its cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

“DAVIDSON & COMPANY LLP”

Chartered Accountants

Vancouver, Canada
April 5, 2012

SILVERCREST MINES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in United States Dollars)

AS AT
		December 31, 2011			December 31, 2010			January 1, 2010
					(Note 4	)		(Note 4	)
ASSETS
Current Assets
Cash and cash equivalents	$	9,740,274		$	9,034,623		$	13,157,336
Designated cash (note 11)		1,450,000			-			-
Short term investments		14,749,500			-			-
Amounts receivable		541,104			131,063			24,949
Prepaid expenses		259,881			63,028			33,494
Held-for-trading securities		-			-			1,872,780
Inventory (note 6)		9,293,761			420,304			-
		36,034,520			9,649,018			15,088,559
Non-Current Assets
Taxes receivable		3,442,815			1,216,977			662,448
Property, plant and equipment (note 7)		32,848,898			37,345,601			21,462,252
Exploration and evaluation assets (note 8)		4,352,304			1,729,003			1,234,333
TOTAL ASSETS	$	76,678,537		$	49,940,599		$	38,447,592
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
Current Liabilities
Accounts payable and accrued liabilities	$	3,654,887		$	1,389,500		$	443,424
Current portion of long term debt (note 11)		-			7,319,906			-
Derivative instruments (note 12)		5,722,320			8,527,509			221,214
Deferred revenue (note 9)		2,565,084			1,739,431			-
		11,942,291			18,976,346			664,638
Non-Current Liabilities
Asset retirement obligations (note 10)		3,025,742			1,486,482			539,019
Deferred revenue (note 9)		8,999,539			11,629,543			13,433,129
Deferred tax liability (note 21)		364,000			-			-
Long term debt (note 11)		-			4,134,836			5,374,648
Derivative instruments (note 12)		18,141,887			19,941,334			9,900,994
		30,531,168			37,192,195			29,247,790
Total Liabilities		42,473,459			56,168,541			29,912,428
Shareholders’ Equity (Deficiency)
Capital stock (note 13)		64,229,007			33,630,810			28,600,783
Reserves (note 13)		5,066,791			3,665,997			3,590,038
Accumulated comprehensive loss		(2,059,568	)		(1,037,178	)		-
Deficit		(33,031,152	)		(42,487,571	)		(23,655,657	)
		34,205,078			(6,227,942	)		8,535,164
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)	$	76,678,537		$	49,940,599		$	38,447,592
Nature and continuance of operations (note 1)
Subsequent events (note 23)
Approved by the Board and authorized for issue on April 5, 2012.

“J. Scott Drever”     Director “Barney Magnusson”     Director

The accompanying notes are an integral part of these consolidated financial statements.

3

SILVERCREST MINES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS)
(Expressed in United States Dollars)

YEARS ENDED DECEMBER 31,		2011			2010
					(Note 4	)
Revenues (note 14)	$	41,870,124		$	-
Cost of sales (note 15)		(9,526,888	)		-
Depletion, depreciation and accretion		(3,386,674	)		-
Mine operating earnings		28,956,562			-
Income (expenses)
General and administrative (note 16, 18 )		(4,093,438	)		(1,949,220	)
Share-based compensation (note 13)		(1,573,322	)		(463,020	)
Foreign exchange gain		167,815			1,493,798
Interest income		243,247			30,395
Finance costs		(1,397,488	)		-
Gain on held-for-trading securities		-			613,319
Loss on derivative instruments (note 12)		(11,497,957	)		(18,694,631	)
		(18,151,143	)		(18,969,359	)
Income (loss) before taxes		10,805,419			(18,969,359	)
Taxes
Current income tax expense (note 21)		(985,000	)		-
Deferred tax expense (note 21)		(364,000	)		-
Net income (loss)		9,456,419			(18,969,359	)
Other comprehensive earnings (loss)
Exchange loss on translation to US Dollars		(1,022,390	)		(1,037,178	)
Comprehensive earnings (loss) for the year	$	8,434,029		$	(20,006,537	)
Earnings (loss) per common share (note 17)
Basic	$	0.11		$	(0.33	)
Diluted	$	0.10		$	(0.33	)

The accompanying notes are an integral part of these consolidated financial statements.

4

SILVERCREST MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)

YEARS ENDED DECEMBER 31,		2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the year	$	9,456,419		$	(18,969,359	)
Items not affecting cash:
Depreciation, depletion and accretion		3,386,673			170,036
Interest income		(243,247	)		(30,395	)
Share-based compensation		1,573,322			463,020
Finance costs		1,397,488			-
Unrealized foreign exchange gain		75,106			(1,340,095	)
Gain on held-for-trading securities		-			(613,319	)
Loss on derivatives (note 12)		11,497,957			18,694,631
Derivative revenue recorded (note 14)		(12,216,947	)		-
Deferred revenue (note 9)		(1,623,397	)		-
Current income tax expense		985,000			-
Deferred tax expense		364,000			-
Cash flows before changes in working capital items		14,652,374			(1,625,481	)
Amounts receivable		(216,225	)		(93,626	)
Taxes receivable		(2,225,838	)		(554,529	)
Prepaid expenses		(195,452	)		(30,706	)
Inventory		(2,993,489	)		(420,304	)
Accounts payable and accrued liabilities		321,128			53,076
Net cash provided by (used in) operating activities		9,342,498			(2,671,570	)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital stock issued		30,924,000			-
Capital stock issuance costs		(2,111,836	)		-
European gold call option settlement (note 12)		(3,020,609	)		-
Warrants exercised		884,700			4,498,245
Stock options exercised		728,805			280,066
Long term debt - proceeds		-			5,700,000
Long term debt - repayment		(12,500,000	)		-
Interest paid		(826,574	)		(514,242	)
Net cash provided by financing activities		14,078,486			9,964,069
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment		(7,286,798	)		(15,259,595	)
Sales of silver and gold capitalized (note 7)		3,810,044			1,537,858
Short term investments		(15,316,500	)		-
Exploration and evaluation		(2,000,563	)		(494,670	)
Held-for-trading securities		-			2,545,970
Interest received		49,745			19,724
Net cash used in investing activities		(20,744,072	)		(11,650,713	)
Impact of exchange rate changes on cash and cash equivalents		(521,261	)		235,501
Change in cash and cash equivalents, during the year		2,155,651			(4,122,713	)
CASH AND CASH EQUIVALENTS, beginning of the year		9,034,623			13,157,336
CASH AND CASH EQUIVALENTS, end of the year	$	11,190,274		$	9,034,623
Cash and cash equivalents is represented by:
Cash	$	1,873,874		$	3,404,383
Cash equivalents		7,866,400			5,630,240
Designated cash		1,450,000			-
	$	11,190,274		$	9,034,623

Supplemental disclosure with respect to cash flows (note 19)
The accompanying notes are an integral part of these consolidated financial statements

5

SILVERCREST MINES INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
(Expressed in United States Dollars)

	Capital Stock					Reserves			Accumulated			Deficit			Total
	Number		Amount			Share-Based			Comprehensive
						Payments			Loss
Balance at January 1, 2010	59,433,929	$	28,600,783		$	3,590,038		$	-		$	(23,655,657	)	$	8,535,164
Warrants exercised	7,016,500		4,599,379			(101,134	)		-			-			4,498,245
Stock options exercised	427,500		428,548			(148,482	)		-			-			280,066
Share issue costs	-		2,100			-			-			-			2,100
Share-based compensation	-		-			463,020			-			-			463,020
Unexercised stock options	-		-			(137,445	)		-			137,445			-
Net loss for the year	-		-			-			-			(18,969,359	)		(18,969,359	)
Currency translation adjustment	-		-			-			(1,037,178	)		-			(1,037,178	)
Balance at December 31, 2010	66,877,929		33,630,810			3,665,997			(1,037,178	)		(42,487,571	)		(6,227,942	)
Warrants exercised	562,500		1,085,475			(200,775	)		-			-			884,700
Fair value of agent warrants	-		(401,550	)		401,550			-			-			-
Stock options exercised	943,750		1,102,108			(373,303	)		-			-			728,805
Issuance of capital stock	18,750,000		30,924,000			-			-			-			30,924,000
Share issuance costs	-		(2,111,836	)		-			-			-			(2,111,836	)
Share-based compensation	-		-			1,573,322			-			-			1,573,322
Net earnings for the year	-		-			-			-			9,456,419			9,456,419
Currency translation adjustment	-		-			-			(1,022,390	)		-			(1,022,390	)
Balance at December 31, 2011	87,134,179	$	64,229,007		$	5,066,791		$	(2,059,568	)	$	(33,031,152	)	$	34,205,078

The accompanying notes are an integral part of these consolidated financial statements

6

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

1.    NATURE AND CONTINUANCE OF OPERATIONS

SilverCrest Mines Inc. (“SilverCrest” or the “Company”) is incorporated under the jurisdiction of the Province of British Columbia, Canada pursuant to the British Columbia Business Corporations Act. All dollar amounts are expressed in United States dollars unless otherwise indicated. The head office and principal address of the Company is 570 Granville Street, Suite 501, Vancouver, BC, Canada, V6C 3P1. The address of the Company’s registered and records office is 19^th Floor, 885 West Georgia Street, Vancouver, BC, Canada, V6C 3E8. SilverCrest is a public Company which is listed on the TSX Venture Exchange (under the symbol SVL) and the OTCQX (under the symbol STVZF).

The Company is engaged in mining at the Santa Elena Mine in Mexico and is involved in related activities including acquisition, exploration, development, extraction, processing and reclamation. The recoverability of the amounts shown for mineral properties and related deferred exploration costs are dependent upon the existence of economically recoverable reserves, successful permitting, the ability of the Company to obtain necessary financing to complete exploration and development of those resources and upon future profitable production. Furthermore, the acquisition of title to mineral properties is a complicated and uncertain process, and while the Company has taken steps in accordance with normal industry standards to verify its title to the mineral properties in which it has an interest, there can be no assurance that such title will ultimately be secured. The carrying amounts of mineral properties are based on costs incurred to date, and do not necessarily represent present or future values.

Commercial production at the Santa Elena Mine commenced on April 1, 2011. The Company is generating cash flow from operations and received $30,924,000 (CAD$30,000,000) from an equity financing (note 13) to assure continuation of the Company’s operations and development programs for the next fiscal year.

YEARS ENDED DECEMBER 31,		2011			2010
Working Capital (Deficiency)	$	24,092,229		$	(9,327,328	)
Deficit	$	(33,031,152	)	$	(42,487,571	)

2.    SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) under the historical cost convention, as modified by revaluation of derivative contracts and certain financial assets.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening IFRS consolidated statement of financial position as at January 1, 2010, for the purpose of the transition. Prior to the adoption of IFRS, SilverCrest’s primary financial statements were prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Disclosure of our elected transition exemptions and reconciliation and explanation of accounting policy differences compared to Canadian GAAP have been provided in Note 4 to these consolidated financial statements.

The accounting policies applied in these consolidated financial statements are based on IFRS in effect as at April 5, 2012, the date the Board of Directors approved these consolidated financial statements for issue.

Basis of Preparation

These consolidated financial statements include the accounts of SilverCrest and its wholly-owned subsidiaries NorCrest Silver Inc., and SVL Minerals Ltd. (both incorporated under the laws of Canada), and Nusantara de Mexico S.A. de C.V., Santa Elena Oro y Plata S.A. de C.V., Minera de Cerro Santo S.A. de C.V., Magellan Exploracion S.A. de C.V. and SilverCrest de Mexico S.A. de C.V. (all incorporated under the laws of Mexico). All intercompany balances, transactions, income and expenses, and profits or losses have been eliminated on consolidation.

SilverCrest consolidates subsidiaries where the Company has the ability to exercise control. Control is achieved when the Company has the power to govern the financial and operating policies of the entity. Control is normally achieved through ownership, directly or indirectly, of more than 50 percent of the voting power. Control can also be achieved through power over more than half of the voting rights by virtue of an agreement with other investors or through the exercise of de facto control.

7

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

		Place of
Company	Ownership%	Incorporation	Principal Activity
NorCrest Silver Inc.	100%	Canada	Holding Company
SVL Minerals Ltd.	100%	Canada	Holding Company
Nusantara de Mexico S.A. de C.V.	100%	Mexico	Santa Elena Mine and Mineral Development
Santa Elena Oro Y Plata S.A. de C.V.	100%	Mexico	Service Company
Minera de Cerro Santo S.A. de C.V.	100%	Mexico	Service Company
Magellan Exploracion S.A. de C.V.	100%	Mexico	Service Company
SilverCrest de Mexico S.A. de C.V.	100%	Mexico	Exploration and Evaluation

Use of Judgments and Estimates

The preparation of these consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts and the valuation of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the year.

These judgments and estimates are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. Actual results may differ from the amounts included in the consolidated financial statements. Information about such judgments and estimates are contained in the accounting policies and/or the notes to these consolidated financial statements, and the key areas are summarized below.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

Estimates of the quantities of proven and probable reserves and the portion of resources considered to be probable of economic extraction, which are used in: the calculation of depletion expense; the capitalization of production phase stripping costs; and, forecasting the timing of the payments related to the asset retirement obligations. SilverCrest estimates ore reserves and mineral resources based on information compiled by qualified persons as defined in accordance with the Canadian Securities Administrators’ National Instrument 43-101 Standards of Disclosure for Mineral Projects requirements;

Estimates of ounces of gold/silver ore in stockpiles and on leach pads that are estimated based on the number of tonnes added, the gold/silver contained therein and the metallurgical recovery rate;

The estimated useful lives of property, plant and equipment, and the measurement of depreciation expense;

The estimated fair values of cash generating units for non-current asset impairment tests;

Recognition of a provision for asset retirement obligations, including the estimation of the rehabilitation costs, timing of expenditures, the impact of changes in discount rates, and changes in environmental and regulatory requirements;

The determination of the Company’s presentation currency being the US Dollar and adoption of IAS 21 “The Effects of Changes in Foreign Exchange Rates”;

The estimation of the tax basis of assets and liabilities and related deferred income tax assets and liabilities, the measurement of income tax expense, and indirect taxes;

The determination of the fair value of derivative instruments, warrants on long-term debt, agent warrants in capital stock, and inputs used in accounting for share-based compensation;

The recoverability of amounts receivable and taxes receivable.

8

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash, cash equivalents and short term investments

Cash and cash equivalents consist of cash on hand and highly liquid investments with maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

Short term investments comprise highly liquid Canadian dollar denominated guaranteed investment certificates with terms to maturity of greater than ninety days but no more than one year. Short term investments are carried at the lower of cost or recoverable amount.

Amounts receivable

Amounts receivable are recorded at face value less any provisions for uncollectable amounts considered necessary.

Taxes receivable

Taxes receivable are comprised of value added taxes in Mexico that the Company has paid.

Inventories

The Company predominantly produces two minerals, silver and gold. Inventories consist of silver and gold in process, finished goods and supplies. These inventories are valued at the lower of cost and net realizable value after consideration of additional processing, refining and transportation costs. For all silver and gold inventories, net realizable value is calculated as with reference to relevant metal prices and estimated costs to complete production into a saleable form.

(i) Silver and gold in process inventory

The recovery of silver and gold is achieved through a heap leaching process. Costs are added to ore on leach pads based on current mining and processing costs, including applicable overhead, and depreciation relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered, based on the lower of cost per ounce of silver and gold and net realizable value.

(ii) Finished goods inventory

Finished goods inventory consists of silver and gold dore bars, and is valued at the lower of cost and net realizable value.

(iii) Supplies inventory

Supplies inventory consists of materials and supplies used in operations such as fuel, explosives, reagents and spare parts. These are valued at the lower of weighted average cost and net realizable value.

The Company records provisions to reduce inventory to net realizable value to reflect changes in economic factors that impact inventory value and to reflect present intentions for the use of slow moving and obsolete supplies inventory. Provisions are reversed to reflect subsequent recoveries in net realizable value where the inventory is still on hand.

Property, plant and equipment

Property, plant and equipment (“PPE”) is stated at cost less accumulated depreciation, depletion and accumulated impairment losses. The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Depreciation and depletion is provided using the straight line method or unit of production over the following terms:

Property, plant and equipment	8 years
Vehicles	4 years
Computer equipment and furniture	3-5 years
Computer software	1 year
Mining assets	Unit of production

An item of PPE is derecognized upon disposal, when held for sale, or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss.

The Company conducts an annual assessment of the residual balances, useful lives and depreciation and depletion methods being used for PPE and any impairment arising from the assessment is recognized in profit or loss.

9

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment

An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.

Commercial and pre-commercial production

Commercial production is deemed to have commenced when management determines that the operational commissioning of major mine and plant components is complete, operating results are being achieved consistently for a period of time, and that there are indicators that these operating results will continue. The Company determines commencement of commercial production based on the following factors, which indicate that planned principal operations have commenced.

a significant portion of plant/mill capacity is achieved;

all facilities are operating at a steady state of production; and

a pre-determined, reasonable period of time has passed;

Prior to achieving commercial production, revenues and related expenses are recognized as a reductions and increases, respectively, to mining assets carrying values included in PPE.

Mine Development Stripping Costs

Stripping costs incurred during the development of a mine are capitalized into PPE. Stripping costs incurred during the commercial production phase are variable production costs that are included in the costs of inventory produced during the period that the stripping costs are incurred, unless the stripping activity can be shown to give rise to future benefits from the mineral property, in which case the stripping costs would be capitalized into PPE.

Future benefits arise when stripping activity increases the future output of the mine by providing access to a new ore body that the previously deferred stripping costs in an area did not give access to. When stripping activities give rise to a future economic benefit, the costs associated with these activities are capitalized into PPE. Capitalized stripping costs are depleted on a unit-of-production basis, using estimated resources as the depletion base.

Borrowing costs

Interest and other financing costs relating to the acquisition, development and construction, and production of qualifying assets are capitalized as construction in progress or in mineral properties until they are complete and available for use, at which time they are transferred to the appropriate category within property, plant and equipment. Borrowing costs incurred after the asset has been placed into service as well as all other borrowing costs are charged to the statement of operations and comprehensive earnings (loss).

Mineral properties and exploration and evaluation assets

Pre-exploration costs are expensed in the period in which they are incurred.

Once the legal right to explore a mineral property has been acquired, all costs related to the acquisition, exploration and evaluation of mineral properties are capitalized by property. These direct expenditures include such costs as materials used, surveying costs, geological studies, drilling costs, payments made to contractors and depreciation of plant and equipment during the exploration phase. Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the period in which they occur.

Exploration and evaluation expenditures for each mineral property are carried forward as an asset provided that one of the following conditions is met:

Such costs are expected to be recouped in full through successful development and exploration of the mineral property or alternatively, by sale; or

Exploration and evaluation activities in the mineral property have not reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves; however, active and significant operations in relation to the mineral property are continuing, or planned for the future.

10

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

The carrying values of capitalized amounts are reviewed annually, or when indicators of impairment are present. In the case of undeveloped properties, there may be only inferred resources to allow management to form a basis for the impairment review. The review is based on the Company’s intentions for the development of such a property. If a mineral property does not prove viable, all unrecoverable costs associated with the property are charged to profit or loss at the time the determination is made. Once the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development and is classified as “mining assets”. Exploration and evaluation expenditures accumulated are also tested for impairment before the mineral property costs are transferred to development properties.

Impairment of tangible and intangible assets

At each financial position reporting date the carrying amounts of the Company’s assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use, which is the present value of future cash flows expected to be derived from the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the statement of operations.

For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the in the statement of operations.

Revenue recognition

Revenue is earned from the sale of refined silver and gold metal, and is recognized when the refiner credits the Company’s accounts, instructions are provided for sale, and the following specific conditions have been met:

the significant risks and rewards of ownership of the metal have been transferred to the purchaser;

the Company does not retain continuing managerial involvement to the degree usually associated with ownership or effective control over the metal sold;

the amount of revenue can be reliably measured;

it is probable that the economic benefits associated with the sale will flow to the Company; and

the costs incurred or to be incurred in respect of the sale can be reliably measured.

During the commissioning period prior to April 1, 2011, proceeds from the sale of silver and gold were applied as a reduction to the Santa Elena Mine construction and commissioning costs included in PPE.

Deferred revenue

Deferred revenue relates to the Upfront Deposit received from Sandstorm Gold Ltd. (“Sandstorm”) in exchange for the future delivery of gold ounces at a specified contract price and to the value of Sandstorm Shares received for the guarantee of obligations under the Purchase Agreement (note 9). As deliveries of gold are made to Sandstorm, the Company recognizes a portion of the deferred revenue as operating revenue. The amount recognized is based on the proportion of gold ounces sold to Sandstorm in the period is to the projected Santa Elena Project gold ounces attributable to Sandstorm.

Asset retirement obligations

The Company recognizes a legal liability for obligations relating to the reclamation of mineral interests (exploration and evaluation assets) and property, plant, and equipment when those obligations arise from the acquisition, construction, development, or normal operation of those assets. Such asset retirement costs must be recognized at fair value, when a reliable estimate of fair value can be made, in the period in which it is incurred, added to the carrying value of the asset, and amortized into income on a systematic basis over its useful life. When the extent of disturbance increases over the life of an operation, the provision is increased accordingly. Provisions are measured at the present value of the expected future expenditures required to settle the obligation, using a risk-free pre-tax discount rate reflecting the time value of money and risks specific to the liability. The liability is increased for the passage of time, and adjusted for changes to the current market-based risk-free discount rate as well as changes in the estimated amount or timing of the expected future expenditures.

11

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currency translation

The Company considers the functional currency of its Canadian operations to be the Canadian dollar and the functional currency of its Mexican mining operations to be the US dollar. At January 1, 2011, the presentation currency of the Company is the US dollar. The functional currency of each entity is determined after consideration of the primary economic environment of the entity.

Transactions denominated in foreign currencies (currencies other than the functional currency of an operation) are translated at the exchange rates on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the reporting date exchange rates.

On translation of entities with functional currencies other than the US dollar, revenue and expense items are translated at average rates of exchange where there is a reasonable approximation of the exchange rate at the dates of the transactions. Statement of financial position items are translated at closing exchange rates at the reporting date. Exchange differences on the re-translation of the foreign currency entities at closing rates together with differences between the revenue and expenses translated at average and closing rates, are recorded in the currency translation adjustment reserve in shareholders’ equity.

Share-based compensation and payments

The Company grants stock options to buy common shares of the Company to directors, officers, employees and consultants. The cost of stock options granted is recorded based on the estimated fair-value at the grant date and charged to the statement of operations over the vesting period. Where stock options are subject to vesting, each vesting tranche is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period by a charge to the statement of operations, with a corresponding increase to reserves based on the number of options expected to vest. Consideration paid for the shares on the exercise of stock options is credited to capital stock. When vested options are forfeited or are not exercised at the expiry date the amount previously recognized in share-based compensation is transferred to accumulated losses (deficit). The number of options expected to vest is reviewed at least annually, with any impact being recognized immediately.

Warrants issued in equity financing transactions

The Company engages in equity financing transactions to obtain the funds necessary to continue operations and explore and evaluate mineral properties. These equity financing transactions may involve issuance of common shares or units. A unit comprises a certain number of common shares and a certain number of share purchase warrants (“Warrants”). Depending on the terms and conditions of each equity financing agreement (“Agreement”), the Warrants are exercisable into additional common shares prior to expiry at a price stipulated by the Agreement. Warrants that are part of units are valued based on the residual value method and included in share capital with the common shares that were concurrently issued. Warrants that are issued as payment for an agency fee or other transactions costs are accounted for as share-based payments.

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods.

Derivative instruments

The Company uses derivative instruments to reduce the potential impact of changing metal prices as required under lending agreements. Derivative instruments are measured at fair value at the end of each reporting period and the changes are recorded as a gain or loss on derivative instruments in the statement of operations. The Company does not apply hedge accounting to its derivative transactions.

12

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation

Income tax expense comprises current and deferred income taxes. Current and deferred income taxes are recognized in profit or loss except to the extent that they relate to items recognized directly in equity.

Current income tax expense is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.

The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates and laws expected to apply in the years in which temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in operations in the period that includes the substantive enactment date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is not recorded.

Deferred income tax assets and liabilities are presented as non-current in the financial statements.

Financial instruments

Financial assets are classified into one of the following categories based on the purpose for which the asset was acquired. All transactions related to financial instruments are recorded on a trade date basis. The Company’s accounting policy for each category is as follows:

Financial assets at fair value through profit or loss (“FVTPL”)

A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated as at FVTPL if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s risk management strategy. Attributable transaction costs are recognized in profit or loss when incurred. FVTPL are measured at fair value, and changes are recognized in profit or loss.

Held-to-maturity (“HTM”)

These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the intention and ability to hold to maturity. These assets are measured at amortized costs using the effective interest method. If there is objective evidence that the asset is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized in profit or loss.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an active market. Such assets are initially recognized at fair value plus any direct attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.

Available-for-sale (“AFS”)

Non-derivative financial assets not included in the above categories are classified as available-for-sale. They are carried at fair value with changes in fair value recognized directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognized in profit or loss.

The Company classified its financial assets as follows:

- Cash and cash equivalents and designated cash are classified as FVTPL.
- Short term investments are classified as held to maturity.
- Amounts receivable and taxes receivable are classified as loans and receivables.

13

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial liabilities

Financial liabilities are classified into one of two categories:

- Fair value through profit or loss; and
- Other financial liabilities.

Fair value through profit or loss

This category comprises derivatives, or liabilities, acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in profit or loss.

Other financial liabilities

This category includes amounts due to related parties and accounts payable and accrued liabilities and long-term debt, all of which are recognized at amortized cost.

The Company classified its financial liabilities as follows:

- Derivative instruments are classified as FVTPL.
- Accounts payable and accrued liabilities, long term debt and deferred revenue are classified as other financial liabilities.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been impacted.

For all financial assets, objective evidence of impairment could include:

- significant financial difficulty of the issuer or counterparty; or
- default or delinquency in interest or principal payments; or
- it becoming probable that the borrower will enter bankruptcy or financial re-organization.

For certain categories of financial assets, such as receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. The carrying amount of financial assets is reduced by the impairment loss directly for all financial assets with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control, and related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

14

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

3.    NEW STANDARDS NOT YET ADOPTED

The International Accounting Standards Board (“IASB”) issued the following pronouncements that are effective for years beginning January 1, 2012, or later and may affect the Company’s future financial statements. Management is currently assessing the impact of these pronouncements and does not expect the application to have a pervasive impact on accounting procedures or other business activities.

IFRS 9 - Financial Instruments (“IFRS 9”) - In November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model, and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entity’s business model and the contractual cash flow of the financial asset. Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument. IFRS 9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured at fair value in Other Comprehensive Income, and guidance on financial liabilities and derecognition of financial instruments. In December 2011, the IASB issued an amendment that adjusted the mandatory effective date of IFRS 9 from January 1, 2013 to January 1, 2015.

IFRS 10 - Consolidated Financial Statements (“IFRS 10”) - In May 2011, the IASB issued IFRS 10 Consolidated Financial Statements to replace IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation – Special Purpose Entities. The new consolidation standard changes the definition of control so that the same criteria apply to all entities, both operating and special purpose entities, to determine control. The revised definition focuses on the need to have both power and variable returns before control is present. IFRS 10 must be applied starting January 1, 2013 with early adoption permitted.

IFRS 11 - Joint Arrangements (“IFRS 11”) - In May 2011, the IASB issued IFRS 11 Joint Arrangements to replace IAS 31, Interests in Joint Ventures. The new standard defines two types of arrangements: Joint Operations and Joint Ventures. Focus is on the rights and obligations of the parties involved to reflect the joint arrangement, thereby requiring parties to recognize the individual assets and liabilities to which they have rights or for which they are responsible, even if the joint arrangement operates in a separate legal entity. IFRS 11 must be applied starting January 1, 2013 with early adoption permitted.

IFRS 12 - Disclosure of Interests in Other Entities (“IFRS 12”) - In May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities to create a comprehensive disclosure standard to address the requirements for subsidiaries, joint arrangements and associates including the reporting entity’s involvement with other entities. It also includes the requirements for unconsolidated structured entities (i.e. special purpose entities). IFRS 12 must be applied starting January 1, 2013, with early adoption permitted.

IFRS 13 - Fair Value Measurement (“IFRS 13”) - In May 2011, the IASB issued IFRS 13 Fair Value Measurement as a single source of guidance for all fair value measurements required by IFRS to reduce the complexity and improve consistency across its application. The standard provides a definition of fair value and guidance on how to measure fair value as well as a requirement for enhanced disclosures. IFRS 13 must be applied starting January 1, 2013 with early adoption permitted.

IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine (“IFRIC 20”) - In October 2011, the IASB issued IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. IFRIC 20 provides guidance on the accounting for the costs of stripping activity in the production phase of surface mining when two benefits accrue to the entity from the stripping activity: useable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. IFRIC 20 must be applied starting January 1, 2013, with early adoption permitted.

15

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

4.    FIRST TIME ADOPTION OF IFRS

The Company adopted IFRS on January 1, 2011 with a transition date of January 1, 2010. Under IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’, the IFRS are applied retrospectively at the transition date with all adjustments to assets and liabilities as stated under Canadian GAAP taken to accumulated deficit unless certain exemptions are applied. IFRS provides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.

Initial elections upon adoption

Set forth below are the IFRS 1 applicable exemptions and exceptions applied in the conversion from Canadian GAAP to IFRS.

(1)   IFRS exemption options

(i)   Business combinations

IFRS 1 provides the option to apply IFRS 3, Business Combinations, retrospectively or prospectively from the Transition Date. The retrospective basis would require restatement of all business combinations that occurred prior to the Transition Date. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to its Transition Date and such business combinations have not been restated.

(ii)  Currency translation differences

Retrospective application of IFRS would require the Company to determine cumulative currency translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative currency translation gains and losses to be reset to zero at the Transition Date. The Company elected to reset all cumulative currency translation gains and losses to zero in opening retained deficit at its Transition Date.

(iii) Share-based payments

IFRS 1 permits the application of IFRS 2 Share Based Payments only to equity instruments granted after November 7, 2002 that had not vested by the date of transition to IFRS. The Company has applied this exemption and will apply IFRS 2 for equity instruments granted after November 7, 2002 that had not vested by January 1, 2010.

(iv)  Borrowing costs

IAS 23 “Borrowing Costs” requires capitalization of eligible borrowing costs. Historically, the borrowing costs associated with loans were expensed as incurred. A first-time adopter may elect to apply an IFRS 1 transitional provision, and thereby be exempt from having to apply the standard to past transactions. The Company has applied this exemption, and will apply IAS 23 on a prospective basis only.

Additionally, in accordance with IFRS 1, an entity’s estimates under IFRS at the date of IFRS must be consistent with estimates made for the same date under previous Canadian GAAP, unless there is objective evidence that those estimates were in error. The Company’s IFRS estimates as of January 1, 2010 are consistent with its Canadian GAAP estimates for the same date.

(2)   Reconciliations

The adoption of IFRS has resulted in changes to the Company’s reported financial position and results of operations and comprehensive loss. The adoption of IFRS has had no impact on the net cash flows of the Company. The changes made to the statements of financial position and statements of operations and comprehensive loss have resulted in the reclassification of amounts on the statements of cash flows, however there have been no changes to the net cash flows. IAS 7, Statement of Cash flows requires that cash flows relating to finance costs/interest to be separately disclosed within the statement classifications. Under Canadian GAAP, these amounts were previously disclosed as a note to the statement of cash flows. These amounts have been separately disclosed under ‘operating and financing activities’ within the statement of cash flows under IFRS.

In order to allow the users of the financial statements to better understand the changes in accounting policies, the financial statements previously presented under Canadian GAAP have been reconciled to IFRS. As the Company changed its presentation currency from Canadian dollars to the United States dollar as of January 1, 2011, the reconciliations are prepared in United States Dollars, but include the Canadian Dollar balance for reference. The currency translation was performed as outlined in note 2. For a description of the changes in accounting policy, see the discussion in notes to the IFRS Reconciliations below.

16

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

4.    FIRST TIME ADOPTION OF IFRS (continued)

The January 1, 2010 (Transition date to IFRS) Canadian GAAP consolidated statements of financial position have been reconciled to IFRS as follows:

									Effect of transition
	Notes		Canadian GAAP			Canadian GAAP			to IFRS			IFRS
ASSETS			CAD			USD			USD			USD
Current Assets
Cash and cash equivalents		$	13,770,106		$	13,157,336		$	-		$	13,157,336
Amounts receivable			26,111			24,949			-			24,949
Prepaid expenses			35,054			33,494			-			33,494
Held-for-trading securities			1,960,000			1,872,780			-			1,872,780
			15,791,271			15,088,559			-			15,088,559
Non-Current Assets
Taxes receivable			693,300			662,448			-			662,448
Property, plant and equipment	4a		9,036,877			8,129,362			13,332,890			21,462,252
Exploration and evaluation assets	4a		15,864,134			14,567,223			(13,332,890	)		1,234,333
TOTAL ASSETS		$	41,385,582		$	38,447,592		$	-		$	38,447,592
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	464,077		$	443,424		$	-		$	443,424
Derivative instruments			231,523			221,214			-			221,214
			695,600			664,638			-			664,638
Non-Current Liabilities
Asset retirement obligations			564,137			539,019			-			539,019
Deferred revenue			14,081,700			13,433,129			-			13,433,129
Long term debt	4b		7,116,880			6,800,000			(1,425,352	)		5,374,648
Derivative instruments			10,362,387			9,900,994			-			9,900,994
			32,125,104			30,673,142			(1,425,352	)		29,247,790
Total Liabilities			32,820,704			31,337,780			(1,425,352	)		29,912,428
Shareholders' Equity
Capital stock	4c		31,380,614			27,943,125			657,658			28,600,783
Reserves	4c		5,190,963			4,633,252			(1,043,214	)		3,590,038
Accumulated comprehensive loss	4d		-			(252,986	)		252,986			-
Deficit			(28,006,699	)		(25,213,579	)		1,557,922			(23,655,657	)
			8,564,878			7,109,812			1,425,352			8,535,164
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	41,385,582		$	38,447,592		$	-		$	38,447,592

17

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

4.    FIRST TIME ADOPTION OF IFRS (continued)

The December 31, 2010 Canadian GAAP consolidated statements of financial position have been reconciled to IFRS as follows:

									Effect of
									transition to
	Notes		Canadian GAAP			Canadian GAAP			IFRS			IFRS
ASSETS			CAD			USD			USD			USD
Current Assets
Cash and cash equivalents		$	8,986,098		$	9,034,623		$	-		$	9,034,623
Amounts receivable			130,359			131,063			-			131,063
Prepaid expenses			62,689			63,028			-			63,028
Inventory			425,637			420,304			-			420,304
			9,604,783			9,649,018			-			9,649,018
Non-Current Assets
Taxes receivable			1,210,441			1,216,977			-			1,216,977
Property, plant and equipment	4b		38,542,897			36,306,254			1,039,347			37,345,601
Exploration and evaluation assets			1,888,986			1,729,003			-			1,729,003
TOTAL ASSETS		$	51,247,107		$	48,901,252		$	1,039,347		$	49,940,599
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accounts payable and accrued liabilities		$	1,382,036		$	1,389,500		$	-		$	1,389,500
Current portion of long term debt	4b		7,658,420			7,700,000			(380,094	)		7,319,906
Derivative instruments			8,481,388			8,527,509			-			8,527,509
Deferred revenue			1,823,413			1,739,431			-			1,739,431
			19,345,257			19,356,440			(380,094	)		18,976,346
Non-Current Liabilities
Asset retirement obligations			1,401,294			1,486,482			-			1,486,482
Deferred revenue			12,191,034			11,629,543			-			11,629,543
Long term debt	4b		4,774,080			4,800,000			(665,164	)		4,134,836
Derivative instruments			19,833,724			19,941,334			-			19,941,334
			38,200,132			37,857,359			(665,164	)		37,192,195
Total Liabilities			57,545,389			57,213,799			(1,045,258	)		56,168,541
Shareholders' Equity (Deficiency)
Capital stock	4c		36,500,331			32,973,152			657,658			33,630,810
Reserves	4c		5,397,812			4,846,656			(1,180,659	)		3,665,997
Accumulated comprehensive loss	4d		-			(1,290,164	)		252,986			(1,037,178	)
Deficit			(48,196,425	)		(44,842,191	)		2,354,620			(42,487,571	)
			(6,298,282	)		(8,312,547	)		2,084,605			(6,227,942	)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)		$	51,247,107		$	48,901,252		$	1,039,347		$	49,940,599

18

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

4.    FIRST TIME ADOPTION OF IFRS (continued)

The Canadian GAAP consolidated statement of operations and comprehensive loss for the year ended December 31, 2010 has been reconciled to IFRS as follows:

									Effect of
									transition to
	Notes		Canadian GAAP			Canadian GAAP			IFRS		IFRS
			CAD			USD			USD		USD
GENERAL AND ADMINISTATIVE EXPENSES
Depreciation and accretion		$	128,663		$	170,036		$	-	$	170,036
General exploration			201,881			195,156			-		195,156
Investor relations and travel			263,008			255,183			-		255,183
Office and miscellaneous			171,318			166,685			-		166,685
Professional fees			205,885			199,892			-		199,892
Regulatory and transfer agent fees			30,221			29,288			-		29,288
Rent and communications			45,595			44,295			-		44,295
Salaries and management remuneration			798,408			778,983			-		778,983
Shareholder communications			25,203			24,514			-		24,514
Trade shows and conferences			87,628			85,188			-		85,188
LOSS BEFORE OTHER ITEMS			(1,957,810	)		(1,949,220	)		-		(1,949,220	)
OTHER ITEMS
Foreign exchange gain			1,505,897			1,493,798			-		1,493,798
Interest income			31,180			30,395			-		30,395
Interest on long term debt	4b		(677,143	)		(659,253	)		659,253		-
Gain on held-for-trading securities			630,000			613,319					613,319
Share-based compensation			(476,344	)		(463,020	)		-		(463,020	)
Loss on derivative instruments			(19,245,506	)		(18,694,631	)		-		(18,694,631	)
			(18,231,916	)		(17,679,392	)		659,253		(17,020,139	)
LOSS FOR THE YEAR			(20,189,726	)		(19,628,612	)		659,253		(18,969,359	)
OTHER COMPREHENSIVE INCOME (LOSS)
Exchange loss on translation to US Dollars			-			(1,037,178	)		-		(1,037,178	)
COMPREHENSIVE LOSS FOR THE YEAR		$	(20,189,726	)	$	(20,665,790	)	$	659,253	$	(20,006,537	)

19

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

4.    FIRST TIME ADOPTION OF IFRS (continued)

Notes to the IFRS reconciliations:

a) Exploration and evaluation expenditures

Under both Canadian GAAP and IFRS, an exploration and evaluation asset shall be reclassified as a development asset when a technical feasibility study has been completed which demonstrates the commercial viability of extracting a mineral resource. However, under IFRS the assets must be transferred to PPE once in the development stage. Development commenced on the Santa Elena property in January 2009, but the costs associated with the property were not transferred to PPE until the year ending December 31, 2010; therefore, an adjustment is required to the classification of the Santa Elena property at transition date to conform to IFRS standards.

b) Borrowing and transaction costs

IAS 23 “Borrowing Costs” requires capitalization of eligible borrowing costs. Under Canadian GAAP, the borrowing costs associated with loans were expensed as incurred. A first-time adopter may elect to apply an IFRS 1 transitional provision, and thereby be exempt from having to apply the standard to past transactions. However, the IAS 23 must be applied for transactions after January 1, 2010.

Under Canadian GAAP, transaction costs are allowed to be either capitalized or expensed. The Company under Canadian GAAP elected to expense the costs related to the Project Loan (note 11). Under IFRS, the transaction costs are required to be capitalized and included in the effective interest calculation.

c) Reclassification of share-based reserve

The Company reclassified, from equity reserves lapse of brokers/agents warrants that were not exercised, $657,658 for January 1, 2010, and December 31, 2010, to share capital, and lapse of stock options, that were not exercised, $385,556 for January 1, 2010, and $523,001 for December 31, 2010, to deficit.

d) Currency translation difference

The Company elected to reset all cumulative currency translation gains and losses to zero in opening deficit at its Transition Date.

5.    MANAGEMENT OF CAPITAL

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to support normal operating requirements at the Santa Elena Mine, continue the exploration and evaluation of its mineral properties and support any expansionary plans.

The Company considers as items in its shareholders’ equity as its capital.

The Company manages and adjusts its capital structure when changes to the risk characteristics of the underlying assets or changes in economic conditions occur. To maintain or adjust the capital structure, the Company may attempt to issue new equity, dispose of certain of its assets or issue debt.

In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets which are revised periodically based on the results of its operations at the Santa Elena Mine, exploration programs, availability of financing and industry conditions. Annual and materially updated budgets are approved by the Board of Directors. There are no external restrictions on management of capital except as disclosed in note 11.

The Company’s investment policy is to invest any excess cash in liquid short-term interest-bearing instruments. When utilized, these instruments are selected with regard to the expected timing of expenditures from continuing operations. The Company expects to have sufficient capital resources to meet its planned operational expenses, financing obligations, administrative overhead expenses and exploration plans for 2012. Actual funding requirements may vary from those planned due to a number of factors, including the progress of operations at the Santa Elena Mine and other exploration and development activities. The Company believes it will be able to raise capital as required in the long term, but recognizes there will be risks involved that may be beyond its control.

20

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

6.    INVENTORY

		2011		2010
Silver and gold in process	$	7,074,079	$	-
Finished goods - dore bars		1,545,042		-
Supplies		674,640		420,304
	$	9,293,761	$	420,304

7.    PROPERTY, PLANT AND EQUIPMENT

		Santa Elena Mine					Corporate			Total
		Equipment		Mining Assets			Office
Cost
Balance at January, 1, 2010	$	8,110,199	$	13,332,890		$	62,881		$	21,505,970
Additions		10,737,951		7,775,837			12,272			18,526,060
Sales of silver and gold		-		(1,950,008	)		-			(1,950,008	)
Disposals		-		-			(45,758	)		(45,758	)
Balance at December 31, 2010		18,848,150		19,158,719			29,395			38,036,264
Additions		2,693,505		5,632,120			40,844			8,366,469
Sales of silver and gold (1)		-		(4,856,037	)		-			(4,856,037	)
Inventory adjustment (2)		-		(3,710,287	)		-			(3,710,287	)
Balance at December 31, 2011	$	21,541,655	$	16,224,515		$	70,239		$	37,836,409
Accumulated depreciation and depletion
Balance at January, 1, 2010	$	-	$	-		$	43,718		$	43,718
Charge for the year		674,716		-			17,987			692,703
Disposals		-		-			(45,758	)		(45,758	)
Balance at December 31, 2010		674,716		-			15,947			690,663
Charge for the year (3)		2,504,028		1,779,758			13,062			4,296,848
Balance at December 31, 2011	$	3,178,744	$	1,779,758		$	29,009		$	4,987,511
Carrying amounts
At January 1, 2010	$	8,110,199	$	13,332,890		$	19,163		$	21,462,252
At December 31, 2010	$	18,173,434	$	19,158,719		$	13,448		$	37,345,601
At December 31, 2011	$	18,362,911	$	14,444,757		$	41,230		$	32,848,898

⁽¹⁾ Sales of silver and gold consist of revenue recorded in the first quarter of 2011 before commencement of commercial production and include $3,810,044 in cash, $180,955 from amortization of deferred revenue and $865,038 from derivative revenue recorded.
⁽²⁾ During the quarter ended June 30, 2011, the Company made an adjustment of $3,710,287 to the Santa Elena Mine Assets carrying value, to reflect the opening inventory position as of April 1, 2011 relating to finished goods and silver and gold contained in process.
⁽³⁾ Depreciation of Santa Elena Mine equipment commenced when placed into service on October 1, 2010. Prior to achieving commercial production depreciation expense was capitalized to Santa Elena mining assets. Depletion of Santa Elena mining assets commenced on April 1, 2011.

21

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

8.    EXPLORATION AND EVALUATION ASSETS

Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral properties. The Company has investigated title to all of its mineral properties and, to the best of its knowledge, title to all of its properties are in good standing except as otherwise disclosed. However, this should not be considered as a guarantee of title. The mineral properties may be subject to prior claims or agreements, or transfers and rights of ownership may be affected by undetected defects.

2011		MEXICO				2011
		Cruz de Mayo		La Joya		Total
Additions
Acquisition and option payments	$	45,000	$	160,000	$	205,000
Deferred exploration costs:
Depreciation		-		7,858		7,858
Assays		-		70,402		70,402
Drilling		97,321		891,620		988,941
Exploration and general		225,882		691,260		917,142
Professional fees		-		5,528		5,528
Salaries		45,988		43,257		89,245
Technical consulting and services		25,160		314,025		339,185
Subtotal, 2011 additions		439,351		2,183,950		2,623,301
Balance, December 31, 2010	$	1,257,944	$	471,059	$	1,729,003
Balance, December 31, 2011	$	1,697,295	$	2,655,009	$	4,352,304

2010		MEXICO				2010
		Cruz de Mayo		La Joya		Total
Additions
Acquisition and option payments	$	20,000	$	65,000	$	85,000
Deferred exploration costs:
Depreciation		-		423		423
Assays		-		7,896		7,896
Drilling		-		193,144		193,144
Exploration and general		3,611		115,849		119,460
Professional fees		-		885		885
Technical consulting and services		-		87,862		87,862
Subtotal, 2010 additions		23,611		471,059		494,670
Balance, December 31, 2009	$	1,234,333	$	-	$	1,234,333
Balance, December 31, 2010	$	1,257,944	$	471,059	$	1,729,003

22

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

8.    EXPLORATION AND EVALUATION ASSETS (continued)

Cruz de Mayo Project, Mexico

The Company purchased a 100% interest in certain mineral concessions, located in Sonora State, Mexico, in 2004, and on November 19, 2010, finalized an assignment agreement to acquire a 100% interest in the El Guereguito concession in the same state.The Company has the right to acquire the 100% interest in the El Guereguito concession by making the following staged option payments totaling $1,000,000.

		El Guereguito
November 19, 2010	$	20,000	(paid)
May 19, 2011		20,000	(paid)
November 19, 2011		25,000	(paid)
November 19, 2012		50,000
November 19, 2013		50,000
		165,000
$50,000 on each anniversary date		835,000
TOTAL	$	1,000,000

The Company has the right to make early payment with no additional consideration. There is a 2.5% NSR royalty which ceases on cumulative payments of $1,000,000.

La Joya Project, Mexico

During 2010, the Company entered into agreements to acquire a 100% interest in the La Joya Project located southeast of Durango City, Durango State, Mexico.

On June 21, 2010, the Company entered into the “La Joya West” agreement for purchase and sale. The Company has the right to acquire a 100% interest by making the following staged payments totaling $2,680,000 over a period of 3 years.

		La Joya West
June 21, 2010	$	20,000	(paid)
October 21, 2010		20,000	(paid)
April 21, 2011		60,000	(paid)
October 21, 2011		80,000	(paid)
June 21, 2013		2,500,000
TOTAL	$	2,680,000

The final $2,500,000 payment can be settled as follows: $1,250,000 in shares or by a combination of cash and shares at the Company’s discretion and $1,250,000 by a negotiated combination of cash and shares. The Company is required to incur $200,000 of exploration expenditures annually. There is a 2% NSR royalty for which the Company has the option to purchase 1% by a negotiated combination of cash and shares.

On November 25, 2010, the Company entered into the “La Joya East” agreement for purchase and sale. The Company has the right to acquire a 100% interest by making the following staged payments totaling $1,500,000 over a period of 3 years.

		La Joya East
December 31, 2010	$	25,000	(paid)
June 30, 2011		20,000	(paid)
December 31, 2011		50,000	(paid subsequent to year end)
June 30, 2012		60,000
December 31, 2012		70,000
June 30, 2013		100,000
December 31, 2013		1,175,000
TOTAL	$	1,500,000

The final $1,175,000 payment can be settled in shares of the Company or by a combination of cash and shares at the Company’s discretion. Of the option payment, $750,000 shall be deemed to be advanced royalty payments made on account of the NSR. There is a 2% NSR royalty for which the Company has the option to purchase 1% by a negotiated combination of cash and shares ratio.

23

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

9.    DEFERRED REVENUE

On May 14, 2009, the Company entered into a definitive Purchase Agreement with Sandstorm Gold Ltd. under which the Company’s wholly-owned Mexican subsidiary, Nusantara de Mexico S.A. de C.V., agreed to sell 20% of future gold production from the Santa Elena Project to Sandstorm in exchange for an Upfront Deposit of $12,000,000. The agreement also provides for ongoing per-ounce payments by Sandstorm equal to the lesser of $350 and the prevailing spot gold market price upon delivery of gold. The per ounce price of $350 is subject to an increase of 1% per annum commencing on the 3rd anniversary of the date the Santa Elena Project begins commercial production.

If the Company decides to develop an underground mine on the Santa Elena Project, Sandstorm has the right to purchase 20% of the gold from the underground mine at a per ounce price equal to the lesser of $450 and the prevailing spot gold market price, subject to an increase of 1% per annum beginning on the 3rd anniversary from the date the underground mine begins commercial production. In exchange, Sandstorm will pay for 20% of the capital expenditures incurred, related to the gold stream, to determine the economic viability and to construct the underground mine and mill facilities.

The Company provided Sandstorm with a completion guarantee under the agreement and as consideration received 3,500,000 common shares of Sandstorm. The fair value of the shares at the date received was $1,433,129. The shares were sold in April 2010 for proceeds of $2,545,970.

The Upfront Deposit and Sandstorm share consideration of $13,433,129 was treated as deferred revenue.

During the year ended December 31, 2011, the Company delivered approximately 4,793 gold ounces (2010 – 187) to Sandstorm.

Prior to commercial production, the Company recorded $344,252 (2010 - $129,450) to the Santa Elena Mine costs related to the delivery of 467 gold ounces (2010 – 187) to Sandstorm, which consisted of $163,298 (2010 - $65,295) received in cash and $180,954 (2010 – $64,155) from amortization of deferred revenue.

From April 1, 2011, the Company recorded revenue of $3,137,405 from the delivery of 4,326 gold ounces (2010 – NIL) to Sandstorm, which consisted of $1,514,008 received in cash and $1,623,397 from amortization of deferred revenue.

Details of changes in the balance are as follows:

		Upfront Deposit			Sandstorm Shares			Total Deferred
								Revenue
As at December 31, 2009	$	12,000,000		$	1,433,129		$	13,433,129
Delivery of gold		(57,311	)		(6,844	)		(64,155	)
As at December 31, 2010		11,942,689			1,426,285			13,368,974
Less current portion		(1,553,858	)		(185,573	)		(1,739,431	)
Deferred revenue	$	10,388,831		$	1,240,712		$	11,629,543
As at December 31, 2010	$	11,942,689		$	1,426,285		$	13,368,974
Delivery of gold		(1,611,851	)		(192,500	)		(1,804,351	)
As at December 31, 2011		10,330,838			1,233,785			11,564,623
Less current portion		(2,291,425	)		(273,659	)		(2,565,084	)
Deferred revenue	$	8,039,413		$	960,126		$	8,999,539

10.   ASSET RETIREMENT OBLIGATIONS

Asset retirement obligations relate to the operation of the Santa Elena, Cruz de Mayo and La Joya Projects.

Details are as follows:

		2011		2010
Balance, beginning of year	$	1,486,482	$	539,019
Change in obligations		1,442,916		909,743
Accretion expense		96,344		37,720
Balance, end of year	$	3,025,742	$	1,486,482

24

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

10.    ASSET RETIREMENT OBLIGATIONS (continued)

The fair value of the estimated future expenditures as at December 31, 2011, has been estimated to be $3,025,742 (2010 - $1,486,482). In determining the fair value of the asset retirement obligation, the Company has assumed a long-term inflation rate of 4.7% (2010 – 4.4%), a discount rate of 5.75% (2010 – 6.3%) and projected mine life of 8 years In view of uncertainties concerning asset retirement obligations, the ultimate costs could be materially different from the amounts estimated. The estimate of future asset retirement obligations is subject to change based on amendments to applicable laws and legislation. Future changes in asset retirement obligations, if any, could have a significant impact.

11.    LONG TERM DEBT

Details are as follows:

Macquarie Bank Limited - Project Loan Facility		2011			2010
Balance, beginning of year	$	11,454,742		$	5,374,648
Contributions		-			5,700,000
Repayments		(12,500,000	)		-
Accretion of finance costs		1,045,258			380,094
Balance, end of year		-			11,454,742
Less current portion		-			(7,319,906	)
Long term debt	$	-		$	4,134,836

Macquarie Bank Limited Project Loan Facility

By agreement dated for reference November 24, 2009 the Company’s wholly-owned Mexican subsidiary, Nusantara de Mexico S.A. de C.V. (the “Borrower”) entered into a $12,500,000 Project Facility Agreement (the “Project Loan”) and associated hedging facilities (note 12) with Macquarie Bank Limited (“MBL”) to partially fund the cost of development and initial working capital requirements at the Company’s Santa Elena Project in Mexico.

The Company drew down $6,800,000 on December 9, 2009, to repay the Company’s CAD$6,000,000 obtained under the Credit Agreement with MBL and various transaction costs totalling CAD$1,005,192 associated with the Project Loan. In fiscal 2010 the Company drew down the remaining $5,700,000 to fund final construction expenditures and initial working capital requirements for the Santa Elena Project.

In consideration for the provision of the Project Loan, the Company paid a facility fee of $625,000, and issued 5,000,000 warrants to purchase common shares at CAD $0.90 per share expiring on November 24, 2012. MBL agreed to cancel 3,216,782 existing warrants on initial draw down of the Project Loan. The incremental fair value of the warrants, calculated at $800,352, was allocated to transaction costs and reserves at December 31, 2009.

The fair value of the warrants was calculated using the Black-Scholes option pricing model with the following assumptions:

Risk free rate	1.65%
Expected dividend yield	-
Expected volatility	79.49%
Expected life	3 years

The Project Loan was scheduled to be repaid in full on or before September 30, 2013. The entire Project Loan was repaid during 2011 from operating cash flows.

MBL requires the Company to maintain certain minimum debt service reserves and ratios based upon the Life of Mine Plan. The Company is required to have available cash reserves of a minimum of their aggregate operating and capital costs to be expended at the Santa Elena Mine in the ensuing period of four weeks consistent with the Life of Mine Plan. As at December 31, 2011 the Company had reserved $1,450,000 related to this funding obligation.

25

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

12.    DERIVATIVE INSTRUMENTS

Details are as follows:

		Hedging Facility			European Gold			Total Derivative
					Call Option			Instrument
								Liability
As at December 31, 2009	$	8,855,000		$	1,267,208		$	10,122,208
Delivery of gold		(347,995	)		-			(347,995	)
Changes in mark-to-market value		17,738,259			956,371			18,694,630
As at December 31, 2010		26,245,264			2,223,579			28,468,843
Less current portion		(8,527,509	)		-			(8,527,509	)
Derivative instruments	$	17,717,755		$	2,223,579		$	19,941,334
As at December 31, 2010	$	26,245,264		$	2,223,579		$	28,468,843
Delivery of gold		(13,081,984	)		-			(13,081,984	)
Changes in mark-to-market value		10,700,927			797,030			11,497,957
Cash settlement		-			(3,020,609	)		(3,020,609	)
As at December 31, 2011		23,864,207			-			23,864,207
Less current portion		(5,722,320	)		-			(5,722,320	)
Derivative instruments	$	18,141,887		$	-		$	18,141,887

As at December 31, 2011, a 10% appreciation (depreciation) in the market spot price of gold would result in approximately a $5,674,000 increase (decrease) in derivative instrument liability with a corresponding change in loss on derivative instruments.

Macquarie Bank Limited – Hedging Facility

On June 12, 2009, the Company implemented a gold price protection program (“Hedging Facility”) for the Santa Elena Mine which was a requirement under the Project Loan (note 11). The Hedging Facility is comprised of 55,000 ounces of gold sold forward at $926.50 per ounce. As at December 31, 2011 the Hedging Facility delivery schedule is as follows:

Metal	Maturity	Hedging Facility Settled	(Ounces)	Deliverable
		(Ounces)		(Ounces)
Gold	2010	746	746	-
	2011	17,628	17,628	-
	2012 *	9,650	1,141	8,509
	2013	17,700	-	17,700
	2014	9,276	-	9,276
		55,000	19,515	35,485

* In December 2011, the Company elected to forward deliver 1,141 gold ounces into the March 31, 2012 hedge commitment.

The Company does not hold this derivative instrument for trading purposes. The Company has determined that this program constitutes an effective economic hedge for the Santa Elena Mine; however, it does not meet the requirements for hedge accounting under IFRS. Financial derivative instruments, those which do not qualify for hedge accounting, are required under IFRS to be recorded at fair value (marked-to-market) at the financial position date, and the resulting gains or losses are to be included in the statement of operations.

Derivatives impact on statement of operations		2011			2010
Fair value marked-to-market change on derivatives	$	11,497,957		$	18,694,631
Derivative revenue recorded (note 14)		(12,216,947	)		-
Net derviatives impact on statement of operations	$	(718,990	)	$	18,694,631

During the year ended December 31, 2011, the Company recorded in the statement of operations an unrealized non-cash loss of $11,497,957 (2010 - $18,694,631) related to changes in the fair value of open derivative contracts. From April 1, 2011, commencement of commercial production, the Company recorded derivative revenue of $12,216,947 (2010 - $NIL) related to 16,903 gold ounces delivered into the Hedging Facility, resulting in a net gain on the statement of operations of $718,990.

26

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

12.    DERIVATIVE INSTRUMENTS (continued)

Macquarie Bank Limited – European gold call option

In June 2009, as partial consideration for a Credit Agreement with MBL, the Company granted MBL a European gold call option for 5,000 ounces of gold at a strike price of $1,000 per ounce with an option expiry date of June 13, 2012. In December 2011, the Company settled in cash the entire European gold call option for $3,020,609 in cash.

13.    CAPITAL STOCK AND RESERVES

The Company’s authorized capital stock consists of an unlimited number of common shares and an unlimited number of preferred shares without par value. At December 31, 2011, the Company had 87,134,179 common shares outstanding and no preferred shares outstanding.

	Capital Stock					Reserves
	Common		Amount			Share-Based
	Shares					Payments
Balance at January 1, 2010	59,433,929	$	28,600,783		$	3,590,038
Warrants exercised	7,016,500		4,599,379			(101,134	)
Stock options exercised	427,500		428,548			(148,482	)
Share issuance costs	-		2,100			-
Unexercised options	-		-			(137,445	)
Share-based compensation	-		-			463,020
Balance at December 31, 2010	66,877,929	$	33,630,810		$	3,665,997
Warrants exercised	562,500		1,085,475			(200,775	)
Fair value of Underwriters warrants	-		(401,550	)		401,550
Stock options exercised	943,750		1,102,108			(373,303	)
Offering	18,750,000		30,924,000			-
Share issuance costs	-		(2,111,836	)		-
Share-based compensation	-		-			1,573,322
Balance at December 31, 2011	87,134,179	$	64,229,007		$	5,066,791

On May 19, 2011, the Company completed a prospectus offering for total gross proceeds of CAD$30,000,000. The Company issued a total of 18,750,000 common shares of the Company at a price of CAD$1.60 per share. The offering was underwritten by Canaccord Genuity Corp. and Jennings Capital Inc. (together, the “Underwriters”). The Underwriters received a cash commission equal to 6% of the gross proceeds of the offering and 1,125,000 compensation warrants, each compensation warrant entitling the Underwriters to purchase one common share of the Company at a price of CAD$1.60 for a term of 24 months. The fair value of the warrants was calculated using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate 1.69%, expected dividend yield 0%, expected stock price volatility 54.16%, and expected life of 2 years.

For the year ended December 31, 2011, 562,500 warrants related to the May 2011 offering were exercised at CAD$1.60 for gross proceeds of $884,700. Accordingly $200,775 was transferred from share-based payments reserve to capital stock. The Company issued 943,750 common shares between CAD$0.50 and CAD$1.05, for gross proceeds of $728,805, related to the exercise of stock options. Accordingly, $373,303 was transferred from share-based payments reserve to capital stock.

For the year ended December 31, 2010, 7,016,500 warrants related to the June 2009 offering were exercised at CAD$0.65, for gross proceeds of $4,498,245. Accordingly $101,134 was transferred from share-based payments reserve to capital stock. The Company issued 427,500 common shares between CAD$0.45 and CAD$1.39 for gross proceeds of $280,066 related to the exercise of stock options. Accordingly, $148,482 was transferred from share-based payments reserve to capital stock.

Stock options

The Company has a stock option plan under which it is authorized to grant stock options to executive officers and directors, employees and consultants, enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. The exercise price of each option equals the market price of the Company's stock as calculated on the date of the grant. The options can be granted for a maximum term of 10 years, and certain options to employees and consultants vest over periods of time, determined by the board of directors. Options granted to investor relations consultants shall vest over a period of at least 1 year.

27

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

13.    CAPITAL STOCK AND RESERVES (continued)

Stock option transactions and the number of stock options outstanding and exercisable are summarized as follows:

	Number of			Weighted Average
	Options			Exercise Price - CAD$
As at December 31, 2009	4,480,000		$	0.87
Issued	1,200,000		$	1.05
Exercised	(427,500	)	$	0.67
Expired	(315,000	)	$	0.75
Forfeited	(37,500	)	$	0.97
As at December 31, 2010	4,900,000		$	0.93
Issued	2,415,000		$	1.62
Exercised	(943,750	)	$	0.72
Forfeited	(56,250	)	$	1.50
As at December 31, 2011	6,315,000		$	1.22

			Options Outstanding				Options Exercisable
	Exercise Price -	Expiry Date	Number of	Weighted		Weighted	Number of		Weighted
	CAD$		Shares Issuable	Average		Average Exercise	Shares Issuable		Average Exercise
			on Exercise	Remaining Life		Price - CAD$	on Exercise		Price - CAD$
				(Years)
$	1.39	January 7, 2013	200,000	1.02	$	1.39	200,000	$	1.39
$	1.27	March 28, 2013	850,000	1.24	$	1.27	850,000	$	1.27
$	1.03	July 14, 2013	850,000	1.54	$	1.03	850,000	$	1.03
$	1.60	November 7, 2013	240,000	1.85	$	1.60	60,000	$	1.60
$	0.45	January 8, 2014	100,000	2.02	$	0.45	100,000	$	0.45
$	0.50	July 22, 2014	750,000	2.56	$	0.50	750,000	$	0.50
$	0.80	October 21, 2014	100,000	2.81	$	0.80	100,000	$	0.80
$	1.05	September 10, 2015	1,087,500	3.70	$	1.05	825,000	$	1.05
$	1.94	February 15, 2016	175,000	4.13	$	1.94	87,500	$	1.94
$	1.17	June 17, 2016	200,000	4.47	$	1.17	100,000	$	1.17
$	1.65	August 2, 2016	1,462,500	4.59	$	1.65	375,000	$	1.65
$	1.60	November 7, 2016	300,000	4.86	$	1.60	75,000	$	1.60
			6,315,000	3.04	$	1.22	4,372,500	$	1.08

Share-based compensation

The Company granted 2,415,000 (2010 – 1,200,000) incentive stock options with a weighted average fair value per option granted of CAD$0.88 (2010 – CAD$0.59) for a total fair value of $2,110,058 (2010 – $657,056).

The following weighted average assumptions were used for the Black-Scholes valuation of stock options.

	2011	2010
Risk-free interest rate	1.74%	2.13%
Expected dividend yield	-	-
Expected stock price volatility	68%	68%
Expected option lives	4.37years	4.46years

The risk-free rate of return is the yield on a zero-coupon Canadian Treasury Bill of a term consistent with the assumed option life. The expected stock price volatility is based on the Company’s historical prices. The expected average option term is the average expected period to exercise, based on historical activity patterns.

The total share-based compensation recognized during the year ended December 31, 2011, under the fair value method, was $1,573,322 (2010 - $463,020).

28

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

13.    CAPITAL STOCK AND RESERVES (continued)

Warrants

Warrant transactions and the number of warrants outstanding are as follows:

	Number of			Weighted Average
	Warrants			Exercise Price - CAD$
As at December 31, 2009	13,888,517		$	0.84
Exercised	(7,016,500	)	$	0.65
Expired	(1,872,017	)	$	1.40
As at December 31, 2010	5,000,000		$	0.90
Issued	1,125,000		$	1.60
Exercised	(562,500	)	$	1.60
As at December 31, 2011	5,562,500		$	0.97

Number of Warrants	Exercise Price - CAD$	Expiry Date
5,000,000	$                      0.90	November 12, 2012
562,500	$                      1.60	May 19, 2013
5,562,500

14.    REVENUES

		2011			2010
Gold revenue - Hedging Facility (1)	$	30,460,233		$	-
Gold revenue - Sandstorm (2)		3,481,657
Gold revenue - spot prices		697,400
Silver revenue		12,086,871			-
		46,726,161			-
Capitalized to Santa Elena Mine (3)		(4,856,037	)		-
	$	41,870,124		$	-

Inaccordance with IFRS - Revenue is recorded at fair value, which for gold and silver is the market spot price on the date revenue is recognized.

⁽¹⁾ The Company delivered 18,769 gold ounces into the Hedge Facilty during 2011, at an average realized price of $925.90. Included in gold revenue is $13,081,984 which is the realized difference between market spot price as at the date of delivery and the hedge price of $926.50 per ounce applied to 18,769 gold ounces. The Company recorded the corresponding reduction of $13,081,984 in derivative instruments liability (note 12).

⁽²⁾ The Company recorded $3,481,657 related to the delivery of 4,793 gold ounces to Sandstorm, which consists of $1,677,306 received in cash and $1,804,351 relating to amortization of deferred revenue (note 9).

⁽³⁾ Prior to commencement of commercial production, April 1, 2011, proceeds from the sale of silver and gold were capitalized to the Santa Elena Mine (note 7).

29

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

15.    COST OF SALES

		2011			2010
Mining	$	7,250,918		$	-
Crushing		3,450,067			-
Processing		2,903,087			-
General and administrative		3,108,096			-
		16,712,168			-
Capitalized to Sana Elena Mine (1)		(2,708,439	)		-
Inventory adjustment		(4,476,841	)		-
	$	9,526,888		$	-

⁽¹⁾ Prior to commencement of commercial production, April 1, 2011, mine operating expenses were capitalized to the Santa Elena Mine.

16.    GENERAL AND ADMINISTRATIVE

		2011		2010
General exploration	$	123,958	$	195,156
Remuneration (note 18)		1,695,523		778,983
Professional fees (note 18)		398,992		199,892
Other corporate expenses		1,232,207		775,189
Mexico corporate expenses		642,758		-
	$	4,093,438	$	1,949,220

17.    EARNINGS (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per share:

		2011		2010
Numerator
Comprehensive earnings (loss) for the year	$	8,434,029	$	(20,006,537	)
Denominator
For basic - weighted average number of common shares outstanding		78,909,624		60,304,687
Effect of dilutive stock options and warrants		3,928,162		-
For diluted - adjusted weighted average number of common shares outstanding		82,837,786		60,304,687
Earnings (loss) per common share
Basic	$	0.11	$	(0.33	)
Diluted	$	0.10	$	(0.33	)

30

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

18.    RELATED PARTY TRANSACTIONS

The Company entered into the following transactions with related parties:

Legal Fees

Paid or accrued $101,949 (2010 - $66,215) for legal fees, which were included in professional fees, and $108,177 (2010 - $Nil) for share issuance costs to a law firm of which an officer of the Company is a partner.

Key Management Compensation

		2011		2010
Salaries and short-term benefits	$	1,193,309	$	824,598
Share-based payments		1,068,774		359,289
	$	2,262,083	$	1,183,887

The increase in salaries and short-term benefits compared with fiscal 2010, related to bonuses paid to senior management in December 2011.

Other transactions

Paid or accrued $Nil (2010 - $139,004) for technical services, which were included in resource property expenditures, to an engineering consulting firm of which an officer of the Company was an officer and shareholder until August 2010.

Paid $98,854 (2010 - $77,083) for technical services to a close member of the family of an individual who is part of key management personnel. The fees were capitalized to property, plant and equipment up to April 1, 2011 and then included in the statement of operations.

19.   SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

Supplemental disclosure of significant non-cash transactions is provided in the table:

		2011			2010
Non-cash investing and financing activities
Capitalized to property, plant and equipment
Asset retirement obligation	$	1,442,916		$	900,973
Accounts payable and accrued liabilities	$	-		$	1,212,116
Sales of gold	$	(1,045,993	)	$	(64,155	)
Finance charges	$	95,023		$	-
Capitalized to exploration and evaluation assets
Accounts payable and accrued liabilities	$	422,737		$	-

31

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

20.    FINANCIAL INSTRUMENTS

The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure. These risks include liquidity risk, credit risk, foreign currency risk, interest rate risk and price risk. Where material, these risks are reviewed and monitored by the Board of Directors.

a.   Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company maintains adequate cash balances and credit facilities in order to meet short and long term business requirements, after taking into account cash flows from operations, and believes that these sources will be sufficient to cover the likely short and long term cash requirements. The Company’s cash is invested in business accounts with quality financial institutions and is available on demand for the Company’s programs, and is not invested in any asset backed commercial paper.

b.   Credit Risk

Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to its liquid financial assets including cash and cash equivalents and taxes receivable. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash and cash equivalents and short term investments with high-credit quality financial institutions. Receivables are due primarily from government agencies in Canada and Mexico.

c.   Foreign Currency Risk

The Company operates in Canada, United States and Mexico, and is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency. The operating results and the financial position of the Company are reported in United States dollars. The fluctuations of the operating currencies in relation to the United States dollar will, consequently, have an impact upon the reporting results of the Company, and may also affect the value of the Company’s assets and liabilities. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks at this time.

At December 31, 2011, the Company is exposed to foreign currency risk through the following financial assets and liabilities held in the following United States dollar equivalents:

		Canadian Dollar		US Dollar			Mexican Peso		Total
Cash and cash equivalents and designated cash	$	8,298,127	$	2,849,156		$	42,991	$	11,190,274
Short term investments		14,749,500							14,749,500
Amounts receivable		541,104		-			-		541,104
Taxes receivable		-		-			3,442,815		3,442,815
Total Assets		23,588,731		2,849,156			3,485,806		29,923,693
Amounts payable and accrued liabilities		387,275		1,785,234			1,482,378		3,654,887
Derivative instruments		-		23,864,207			-		23,864,207
Total Liabilities		387,275		25,649,441			1,482,378		27,519,094
Net Assets (Liabilities)	$	23,201,456	$	(22,800,285	)	$	2,003,428	$	2,404,599

Based on the above net exposures at December 31, 2011, a 10% appreciation (depreciation) of the United States dollar against the Canadian dollar and Mexican Peso, with all other variables held constant, would result in approximately a $2,520,000 decrease (increase) in the Company’s comprehensive earnings for the year.

32

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

20.    FINANCIAL INSTRUMENTS (continued)

At December 31, 2010, the Company was exposed to foreign currency risk through the following financial assets and liabilities held in the following United States dollar equivalents:

		Canadian Dollar		US Dollar			Mexican Peso		Total
Cash and cash equivalents and designated cash	$	6,773,593	$	2,213,105		$	47,925	$	9,034,623
Amounts receivable		90,253		-			40,810		131,063
Taxes receivable		-		-			1,216,977		1,216,977
Total Assets		6,863,846		2,213,105			1,305,713		10,382,663
Amounts payable and accrued liabilities		492,491		479,616			417,393		1,389,500
Long term debt		-		11,454,742			-		11,454,742
Derivative instruments		-		28,468,843			-		28,468,843
Total Liabilities		492,491		40,403,201			417,393		41,313,085
Net Assets (Liabilities)	$	6,371,355	$	(38,190,096	)	$	888,319	$	(30,930,422	)

d.   Interest Rate Risk

The Company’s exposure to interest rate risk arises from the interest rate impact on its cash and cash equivalents and short term investments. The Company’s practice has been to invest cash at floating rates of interest, in cash equivalents and short term investments, in order to maintain liquidity, while achieving a satisfactory return for shareholders. There is minimal risk that the Company would recognize any loss as a result of a decrease in the fair value of any guaranteed bank investment certificates as they are held with large and stable financial institutions. At December 31, 2011, with all other variables unchanged, a 1 percentage point change in interest rates would not have a significant impact on the Company’s comprehensive earnings for the year.

e.   Price Risk

The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The commodity price risk could affect the completion of future equity transactions such as equity offerings and the exercise of stock options and warrants. The Company closely monitors commodity prices of precious metals, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company. In order to mitigate the commodity price risk, the Company as a requirement under the Project Loan entered into a gold price protection program (note 12).

Financial instruments carrying value and fair value

The Company’s financial instruments consist of cash and cash equivalents, short term investments, amounts receivable, taxes receivable accounts payable and accrued liabilities and derivative instruments.

The fair values of amounts receivable and accounts payable and accrued liabilities approximate their carrying values due to the short term to maturities of these financial instruments.

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into a hierarchy based on the degree to which the fair value is observable. Level 1 fair value measurements are derived from unadjusted, quoted prices in active markets for identical assets or liabilities. Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability directly or indirectly. Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

The Company’s cash and cash equivalents and short term investments are classified as Level 1 financial instruments and derivative instruments are classified as Level 2 financial instruments.

33

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

21.    INCOME TAXES

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

		2011			2010
Income (loss) for the year	$	10,805,419		$	(18,969,359	)
Expected income tax (recovery)		2,863,000			(5,406,267	)
Change in statutory, foreign tax and foreign exchange		(635,000	)		701,670
Permanent differences		93,000			(153,628	)
Share issue costs		(533,000	)		-
Adjustment to prior years provision versus statutory		3,830,000			323,410
Change in unrecognized deductible temporary differences		(4,269,000	)		4,534,815
Total income tax expense	$	1,349,000		$	-
Current income tax	$	985,000			-
Deferred tax expense	$	364,000			-

The significant components of the Company’s deferred tax assets and liabilities are as follows:

		2011			2010
Deferred Tax Assets (Liabilities)
Exploration and evaluation assets	$	3,628,000		$	-
Property, plant and equipment		(3,992,000	)		-
Net defered tax liability	$	(364,000	)	$	-

The significant components of the Company’s unrecorded deferred tax assets and liabilities are as follows:

		2011		2010
Deferred Tax Assets (Liabilities)
Exploration and evaluation assets	$	388,000	$	7,350,000
Property, plant and equipment		40,000		(5,413,000	)
Canadian eligible capital		199,000		188,000
Other deferred tax assets		506,000		169,000
Deferred revenue		147,000		127,000
Allowable capital losses		-		76,000
Non-capital losses available for future period		2,467,000		5,610,000
Unused deferred tax assets	$	3,747,000	$	8,107,000

The significant components of the Company’s temporary differences and unused tax losses area as follows:

		2011		2010		Expiry Date Range
Exploration and evaluation assets	$	1,550,000	$	24,769,000		No expiry
Property, plant and equipment		150,000		(18,031,000	)	No expiry
Canadian eligible capital		795,000		752,000		No expiry
Other deferred tax assets		2,024,000		676,000		2012-2015
Deferred revenue		600,000		508,000		No expiry
Allowable capital losses		-		303,000		No expiry
Non-capital losses available for future period
Canada		9,526,000		11,716,000		2014-2031
Mexico		283,000		8,381,000		2015-2021
Unused temporary differences	$	14,928,000	$	29,074,000

34

SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2011 and 2010	TSX.V:SVL

22. SEGMENTED INFORMATION

The Company has three reportable segments, those being the mine operations at Santa Elena, Mexico; mine exploration and evaluation projects at La Joya and Cruz de Mayo, Mexico; and Corporate. The Corporate segment is responsible for the evaluation and acquisition of new mineral properties, management of cash and cash equivalents, regulatory reporting and general corporate activities conducted in Canada and Mexico.

Geographic segment details are as follows:

2011		Canada		Mexico		Total
Revenue	$	-	$	41,870,124	$	41,870,124
Property, plant and equipment		41,231		32,807,667		32,848,898
Exploration and evaluation assets		-		4,352,304		4,352,304
2010
Revenue	$	-	$	-	$	-
Property, plant and equipment		13,448		37,332,153		37,345,601
Exploration and evaluation assets		-		1,729,003		1,729,003

Segmented information is presented as follows:

2011		Santa Elena			Other Mexico		Corporate			Total
					Projects
Revenue	$	41,870,124		$	-	$	-		$	41,870,124
Cost of Sales		(9,526,888	)		-		-			(9,526,888	)
Depletion, depreciation and accretion		(3,386,674	)		-		-			(3,386,674	)
Mine operating earnings		28,956,562			-		-			28,956,562
Current income tax		(985,000	)		-		-			(985,000	)
Deferred income tax		(364,000	)		-		-			(364,000	)
Other income (expense)		(13,538,203	)		-		(4,612,940	)		(18,151,143	)
Earnings (loss) for the year	$	14,069,359		$	-	$	(4,612,940	)	$	9,456,419
Property, Plant and Equipment	$	32,807,667		$	-	$	41,231		$	32,848,898
Exploration and evaluation assets	$	-		$	4,352,304	$	-		$	4,352,304

2010		Santa Elena			Other Mexico		Corporate			Total
					Projects
Revenue	$	-		$	-	$	-		$	-
Cost of Sales		-			-		-			-
Depletion, depreciation and accretion		-			-		-			-
Mine operating earnings		-			-		-			-
Other income (expense)		(18,694,631	)		-		(274,728	)		(18,969,359	)
Earnings (loss) for the year	$	(18,694,631	)	$	-	$	(274,728	)	$	(18,969,359	)
Property, Plant and Equipment	$	37,332,153		$	-	$	13,448		$	37,345,601
Exploration and evaluation assets	$	-		$	1,729,003	$	-		$	1,729,003

23.    SUBSEQUENT EVENTS

The following events occurred subsequent to December 31, 2011:

a)	2,552,200 warrants were exercised at CAD$0.90 and CAD$1.60 per share for cash proceeds of $2,330,000.
b)	50,000 options were exercised at CAD$1.39 per share cash proceeds of $69,700.

35