MINCO SILVER CORPORATION  (A development stage enterprise)    Consolidated Financial Statements  (Expressed in Canadian dollars)    December 31, 2008 and 2007    Index    Auditors Report    Consolidated Balance Sheets    Consolidated Statements of Operations and Comprehensive Loss and Deficit    Consolidated Statements of Cash Flows    Notes to Consolidated Financial Statements   
 

 

 

 

 

 

 

 

 1     Management's Responsibility for Financial Reporting     The consolidated financial statements and the information contained in the annual report are the responsibility of the Board of Directors and management. The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles and include certain estimates that reflect management's best judgments' on information currently available. In the opinion of management, the accounting practices utilized are appropriate in the circumstances and the consolidated financial statements fairly reflect the financial position and results of operations of the Company within reasonable limits of materiality.     The Audit Committee of the Board of Directors is composed of three Directors and meets periodically with management and the independent auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board of Directors for approval.     The consolidated financial statements have been audited by Ernst & Young LLP, Chartered Accountants, who were appointed by the shareholders. The auditors' report outlines the scope of their examination and their opinion on the consolidated financial statements.   Ken CaiEllen Wei      President and CEOInterim, Chief Financial Officer      Vancouver, Canada   March 31, 2009    2        Report of Independent Auditor      To the Shareholders of      MINCO SILVER CORPORATION      We have audited the consolidated balance sheets of Minco Silver Corporation as at December 31, 2007 and 2007 and the consolidated statements of operations and comprehensive loss and deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.      In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in conformity with Canadian generally accepted accounting principles.      Vancouver, Canada      Chartered Accountants    3    MINCO SILVER CORPORATION(A development stage enterprise)Consolidated f Balance Sheets(Expressed in Canadian Dollars)           December 31,  December 31,    2008  2007 ASSETS              Current assets      Cash $1,174,021  $2,647,546 Short-term investments (Note 4)  3,706,506   14,219,920 Receivables  147,262   193,022 Due from Minco Gold (Note 11(a))  -   1,929,893 Prepaid expenses and deposits  370,969   22,704 Total current assets  5,398,758   19,013,085           Loan receivable (Note 5)  6,771,068   - Mineral interests (Note 2, 6)  5,294,098   - Plant, property and equipment (Note 7)  265,561   244,084 Total assets $17,729,485  $19,257,169           LIABILITIES                  Current liabilities        Accounts payable and accrued liabilities $703,088  $968,279 Due to Minco China (Note 11(b))  939,806   4,639,788 Due to Minco Gold (Note 11(c))  306,476   - Total liabilities  1,949,370   5,608,067 Commitments and contingencies (Notes 6, 12 and 13)                  SHAREHOLDERS' EQUITY                  Share capital (Note 8 (a))  25,799,213   21,804,252 Contributed surplus (Note 8 (c))  6,692,188   6,260,998 Deficit  (16,711,286 )  (14,416,148 )Total shareholders' equity  15,780,115   13,649,102 Total liabilities and shareholders' equity $17,729,485  $19,257,169  See Subsequent Events Note 16 See accompanying notes to consolidated financial statements On behalf of the Board:  "Chan-Seng Lee"  "William Meyer"    Chan-Seng Lee  William Meyer              Director  Director See accompanying notes to consolidated financial statements  4  MINCO SILVER CORPORATION(A development stage enterprise)Consolidated Statements of Operations and Comprehensive Loss and Deficit(Expressed in Canadian Dollars)           Year ended  Year ended    December 31, 2008  December 31, 2007         Exploration costs (Note 5)  1,814,641   4,783,545 Total exploration costs  1,814,641   4,783,545           Administrative expenses        Accounting and audit  76,155   64,094 Amortization  49,147   26,533 Consulting  145,219   66,965 Director s fees (Note 10 (c))  55,250   56,833 Foreign exchange gain  (1,440,314 )  (233,629 )Investor relations  545,518   528,349 Legal, regulatory and filing  83,779   98,456 Rent  142,851   101,194 Travel and entertainment  82,975   50,510 Office administration expenses  91,512   126,041 Property investigation  40,016   104,445 Salaries and benefits  253,829   386,792 Stock based compensation (Note7 (d))  1,123,349   1,707,000 Field office expenses  119,996   177,826               1,369,282   3,261,409 Operating loss  (3,183,923 )  (8,044,954 )          Interest and sundry income  888,785   769,837           Loss and Comprehensive Loss for the year  (2,295,138 )  (7,275,117 )          Deficit, beginning of year  (14,416,148 )  (7,141,031 )                    Deficit, end of year $(16,711,286) $(14,416,148)          Loss per share - basic and diluted $(0.07) $(0.23)          Weighted average number of common shares outstanding        basic and diluted  31,767,488   31,054,523  See accompanying notes to consolidated financial statements  5  MINCO SILVER CORPORATION(A development stage enterprise)Consolidated Statements of Cash Flow(Expressed in Canadian Dollars)           Year ended  Year ended    December 31, 2008  December 31, 2007 Cash flows from (used in) operating activities              Net loss for the year $(2,295,138) $(7,275,117)          Adjustment for items not involving cash:        - stock-based compensation (Note 8(d))  1,123,350   1,707,000 - amortization  49,147   26,533 - foreign exchange gain  (1,440,314 )  (233,629 )Changes in non-cash working capital items:        - decrease (increase) in receivables  45,760   (34,620 )- decrease (increase) in prepaid expense and deposits  (348,264 )  11,299 - increase (decrease) in accounts payable and accrued liabilities  (524,085 )  (414,043 )              (3,389,544 )  (6,212,577 )          Cash flows from financing activities        Proceeds from issuance of shares and warrants (Note 8 (a))  2,942,716   397,681 Due from Minco Gold (Note 11 (a))  1,929,893   - Advances from (repayments to) to Minco China (Note 11(b))  (3,393,506 )  2,267,491               1,479,103   2,665,172           Cash flows from (used in) investing activities        Development costs incurred  (4,675,120 )  - Acquisition of plant, property and equipment  (70,624 )  (190,098 )Loan receivable (Note 5)  (5,776,068 )  - Decrease (increase) in short-term investments  10,513,414   6,065,656               (8,398 )  5,875,558           Effect of exchange rate changes on cash  445,314   233,629           Increase (decrease) in cash  (1,473,525 )  2,561,782           Cash, beginning of year  2,647,546   85,764           Cash, end of year $1,174,021  $2,647,546           Supplemental disclosure of cash flow information        Interest paid in cash $-  $- Income taxes paid in cash $-  $- See accompanying notes to consolidated financial statements  6  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)1.Nature of Business and Going Concern        Minco Silver Corporation ("Minco Silver" or the  "Company") was incorporated on August 20, 2004 under the laws of British Columbia, Canada. Its principal business activities include the acquisition, exploration and development of silver mineral properties.        At December 31, 2008, Minco Gold Corporation (formerly Minco Mining & Metals Corporation) ("Minco Gold") owned a 40.48% (2007 41.75%) equity interest in Minco Silver Corporation.        Minco Silver is exploring, evaluating and developing silver mineral properties and projects in the Peoples Republic of China ("China") with the aim of bringing properties to production. The ability of the Company to meet its commitments as they become payable, the exploration and development of mineral properties and projects, and the underlying value of the mineral properties are entirely dependent upon the existence of economically recoverable reserves, the ability of the Company to arrange appropriate financing to complete the exploration and development of its properties, the receipt of necessary permits and upon achieving future profitable production or receiving proceeds from the disposition of the properties. The timing of such events occurring, if at all, is not yet determinable. The Company is considered to be a development stage enterprise as it has not yet generated any revenue from operations.        These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company does not generate revenues and has accumulated losses since inception and is unlikely to generate earnings in the immediate future. The continuation of the Company as a going concern is dependant upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to achieve its operating and developing objectives, confirmation of the Company s interests in the underlying properties and the attainment of profitable operations. Management has concluded that the Company has sufficient cash and cash equivalents and short-term investments and no debt obligations (outside of normal course accounts payable and accrued liabilities) to continue to meet its operating and development obligations. Accordingly, these financial statements do not reflect the adjustments to the carrying value of assets and liabilities, or the impact on the statement of operations and balance sheet classifications that would be necessary were the going concern assumption not appropriate. Management can not provide assurances that such plans will occur.   7  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)2.Change in Accounting Policy        Development of Mineral Interests        Prior to December 31, 2008, the Company s accounting policy was to commence capitalizing mineral property development costs only upon the establishment of proven and probable reserves based on results of final feasibility studies which indicate whether a property is economically feasible. Prior to January 1, 2008, the Company had not previously identified any properties that it would take from exploration to development and through to production.        On December 31, 2008, the Company changed this policy to more appropriately align its policy with those applied by other comparable mineral property exploration and development companies at a similar stage. The Company s new policy to commence capitalization of mineral property development costs until a mineral resource having economic potential is identified on a property, from which time a property is considered to be a development project and such expenditures are capitalized as development costs. A mineral resource is considered to have economic potential when it is expected that documented resources can be legally and economically developed considering long-term metal prices.        Prior to January 1, 2008, the Company capitalized only mineral property and mineral rights acquisition costs. Exploration permit acquisition, exploration and development costs were expensed as incurred, as proven and probable reserves had not been established.        During 2008, management determined that the Fuwan Silver deposit area had met the criteria for treatment as a development property effective March 5, 2008 and as such has capitalized expenditures relating to the Fuwan Silver project. The Company has continued to expense exploration costs associated with other exploration activities including current year regional drilling programs.        The effect of the new policy on the current year financial statements is to capitalize $5.3 million of development related costs to  "Mineral Interests". As there had previously been no projects or properties determined to have met the necessary criteria for capitalization, there is no effect of the new policy on prior years.      3.Significant Accounting Policies        a. Basis of Presentation and Consolidation        These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. These consolidated financial statements include the accounts of Minco Silver Corporation, Minco Silver, Ltd. and Foshan Minco FuWan Mining Co. Ltd ("Foshan Minco") which is subject to a 10% carried interest (note 6).        All material inter-company accounts and transactions have been eliminated upon consolidation.   8  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 3.Significant Accounting Policies (continued)        b. Use of Estimates and measurement of uncertainty        The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the period reported. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changes in such estimates in future periods could be significant. Accounts that require management to make material estimates and significant assumptions in determining the amounts recorded include amortization, mineral interests, accrued liabilities, income taxes and contingencies. Actual results could differ from those estimated.        c. Short-term Investments        Short-term investments comprise marketable securities, highly liquid investment grade bonds, and guaranteed investment certificates with remaining terms to maturity of greater than 90 days when acquired. Short-term investments are classified as held-for-trading financial instruments in accordance with the requirements of Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3855  "Financial Instruments", adopted by the Company on January 1, 2007. These investments are recorded at fair value with unrealized gains and losses being recorded in income in the current period.        d. Impairment        The carrying values of mineral interests and plant, property and equipment are reviewed on an annual basis and when changes in circumstances suggest their carrying value may become impaired. Management considers assets to be impaired if the carrying value exceeds the estimated undiscounted future projected cash flows from the use of the asset or mineral interests and its eventual disposition. If impairment is deemed to exist, the assets or development property will be written down to fair value with a charge to operations.        e. Stock Based Compensation        The Company grants stock options to buy common shares of the Company to directors, officers, employees and service providers. The board of directors grants such options for periods of up to five years, with vesting periods determined at its sole discretion and at prices equal to or greater than the closing market price on the day preceding the date the options were granted.        The Company applies the fair-value method of accounting in accordance with the recommendations of CICA Handbook Section ("CICA 3870"),  "Stock-based Compensation and Other Stock-based Payments". Stock-based compensation expense is calculated using the Black-Scholes option pricing model with a corresponding credit to contributed surplus, on a straight-line basis over the vesting period. Warrants granted are recorded at estimated fair values using the Black-Scholes pricing model. If and when the stock options or warrants are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital.   9  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 3.Significant Accounting Policies (continued)        f. Acquisition, Exploration and Development of Mineral Interests        During the year ended December 31 2008, the Company changed its accounting policy relating to mineral property development expenditures. The Company now capitalizes development costs identified as associated with the development stage, however, continues to expense as incurred costs during the exploration stage (see note 2).        Costs incurred for the acquisition of mineral property and mineral rights, including option payments under acquisition agreements, are capitalized until such time as the related interest is placed into production, sold, abandoned or where management has determined that conditions of impairment in carrying value have occurred.        Where a specific mineral interest property is identified as having a resource with economic potential, costs specific to the development of the particular project are capitalized as development costs and carried at cost until the properties to which they relate are placed into commercial production, sold, abandoned or determined by management to be impaired in value.        A mineral resource is considered to have economic potential when it is expected that documented resources can be legally and economically developed considering long-term metal prices. Therefore, prior to capitalizing such costs, management determines that the following conditions have been met:          i.There is a probable future benefit that will contribute to future cash inflows;              ii.The Company can obtain the benefit and control access to it; and              iii.The transaction or event giving rise to the benefit has already occurred.        Costs of abandoned projects are charged to operations upon abandonment. Costs relating to any producing mineral interest would be amortized on the unit-of-production method based on the estimated life of the ore reserves, while costs for the prospects abandoned would be written-off. Costs incurred after the property is placed into production that increase production volume or extend the life of the mine are capitalized. Common shares issued for mineral property acquisition are recorded when issued based on the fair value of the shares at the date of issuance.        The recoverability of the amount capitalized for the capitalized mineral interests is dependent upon the determination of economically recoverable ore reserves, confirmation of the Company's interest in the underlying mineral claims, the ability to farm-out its resource properties, the ability to obtain the necessary financing to complete their development and future profitable production or proceeds from the disposition thereof.        Capitalized costs as reported represent the lesser of actual costs incurred to date or estimated fair value. Ultimate recovery of carrying value is dependent upon future commercial success from participating interests or proceeds from disposition of the mineral property interests. Management evaluates each mineral interest as events and   10  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 3.Significant Accounting Policies (continued)   changes in circumstances warrant, and makes a determination based on development activity and results, estimated future cash flows and availability of funding as to whether carrying values have been impaired. Mineral interests, where future cash flows are not reasonably determinable, are evaluated for impairment based on the result of continued delineation of the ore body, management s intentions and determination of the extent to which future exploration programs are warranted and likely to be funded.        Costs incurred for new project evaluation and consulting where no acquisition or future benefits are expected to be derived and no specific mineral interest property development programs has been planned and budgeted by management are expensed as incurred.        g. Plant, Property and Equipment        Plant, property and equipment are recorded at cost less accumulated amortization and depletion.        Amortization is calculated using the following methods based on the asset s estimated useful lives:   Computer Equipment30% per year declining-balance  Leasehold Improvements5 year, straight-line basis  Mining Equipment30% per year declining-balance  Motor Vehicles30% per year declining-balance  Office Equipment and Furniture20% per year declining-balance  Amortization is provided at half the annual rate in the year of acquisition.        h. Asset Retirement Obligations        The Company recognizes the fair value of liabilities for asset retirement obligations in the period in which they are incurred and in which a reasonable estimate of such costs can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related asset and depreciated over the life of the asset. Over time, the liability is increased to reflect an interest element (accretion expenses) considered in its initial measurement at fair value. The amount of liability will be subject to re-measurement at each reporting period. It is possible that the Company s estimates of its ultimate reclamation and closure liabilities could change as a result of changes in regulations, the extent of environmental remediation required, and the means of reclamation or cost estimates. Changes in estimates are accounted for prospectively from the period the estimate is revised.        As at December 31, 2008 and 2007, the Company did not have any asset retirement obligations.        i. Revenue/Income Recognition        The Company does not currently earn revenue from operations. Interest income on cash, short-term investments and loans are recognized as it is earned.   11  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 3.Significant Accounting Policies (continued)        j. Financial instruments        Financial assets        Initial recognition - Financial assets are classified at fair value being receivables, held-for-trading investments, held-to-maturity investments, available-for-sale financial assets, loans receivable or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition.        Financial assets purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way purchases) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.        The Company's financial assets include cash and short-term investments, receivables and loans receivable        Subsequent measurement - The subsequent measurement of financial assets depends on their classification as follows:        Financial assets at fair value - include financial assets held for trading and financial assets designated upon initial recognition at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Financial assets are carried in the balance sheet at fair value with gains or losses recognized in the income statement.        Loans and receivables - Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are carried at amortized cost using the effective interest rate method. Gains and losses are recognized in the income statement when the loans and receivables are derecognized or impaired, as well as through the amortization process        Financial liabilities        Initial recognition - Financial liabilities are classified as accounts payable and accrued liabilities, loans and borrowings, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.        Financial liabilities are recognized initially at fair value and in the case of loans and borrowings, directly attributable transaction costs.        Loans and borrowings - After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the amortization process.   12  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)3.Significant Accounting Policies (continued)        Fair value of financial instruments - The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For financial instruments where there is no active market, fair value is determined using various valuation techniques. Impairment of financial assets        The Company assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.        k. Income Taxes        The Company follows the liability method of accounting for income taxes. Future income taxes are recognized for the future tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases on the balance sheet date. Future income tax assets and liabilities are measured using substantially enacted income tax rates expected to apply in which temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in substantially enacted rates is included in operations. A future income tax asset is recorded when the probability of the realization is more likely than not.        l. Loss Per Share        Basic loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares using the treasury stock method. If the Company incurred net losses in fiscal year no adjustment to the computation of loss per share is required as their inclusion would be anti-dilutive.        m. Translation of Foreign Currencies        The Company s functional currency is the Canadian dollar as the Company has raised its treasury in Canadian funds and when funds are advanced to Chinese subsidiary, the investment is treated as registered capital. The functional currency within the Chinese operations is the China RMB. The Company follows the temporal method of accounting for the translation of its integrated foreign operations and for foreign currency transactions. Under this method, transactions denominated in foreign currencies are   13  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)3.Significant Accounting Policies (continued)        translated into Canadian dollars at the exchange rates prevailing at the transaction dates. At year-end, monetary assets and liabilities are re-measured at the year-end exchange rates, and non-monetary assets and liabilities denominated in foreign currencies are translated to Canadian dollars at their historical exchange rates. The exchange gains and losses on translation are charged to operations.        n. Comprehensive Income        The Company reports their comprehensive income, which are changes in equity, from transactions and other events and circumstances from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with Canadian GAAP.        o. Adoption of Recent Accounting Pronouncements        On January 1, 2008, the Company adopted six standards that were issued by the Canadian Institute of Chartered Accountants: Handbook Section 1400, General Standards of Financial Statement Disclosure ("Section 1400"), Handbook Section 1506, Accounting Changes ("Section 1506"), Handbook Section 1535, Capital Disclosures ("Section 1535"), Handbook Section 3031, Inventories ("Section 3031"), Handbook Section 3862, Financial Instruments - Disclosures ("Section 3862") and Handbook Section 3863, Financial Instruments - Presentation ("Section 3863"). These standards were adopted on a prospective basis without restatement of prior periods.        (i) General Standards of Financial Statement Disclosure - Section 1400   Section 1400, General Standards of Financial Statement Disclosure establishes standards for assessing a company s ability to continue as a going concern and disclosing any material uncertainties that cast doubt upon its ability to continue as a going concern. The Company s disclosure reflects such assessment and discussion (see Note 1).        (ii) Accounting Changes Section 1506   Section 1506, Accounting Changes, prescribes the criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. This Section allows for voluntary changes in accounting policies only if they result in the consolidated financial statements providing reliable and more relevant information. In addition, this Section requires entities to disclose the fact that they did not apply a primary source of GAAP that have been issued but not yet effective. The adoption of this Section has had an impact on the financial position or results of operations for the year ended December 31, 2008 as the change in accounting policy, described in note 2 had to meet the standard of providing reliable and more relevant information of the Company s financial position and performance..        (iii) Capital disclosures Section 1535   Section 1535, Capital Disclosures, establishes disclosure requirements regarding an entity s capital, including (i) an entity s objectives, policies, and processes of managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the   14  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)3.Significant Accounting Policies (continued)        entity has complied with any externally imposed capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. The new standard has had no impact on the financial position or results of operations for the year ended December 31, 2008.        (iv) Financial instruments Sections 3862 and 3863   Section 3862, Financial Instruments Disclosures and Section 3863, Financial Instruments Presentation replace Section 3861 Financial Instruments Disclosure and Presentation. These new sections revise and enhance disclosure requirements while leaving presentation requirements unchanged. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The new standards have had no impact on the financial position or results of operations for the year ended December 31, 2008.        (v) Inventories Section 3031   Section 3031, Inventories, provides more guidance on the measurement and disclosure requirements for inventories. Specifically the new pronouncement requires inventories to be measure at the lower of cost or net realizable value, and provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. The new standard has had no impact on the financial position or results of operations for the year ended December 31, 2008.        p. Recent Accounting Pronouncements        (i) Convergence with International Financial Reporting Standards   In 2006, Canada s Accounting Standards Board ratified a strategic plan that will result in Canadian GAAP, as used by public companies, being evolved and converged with International Financial Reporting Standards (IFRS) over a transitional period to be complete by 2011. The official changeover date from Canadian GAAP to IFRS is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company has not yet assessed the impact of the ultimate adoption of IFRS on the Company.        (ii) Goodwill and Intangibles Section 3064   The CICA issued the new Handbook Section 3064,  "Goodwill and Intangible Assets", which will replace Section 3062, "Goodwill and Intangible Assets". The new standard establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard applies to the Company s annual and interim financial statements beginning January 1, 2009. The Company does not expect the adoption of this change to have an impact on its consolidated financial statements.        (iii) Sections 1582, Business Combinations, 1601, Consolidations and 1602, Non-controlling Interests   In January 2009, the CICA issued these new sections to replace Section 1581,  "Business Combinations" and Section 1600, "Consolidated Financial Statements." Section 1582 will apply to a transaction in which the acquirer obtains control of one or more businesses (as   15  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 3.Significant Accounting Policies (continued)        defined in the Section). Most assets acquired and liabilities assumed, including contingent liabilities that are considered to be improbable, will be measured at fair value. A bargain purchase will result in the recognition of a gain. Acquisition costs will be expensed. Any non-controlling interest will be recognized as a separate component of shareholders equity and net income will be allocated between the controlling and noncontrolling interests. These new standards will apply to fiscal years beginning on or after January 1, 2011. The Company does not believe that these new Sections will have an impact on its financial statements unless the Company enters into a business acquisition subsequent to January 1, 2011.        (iv) EIC-173 Credit Risk and the Fair Value of Financial Assets and Liabilities        In January 2009 the Emerging Issues Committee ("EIC") issued EIC-173. In this EIC the Committee reached a consensus that in determining the fair value of financial assets and financial liabilities an entity should take into account the credit risk of the entity and the counterparty. The EIC is effective for periods ending after the issuance date, the Company is evaluating the effect of EIC-173 and will adopt prospectively.        (v) EIC 174 Mining Exploration Costs        On March 27, 2009 the EIC issued EIC-174. In this EIC the Committee reached a consensus that an enterprise that has initially capitalized exploration costs has an obligation in the current and subsequent accounting periods to test such costs for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The EIC is effective for periods ending after the issuance date and the Company has adopted the EIC-174,        q. Certain comparative figures have been reclassified to conform with the presentation as at and for the year ended December 31, 2008.      4.Short-term Investments        As at December 31, 2008, short-term investments consist of cashable guaranteed investment certificates ($3.5 million) and corporate notes ($0.2 million). The yields on these investments were 1.50% to 4.55%.        As at December 31, 2007, short-term investments consist of bankers acceptance ($1.5 million) cashable guaranteed investment certificates ($10.0 million) and corporate notes ($2.5 million). The yields on these investments were 3.75% to 6.75% per year.      5.Loan Receivable (also see Note 16 Subsequent Events)        On July 22, 2008 the Company announced that Minco Silver executed a letter of intent with Sterling Mining Company ("Sterling") to acquire 100% of the issued and outstanding common shares of Sterling, at a ratio of 0.51 of a Minco Silver share for each one of Sterling s shares, based upon Minco Silver s July 21, 2008 closing price. The offer valued Sterling at US $62.3 million.   16  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 5.Loan Receivable (continued)        The Company also extended a line of credit in the amount of US$15.0 million ("the facility") to be advanced from time to time to meet general working capital and other operating expenses to carry on Sterling s business, of which US$5.0 million was advanced on July 30, 2008; bearing 10% simple interest plus fees and expenses. It is a term of the facility that any and all subsequent advances be conditional upon the successful completion of an extended due diligence review of Sterling s operations and the execution of a definitive agreement.        The letter of intent also provided for a break fee in the amount of US$2.75 million payable to Minco Silver under certain conditions. This break fee is listed as one of the unsecured creditors and is not recorded in these financial statements.        On August 27, 2008 the Company terminated the obligation to acquire 100% of the outstanding common shares of Sterling and the obligation to advance the additional US$10.0 million under the line of credit, as provided in the facility.        To secure the US$5.0 million advance (plus interest and fees); Minco Silver and Sterling executed the following:        (a)a Secured Promissory Note to secure and evidence the US$5.0 million advance in which Sterling promises to pay to the order of the Company;        (b)an All Assets Security Agreement and a Mortgage, Assignment of Leases and Rents Security Agreement and Fixture Filing in which Sterling agreed to provide a second charge security on all of the assets and properties of Sterling with the exception of the Sunshine Lease        (c)an Assignment and Assumption Agreement in which Sterling assigns the Sunshine Mine under lease to the Company.          The US$5.0 million advance is secured by a perfected secured interest in all of Sterling s, now or future personal and real property, including all mineral leases, rents and mortgages.          The Company s secured interest is seconded to a previous loan in the amount of US$1.4 million, whereby another secured creditor has first priority over this amount. The Company also has a perfected secured interest in the lease of Sterling s main asset, the Sunshine Mine.         Sterling Loan December 31    2008  2007 Principal Amount (US$5.0 million) $5,119,000  $- Foreign exchange gain  995,000   - Interest on principal amount  386,231   -     6,500,231   - Expenses  155,916   - Interest on expenses  7,428   -     163,344   - Late payment penalty  107,493   - Total $6,771,068  $-   17  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)5.Loan Receivable (continued)        Since Minco Silver terminated its obligation to Sterling and prior to December 31, 2008, Sterling has:            1.Ceased mining operations;                  2.Delisted from the Toronto Stock Exchange; and                  3.Laid off its work force.              The Company believes that the estimated fair value of Sterling's assets in which it holds a security interest is significantly in excess of the carrying value of the loan as at December 31, 2008. However, the note is presented as a non-current asset as the timeframe for realization of the current interest is indeterminate."      6.Mineral Interests        Guangdong Province, China        On August 20, 2004, Minco Gold transferred the following mineral interests to the Company:          (a)The right to earn a 51% interest in the Changkeng Silver Interest;              (b)A preliminary working agreement in relation to the exploration and development of the Fuwan silver deposit (the  "Fuwan Silver Project"); and              (c)New exploration permits acquired or to be acquired in respect of certain mineral properties adjoining the Fuwan and Changkeng properties and known as the Guanhuatang, Luoke-Jilinggang, Guyegang-Sanyatang and Dadinggang properties, respectively.        Minco Gold was the sole shareholder of the Company and the two companies had common management at the time of the transaction. As at the date of transfer, Minco Gold had expended $63,331 in preliminary exploration costs. As a result of a series of transactions and agreements between September 2004 and the current year end, the Company is now responsible for all of the exploration and development expenditures on the property.        Fuwan Silver Deposit        On July 20, 2005, the Ministry of Land and Resources, China, approved the transfer of the Fuwan Exploration Permit to Minco Mining (China) Corporation ("Minco China"), a wholly-owned subsidiary of Minco Gold. The total amount of the exploration permit had been fully paid   18  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)6.Mineral Interests (continued)   The exploration permits owned by the Company are held through Minco China for and on behalf of the Company. Although the Company has taken steps to verify the title to mineral properties in which it has an interest in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company s title. Property title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects. In July 2008 the Company incorporated Foshan Minco as the operating company for the Fuwan project. In December 2008, the exploration permits for the project held by Minco China were transferred to Foshan Minco. Minco Silver currently has 100% controlling interest in Foshan Minco with the 10% carried interest in Foshan Minco being earned by GGEDC. There will be no distributions or participation by GGEDC, until such time as Minco Silver s capital invested is returned to Minco Silver and the mine is in production and there are net profits for distribution. GGEDC is not required to fund any of the development or production capital, is not required to participate in any working capital calls to fund start up or participate in any losses that may be incurred. GGEDC will provide professional services and technical assistance to the Company in relation to the Company s mining activities in Guangdong Province, China in return for its10% net profit interest in the Fuwan Silver Project.      During the year ended December 31, 2008, the Company changed its accounting policy relating to mineral interest exploration expenditures. The Company now capitalizes costs identified as associated with the development stage, however continues to expense as incurred costs during the exploration state (see note 2).      Management has determined that the Fuwan Silver deposit area met criteria for capitalization of development costs in the first quarter of 2008 and has been capitalizing development costs relating to the main Fuwan Silver Deposit since that time. The Company will continue to expense exploration costs associated with other exploration activities including current year regional drilling programs.      The following is a summary of exploration costs incurred and expensed by the Company on the Fuwan project up until March 2008, at which time the Fuwan Silver deposit project as placed into the development stage (note 2):          Fuwan Silver Deposit 2008  2007 Consulting fees $742,482  $- Drilling  1,738,039   - Labour Cost  229,311   - Feasibility Study  1,113,032   - Stock based compensation  360,086   - Other development costs  1,111,148   -           Total $5,294,098  $-   19  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)6.Mineral Interests (continued)        The following is a summary of exploration costs incurred and expensed by the Company on the Fuwan project up until March 2008, when the Company changed its accounting policy (see Note 2):               January 1, 2008 to March 5, 2008  Year ended December 31,2007  Cumulative from August 20, 2004(inception) to December 31, 2008            Fuwan Exploration         Consulting fees $81,174  $635,427  $1,776,892 Drilling  594,387   2,862,690   7,705,558 Labour costs  43,674   277,338   684,904 Other exploration costs  41,212   1,008,090   2,223,612 Total $760,447  $4,783,545  $12,390,996   Regional Exploration        On April 7, 2005, the Company acquired three additional silver exploration permits in China, referred to as the Guanhuatang Property, the Luoke-Jilinggang Property and the Guyegang-Sanyatang Property; and paid $267,427 (RMB1,500,000) for the three permits in September 2005.        The permit application for Dadinggang Property was approved by the Ministry of Lands and Resources in China in December 2006. The Dadinggang area, which covers the northeast extension of the Fuwan Silver Project, has been added to the Luoke-Jilinggang exploration permit.        During 2008, the regional exploration activities were focused on an area down strike from the Fuwan Silver main deposit, where the Company drilled 18 holes totaling 5,003 meters, to test the major drilling targets on the extension of the Fuwan Silver Trend which were generated on the basis of all historical data and results of the ground magnetic and IP surveys completed in the second quarter of 2008.            Regional Exploration Year ended December 31,2008  Year ended December 31,2007  Cumulative from August 20, 2004 (inception) to December 31, 2008            Consulting fees $151,150  $-  $- Drilling  560,574   -   - Labour cost  69,405   -   - Other exploration costs  273,065   -   -               Total $1,054,194  $-  $-   20  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)6.Mineral Interests (continued)      Changkeng Silver Interest      The Company s interest in the silver mineralization in the Changkeng Property is dependent upon Minco Gold maintaining its interests in the Changkeng Property in accordance with the terms of a joint venture agreement, to which the Company is not a party.      The Company is not responsible to Minco Gold for any of its current commitments as those are designated for the exploration of gold deposits in the Changkeng property. The Company will only be responsible for 51% of any commitments made by the joint venture to explore silver deposits in the Changkeng Property. As of December 31, 2008, the joint venture had not made any commitments to explore the silver deposits in the Changkeng Property (Note 13).    7.Plant, Property and Equipment               December 31, 2008    Cost  Accumulated Amortization  Net BookValue            Computer equipment $115,169  $46,471  $68,698 Leasehold improvements  45,618   12,409   33,209 Mining equipment  2,735   854   1,881 Motor vehicles  146,929   21,952   124,977 Office equipment and furniture  50,702   13,906   36,796    $361,153  $95,592  $265,561              December 31, 2007   Cost Accumulated Amortization Net BookValue         Computer equipment $85,921  $26,361  $59,560 Leasehold improvements  25,445   5,062   20,383 Mining equipment  2,735   599   2,136 Motor vehicles  146,929   9,620   137,309 Office equipment and furniture  29,499   4,803   24,696     290,529   46,445   244,084    21   MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)8.Share Capital and Special Warrants        (a). Common Shares        Authorized: Unlimited number of common shares without par value.        Issued:                     Shares  Amount              Balance, December 31, 2006    30,852,567  $21,266,071                  Stock options exercised at $1.25 per share, including $78,500 contributed surplus attributed to stock-based compensation recognized    116,665    224,332                  Share purchase warrants exercised at $1.50 per share, including $62,000 contributed surplus attributed to stock-based compensation recognized    167,900    313,850  Balance, December 31, 2007    31,137,132    21,804,253                  Stock option exercised at $1.25 - $2.85 per share, including $281,234 contributed surplus attributed to stock-based compensation recognized    240,001    666,267                  Share purchase warrants exercised at $3.45 per share, including $771,011 contributed surplus attributed to stock-based compensation recognized    741,357    3,328,693  Balance, December 31, 2008    32,118,490  $25,799,213    On November 17, 2006, the Company completed a public offering (the  "Offering") of        5,000,000 units at a price of $3.00 per unit for gross proceeds of $15,000,000. Each unit consisted of one common share and one-half of one common share purchase warrant. Each warrant is exercisable at $3.45 per share until May 17, 2008. The Offering was completed by way of a short form prospectus through a syndicate of underwriters (the  "Underwriters").        On December 1, 2006, the Company completed an additional 528,200 common shares at a price of $2.80 per common share and an additional 375,000 common share purchase warrants (the  "Warrant") at a price of $0.40 per Warrant for gross proceeds of $1,628,960 pursuant to the exercise of an over-allotment option (the  "Over-Allotment Option") by the Underwriters. Each Warrant is exercisable at $3.45 per share until May 17, 2008.        On May 17, 2008, share purchase warrants were exercised for 741,357 common shares at the exercise price of $3.45. The remaining 2,133,643 warrants expired on May 17, 2008.   22  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)8.Share Capital and Special Warrants (continued)        (b). Share Purchase Warrants        A summary of the status of share purchase warrants and broker options granted by the Company is as follows:            Number of Warrants  Weighted Average Exercise Price Outstanding at December 31, 2006  3,042,900  $3.33 Exercised  (167,900 )  1.50 Outstanding at December 31, 2007  2,875,000   3.45 Exercised  (741,357 )  3.45 Expired  (2,133,643 )  3.45 Outstanding at December 31, 2008  -  $-   (c) Contributed Surplus        Summary of contributed surplus is as follows:           Balance at December 31, 2006  $4,694,498  2007 stock-based compensation    1,707,000  Transfer to share capital on exercise of stock options    (78,500)Transfer to share capital on exercise of share purchase warrants    (62,000)Balance at December 31, 2007    6,260,998  2008 stock-based compensation    1,483,435  Transfer to share capital on exercise of stock options    (281,234)Transfer to share capital on exercise of share purchase warrants    (771,011)Balance at December 31, 2008  $6,692,188    (d). Stock Options      The Company may grant options to its directors, officers, employees and consultants under its stock option plan. The maximum number of common shares reserved for issuance is 15% of the issued and outstanding shares. The Company expenses stock options over their vesting period, with stock options typically vesting in various increments and having a maximum term of five years.        In 2008, the Company granted 1,132,500 stock options to its employees and consultants at a price range from $0.46 to $4.05 per share. The Company recorded $1,123,349 of stock based compensation expense in 2008 (2007 - $1,707,000) and $360,086 (2007 - $nil) in stock based compensation was capitalized to mineral interests as the individuals entitled to the options were directly engaged in the development activities of the Fuwan Silver Deposit. Capitalization of costs related to development of the Fuwan Silver Deposit began in 2008 (see Note 2).   23  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)8.Share Capital and Special Warrants (Continued)        A summary of the status of options granted by the Company is as follows:            Number  Weighted Average Exercise Price Options outstanding at December 31, 2006  3,113,333   1.71 Granted  1,704,000   2.40 Exercised  (116,665 )  1.25 Cancelled  (795,000 )  2.98 Options outstanding at December 31, 2007  3,905,668   1.77 Granted  1,132,500   1.91 Exercised  (240,001 )  1.60 Cancelled  (648,333 )  2.25 Options outstanding at December 31, 2008  4,149,834  $1.74   The weighted average fair value of options granted during the year ended December 31, 2008 was $1.74. Each option entitles the holders to purchase one common share.               Options Outstanding     Options Exercisable Range ofExercisePrices  NumberOutstanding  WeightedAverageRemainingContractualLife (yr)  WeightedAverageExercisePrice  NumberExercisable  WeightedAverageExercisePrice $1.00- $1.30   2,500,834   2.59  $1.14   2,043,333  $1.31 $2.80 - $4.00   1,549,000   3.36  $2.59   379,672  $2.64 $4.00 - $4.05   100,000   4.18  $4.05   100,000  $4.05      4,149,834   3.00  $1.74   2,523,005  $1.63   The Company used the Black-Scholes option pricing model to determine the fair value of the options with the following assumptions:    2008  2007 Risk-free interest rate  1.96 - 3.46 %  4.02 - 4.67 %Dividend yield  0 %  0 %Volatility  68 - 102 %  148 %Approximate expected lives 5 years  5 years    Option pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates and therefore, in management s opinion, existing   24  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 8.Share Capital and Special Warrants (Continued)        models do not necessarily provide a reliable measure of the fair value of the Company s stock options.      9.Income Taxes        The Company has two branches in China, FoShan Minco and FoShan Minco Beijing Branch for Canadian tax purposes. The operating results of these two branches are included in the Company s tax reporting for Canadian tax purposes. From a Chinese tax reporting perspective, the operating result of these two branches is included in Minco China s operating results.        On March 16, 2007, the National People s Congress (NPC) of China approved a new Corporate Income Tax Law, which became effective January 1, 2008. The new law establishes a unified 25% tax rate for both domestic enterprises and foreign invested enterprises (FIEs). This change to the Chinese tax law will have an impact to the extent of the Company s business operation in China when the Company becomes profitable in China.        Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes. These differences result from the following items:    2008  2007     31.00%  34.12%Income tax recovery at statutory rates $(711,493) $(2,482,270)Deductible expenditures  -   (150,048 )Non-deductible expenditures  167,111   590,113 Unrecognized benefits of foreign exploration and development expenditures  1,141,968     Unrecognized benefits of losses carried forward  202,362     Impact of federal income tax rate change  233,532   697,875 Cost (benefit) of previously unrecognized tax  -     pools        Change in Valuation Allowance  1,603,478   - Other  (54,126 )  -    $-  $-   25  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 9.Income Taxes (Continued)        Future income taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of future income tax assets and liabilities at December 31 are as follows:    2008  2007     26%  27%Future income tax assets:        Non-capital losses $1,447,140  $942,240 Unused cumulative foreign exploration and development expenses  3,636,970   2,301,282           Capital assets  24,836   12,521 Write down of securities  2,516   2,614 Share issue costs  175,489   284,092    $5,286,951  $3,542,749 Foreign exchange gain on account of capital  (140,725 )  -     (140,725 )  -           Less: valuation allowance  (5,146,226 )  (3,542,749 )Total future income tax assets $-  $-   The Company has non-capital losses carry-forward for Canadian income tax purposes as follows: Loss Expiry   Amount  2014   $52,974  2015     746,632  2026     1,449,119  2027     1,103,076  2028     2,214,124       $5,565,925    The Company also has $18,922,360 of cumulative foreign resources expenses for Canadian income tax purposes which can be carried forward indefinitely and used to reduce future taxable income in Canada. Certain of these non-capital losses and the cumulative foreign resource expenses are related to the Company s exploration activities in China. Consequently, certain of the related expenditures are currently deductible for Chinese tax purposes (subject to China tax law deductibility limitations) which have resulted in tax losses in China which can only be carried forward for a five year period to a maximum date of 2011.        As explained in note 14(a) there is some risk to the Company s ownership in all of its mineral interest in China as it does not hold its interests directly as described in note 14(a). If such risk materializes, the basis on which the future income tax assets have been recorded may change and as such the company may lose the tax deductions and future income tax assets related to the mineral interest in China.   26  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)10.Capital Risk Management        The Company s objectives in the managing the liquidity and capital are to safeguard the Company s ability to continue as a going concern and provide financial capacity to meet its strategic objectives. The capital structure of the Company consists of equity attributable to common shareholders, comprising issued share capital, common share purchase warrants, contributed surplus, accumulated and other comprehensive income and accumulated deficit.        The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets.        In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending upon various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors.        The Company does not pay out dividends.        As at December 31, 2008 the Company does not have any long term debt and is not exposed to any externally imposed capital requirements.        The Company expects that its current capital resources will be sufficient to carry on a limited development and exploration business plan and support the basic operational expenses.      11.Related Party Transactions          (a)Due from Minco Gold at December 31, 2008 include $nil (2007 $1,929,893). The amount due from Minco Gold was unsecured, non-interest bearing and payable on demand.              (b)Due to Minco China at December 31, 2008 was $939,806 (2007 $4,639,788), used for expenditures on the Fuwan Property, new silver projects investigation, and shared office expenses in Minco China. The amount due to Minco China, a wholly-owned subsidiary of Minco Gold, is unsecured, non-interest bearing and payable on demand.              (c)Due to Minco Gold at December 31, 2008 was $306,476 (2007 - $Nil). This balance represents shared expenses for the Vancouver office and the sharing of salaries and expenses of common consultants. The amount due is unsecured, non-interest bearing and payable on demand.              (d)In 2008, the Company paid consulting fees of $407,231 (2007 $177,187) to companies controlled by the CEO, COO and Vice President of the Company. These consulting fees are included in exploration costs, property investigation, management fees. The Company paid director s fees of $55,250 to three independent directors (2007 - $56,833).   27  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)11.Related Party Transactions (continued)     (e)In 2008, the Company paid or accrued $78,122 (2007 $67,141) in respect of rent, $249,589 (2007 $237,179) in respect of exploration costs, and $778,833 (2007 $732,441) in respect of shared office expenses to Minco Gold.     (f)The Company entered into a strategic alliance with Silver Standard. The agreement provides that all silver-dominant properties of the Minco Group located in China will be held by Minco Silver and that Silver Standard will not actively explore for or seek out silver-dominant properties located in China. In addition, both the Minco Group and Silver Standard have agreed to offer to the other a first right of refusal on any silver-dominant properties in China brought to their attention which they do not intend to pursue.   The above transactions are conducted in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the parties. 12.Geographical Information   The Company s business is considered as operating in one segment, mineral exploration and development. The geographical division of the Company s assets and liabilities and net loss is as follows:            December 31, 2008  December 31, 2007 Current Assets      Canada $4,044,325  $18,959,458 China  1,354,433   53,627    $5,398,758  $19,013,085 Long-term Assets        Canada $8,273,155  $67,734 China  4,057,572   176,350    $12,330,727  $244,084 Current Liabilities        Canada $654,369  $4,872,518 China  1,295,001   735,549    $1,949,370  $5,608,067            Year ended December 31, 2008  Year ended December 31, 2007 Net Loss      Canada $(851,038) $(2,492,865)China  (1,444,101 )  (4,782,252 )   $(2,295,138) $(7,275,117)  28  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars)13.Commitments        (a)The Company has commitments in respect of office leases in China and Canada, requiring minimum payments of $588,698, as follows:           2009  $102,697  2010    99,069  2011    97,642  2012    96,074  2013    96,608  2014    96,608      $588,698     (b)The Company has committed to the completion of a feasibility study for the Fuwan Silver Project. The total estimated cost for completing the feasibility study is $0. 6 million. The feasibility study is expected to be completed within the next six months. The Company has committed in respect of the mine design contract requiring payments of RMB 8 million (approximately $1.4 million).          (c)The Company has commitments to complete the registered capital investment of RMB 30 million into Foshan Minco by April 23, 2010.        14.Contingencies        The Company s interest in the Changkeng Property relates to the assignment to it by Minco Gold of Minco Gold s right to earn up to a 51% interest in the Changkeng Property s silver mineralization pursuant to the Preliminary Changkeng Joint Venture ("JV") Agreement dated April 16, 2004, superseded by the formal joint venture agreement dated September 28, 2004. On February 28, 2007 Minco China signed a joint venture agreement with the JV partners to form Guangdong Mingzhong Mining Corporation ("Mingzhong"). Mingzhong received its business license on March 30, 2007 and received the exploration permit in February 2008. The Company s interest in the silver mineralization of the Changkeng Property is entirely dependent on: (i) the Changkeng JV (or Minco Gold directly) maintaining the Changkeng Permit; and (ii) Minco Gold acquiring and maintaining a 51% interest in the Changkeng JV (or in the Changkeng Property).      15.Financial Management Risk        The Company s operations consist of the acquisition, exploration and development of properties in China. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurrence. These risks may include credit risk, liquidity risk, currency risk and interest rate risk. Management reviews these risks on a monthly basis and when material, they are reviewed and monitored by the Board of Directors.        Credit risk Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if the counterparty defaults on its obligations   29  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 15.Financial Management Risk (continued)        under the contract, This includes any cash amounts owed to the Company by these counterparties, less any amounts owed to the counterparty by the Company where a legal right of set-off exists and also includes the fair value contracts with individual counterparties which are recorded in the consolidated financial statements. The Company considers the following financial assets to be exposed to credit risk:          i.Cash In order to manage credit and liquidity risk the Company places its short-term investment funds into government and Canadian bank debt securities with terms of 90 days or less when acquired. At December 31, 2008 the balance of $1.2 million was placed with three institutions. The fair value is equal to the carrying value.              ii.Short term investments are investment grade bonds and guaranteed investment certificates with maturities of greater than 90 days when acquired. At December 31, 2008, these totalled $3.7 million and were placed with one institution. The yields on these investments were 1.50% to 4.55%. The fair value is equal to the carrying value              iii.Loan Receivable see note 5. The yield on this loan balance is 10%. At year end, repayment date of Loan Receivable is indeterminable. The fair value approximates carrying value.            The Company does not have any derivative financial instruments nor has it invested in asset backed paper instruments.        Liquidity risk Liquidity risk includes the risk that the Company cannot 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 support the Company s normal operating requirements and its exploration and development plans. The annual budget is approved by the Board of Directors. The Company insures that there are sufficient cash balances to meet its short-term business requirements. At December 31, 2008, the Company has positive working capital of approximately $3.4 million and therefore has sufficient funds to meet its current operating and exploration and development obligations. However, the Company will require significant additional funds in the future to complete its plans for the Fuwan Silver Deposit.        The Company considers the following financial liabilities to be exposed to financial risk:        i.Accounts payable and accrued liabilities These balances are all current and non-interest bearing and the fair value is equal to carrying value.          ii.Due to Minco China see note 11. This balance is unsecured and non-interest bearing. The fair value is equal to carrying value.          iii.Due to Minco Gold see note 11. This balance is unsecured and non-interest bearing. The fair value is equal to carrying value.   30  MINCO SILVER CORPORATION(A development stage enterprise)Notes to Consolidated Financial StatementsDecember 31, 2008 and 2007(Expressed in Canadian Dollars) 15.Financial Management Risk (continued)        Currency/Foreign exchange risk The Company s functional currency is the Canadian dollar and therefore the Company s net earnings are impacted by fluctuations in the valuation of foreign currencies in relation to the Canadian dollar. The Company raises funds in Canadian dollars and lends either Canadian or US dollar amounts to support the Chinese operations. As the Company operates in China and many of its exploration and development expenditures are payable in either U.S. dollars or the Chinese currency RMB, there exist foreign currency risks arising from changes in exchange rates with the Canadian dollar. The Company maintains its excess cash in Canadian based assets. The Company does not hedge its exposure to currency fluctuations. A 1% fluctuation in the exchange rate between US Dollar and the Canadian dollar will have $64,768 effect on the financial results.        Interest rate risk The interest rate risk is the risk that the fair value of future cash flows of a financial instrument fluctuates because of changes in market interest rates. Cash and cash equivalents, short-term investments and loans, entered into by the Company bear interest at a fixed rate thus exposing it to the risk of changes in fair value arising from interest rate fluctuations. The cash and the short term investments are invested in high grade, highly liquid instruments and as such the Company manages its exposure to potential interest rate fluctuations to short term. The Company has no interest bearing debt.        The Company s ability to raise capital to fund development and exploration activities is subject to the fluctuations in the market price of silver. The Company closely monitors commodity prices to determine the appropriate course of action to be taken.        The Company is engaged primarily in mineral exploration and manages related industry risk issues directly. The Company is at risk for environmental issues and fluctuations in commodity pricing.        Management is not aware of and does not anticipate significant environmental remediation costs or liabilities in respect of its current operations.        The Company is not exposed to significant credit concentration risk. The Company is not exposed to significant interest rate risk.      16.Subsequent Events        Subsequent to year end, on February 18, 2009 Minco Silver filed in the District Court of the First Judicial District of the State of Idaho, in and for the County of Shoshone an action commencing a foreclosure proceeding to foreclose on Sterling and appointing a receiver. On March 3, 2009 Minco Silver s foreclosure action was stayed in favor of        Sterling s filing a voluntary petition under Chapter 11 bankruptcy code in the Bankruptcy Court for the District of Idaho.        Effective January 22, 2009, the Company granted options over 650,000 common shares to various employees, directors, and contractors at an exercise price of $1.05 that vest over a three year period from the issue date and expire in January 2014.   31  MINCO  SILVER CORPORATION(A  development stage enterprise)   Consolidated  Financial Statements(Expressed  in Canadian dollars)   December  31, 2009, 2008 and 2007   IndexPage  Auditors'          Report2       Consolidated          Balance Sheets3       Consolidated          Statements of Operations and Comprehensive Loss and Deficit4       Consolidated          Statements of Cash Flows5       Notes          to Consolidated Financial Statements6-32         Management's  Responsibility for Financial Reporting   The  consolidated financial statements and the information contained in the annual  report are the responsibility of the Board of Directors and management. The  consolidated financial statements have been prepared by management in  accordance with Canadian generally accepted accounting principles and include  certain estimates that reflect management's best judgments on information  currently available. In the opinion of management, the accounting practices  utilized are appropriate in the circumstances and the consolidated financial  statements fairly reflect the financial position and results of operations of  the Company within reasonable limits of materiality.   The  Audit Committee of the Board of Directors is composed of three Directors and  meets periodically with management and the independent auditors to review the  scope and results of the annual audit and to review the consolidated financial  statements and related financial reporting matters prior to submitting the  consolidated financial statements to the Board of Directors for approval.   The  consolidated financial statements have been audited by PricewaterhouseCoopers  LLP, Chartered Accountants, who were appointed by the shareholders. The  auditors' report outlines the scope of their examination and their opinion  on the consolidated financial statements.Dr.          Ken Cai Paul          Zhang, C.A.   President          and CEO CFO          and V.P. Finance   Vancouver,          CanadaMarch          23. 2010   1       PricewaterhouseCoopers          LLP  Chartered          Accountants  PricewaterhouseCoopers          Place  250          Howe Street, Suite 700  Vancouver,          British Columbia  Canada          V6C 3S7  Telephone          + 1 604 806 7000  Facsimile+1          604 806 7806   Independent  Auditors' Report   To  the Shareholders of Minco Silver Corporation   We  have audited the consolidated balance sheets of Minco  Silver Corporation (the "Company") as at December 31, 2009 and the  consolidated statements of operations and comprehensive loss and deficit and  cash flows for the year then ended. These consolidated financial statements  are the responsibility of the Company's management. Our responsibility is to  express an opinion on these financial statements based on our audits.   We  conducted our audit in accordance with Canadian generally accepted auditing  standards and the standards of the Public Company Accounting Oversight Board  (United States). Those standards require that we plan and perform an audit to  obtain reasonable assurance whether the financial statements are free of  material misstatement. An audit includes examining, on a test basis, evidence  supporting the amounts and disclosures in the financial statements. An audit  also includes assessing the accounting principles used and significant  estimates made by management, as well as evaluating the overall financial  statement presentation.   In  our opinion, these consolidated financial statements present fairly, in all  material respects, the financial position of the Company as at December 31,  2009 and the results of its operations and its cash flows for each of the year  then ended in accordance with Canadian generally accepted accounting  principles.   The  consolidated financial statements as at December 31, 2008 and for the two year  period then ended were audited by other auditors who expressed an opinion  without reservation in their report dated March 31, 2009.   Yours  very truly,      Chartered  AccountantsVancouver,  British ColumbiaMarch  23, 2010   "PricewaterhouseCoopers"  refers to PricewaterhouseCoopers LLP, an Ontario limited liability  partnership, or, as the context requires, the PricewaterhouseCoopers global  network or other member firms of the network, each of which is a separate  legal entity. 2 MINCO          SILVER CORPORATION  (A          development stage enterprise)  Consolidated          Balance Sheets  (in          Canadian Dollars)                  December            31,2009  December            31,2008        ASSETS             Current            assets      Cash            and cash equivalents $847,439  $1,174,021 Short-term            investments (Note 3)  10,288,326   3,706,506 Receivables  104,885   147,262 Prepaid            expenses and deposits  285,356   370,969    11,526,006   5,398,758 Loan            receivable (Note 4)  8,290,441   6,771,068 Mineral            interests (Note 5)  9,000,902   5,294,098 Property,            plant and equipment (Note 6)  203,050   265,561   $29,020,399  $17,729,485 LIABILITIES                 Current            liabilities        Accounts            payable and accrued liabilities $295,867  $703,088 Due            to Minco China (Note 9 (a))  713,732   939,806 Due            to Minco Gold (Note 9 (b))  1,395,553   306,476    2,405,152   1,949,370          SHAREHOLDERS'            EQUITY                 Share            capital (Note 7 (a))  37,046,993   25,799,213 Contributed            surplus (Note 7 (a))  10,525,938   6,692,188 Deficit  (20,957,684)  (16,711,286)   26,615,247   15,780,115   $29,020,399  $17,729,485    Commitments          (Note 11)Subsequent          Events (Note 14)                   See          accompanying notes to consolidated financial statements                   On          behalf of the Board:"Chan-Seng          Lee" "William          Meyer" Chan-Seng          Lee William          Meyer Director Director 3  MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statements of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)     Year          ended  Year          ended  Year          ended   December          31, 2009  December          31, 2008  December          31, 2007 Exploration          permit costs (Note 5) $1,205,298  $-  $- Exploration          costs (Note 5)  207,710   1,814,641   4,783,545    1,413,008   1,814,641   4,783,545              Administrative          expenses            Accounting          and audit  165,122   76,155   64,094 Amortization  49,729   49,147   26,533 Consulting  173,311   145,219   66,965 Directors'          fees  60,500   55,250   56,833 Foreign          exchange loss (gain)  1,141,070   (1,440,314)  (233,629)Interest          expense  8,534   -   - Investor          relations  319,227   545,518   528,349 Legal,          regulatory and filing  116,125   83,779   98,456 Rent  142,898   142,851   101,194 Travel          and entertainment  91,113   82,975   50,510 Office          administration  99,066   91,512   126,041 Property          investigation  -   40,016   104,445 Salaries          and benefits  253,937   253,828   386,792 Stock-          based compensation (Note 7 (b))  459,389   1,123,350   1,707,000 Field          office  194,536   119,996   177,826    3,274,557   1,369,282   3,261,409 Operating          loss  (4,687,565)  (3,183,923)  (8,044,954)             Interest          and sundry income  86,432   888,785   769,837    (4,601,133)  (2,295,138)  (7,275,117)Future          income tax recovery (Note 8)  354,735   -   -              Loss          and comprehensive loss for the year  (4,246,398)  (2,295,138)  (7,275,117)             Deficit,          beginning of year  (16,711,286)  (14,416,148)  (7,141,031)             Deficit,          end of year $(20,957,684) $(16,711,286) $(14,416,148)             Loss          per share - basic and diluted $(0.13) $(0.07) $(0.23)             Weighted          average number of common shares outstanding basic and diluted  33,855,997   31,767,488   31,054,523    See  accompanying notes to  consolidated financial statements 4  MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statements of Cash Flow(in          Canadian Dollars)     Year          ended  Year          ended  Year          ended   December          31,  December          31,  December          31,   2009  2008  2007 Cash          flows for operating activities         Loss          for the year $(4,246,398) $(2,295,138) $(7,275,117)Adjustment          for items not involving cash:            -          stock-based compensation (Note 7 (b))  459,389   1,123,350   1,707,000 -          amortization  49,729   49,147   26,533 -          foreign exchange loss (gain) on loan receivable  1,000,866   (1,440,314)  (233,629)-          future income tax recovery  (354,735)  -   - Changes          in non-cash working capital items:            -          receivables  42,377   45,760   (34,620)-          prepaid expenses and deposits  85,613   (348,264)  11,299 -          accounts payable and accrued liabilities  (404,514)  (524,085)  (414,043)-          due to Minco China (Note 9 (a))  (226,074)  -   - -          advances from Minco Gold (Note 9 (b))  1,089,077   -   -                 (2,504,670)  (3,389,544)  (6,212,577)             Cash          flows from financing activities            Proceeds          from issuance of common shares (Note 7 (a))  13,918,020   2,942,716   397,681 Due          from Minco Gold  -   1,929,893   - Advances          from (repayments to) to Minco China  -   (3,393,506)  2,267,491                 13,918,020   1,479,103   2,665,172              Cash          flows from investing activities            Development          costs  (2,647,947)  (4,675,120)  - Property,          plant and equipment  10,074   (70,624)  (190,098)Loan          receivable (Note 4)  (2,520,239)  (5,776,068)  - Short-term          investments  (6,581,820)  10,513,414   6,065,656    (11,739,932)  (8,398)  5,875,558 Effect          of exchange rate changes on cash _   445,314   233,629              (Decrease)          increase in cash and cash equivalents  (326,582)  (1,473,525)  2,561,782              Cash          and cash equivalents, beginning of year  1,174,021   2,647,546   85,764              Cash          and cash equivalents, end of year $847,439  $1,174,021  $2,647,546              Supplemental          disclosure of cash flow information Interest paid $8,534  $-  $-    See  accompanying notes to  consolidated financial statements 5 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   1.Nature          of Business   Minco          Silver Corporation ("Minco Silver" or the "Company") was          incorporated on August 20, 2004 under the laws of British Columbia,          Canada. Its principal business activities include the acquisition,          exploration and development of silver mineral properties.   At          December 31, 2009, Minco Gold Corporation (formerly Minco Mining &          Metals Corporation) ("Minco Gold") owned a 32.01% (2008 - 40.48%)          equity interest in Minco Silver. Minco Silver is exploring, evaluating          and developing silver mineral properties and projects in the People's          Republic of China ("China") with the aim of bringing properties to          production. The ability of the Company to meet its commitments as they          become payable, the exploration and development of mineral properties          and projects, and the underlying value of the mineral properties are          entirely dependent upon the existence of economically recoverable          reserves, the ability of the Company to arrange appropriate financing          to complete the exploration and development of its properties, the          receipt of necessary permits and upon achieving future profitable          production or receiving proceeds from the disposition of the          properties. The timing of such events occurring, if at all, is not yet          determinable.  2.Significant          Accounting Policies   Basis          of Presentation and Consolidation   These          consolidated financial statements have been prepared in accordance          with Canadian generally accepted accounting principles. These          consolidated financial statements include the accounts of Minco Silver          Corporation, Minco Silver Ltd., Minco Yinyuan Co. and Foshan Minco          Fuwan Mining Co. Ltd. ("Foshan Minco") which is subject to a 10%          carried interest (Note 5).   All          material inter-company accounts and transactions have been eliminated          upon consolidation.   Use          of Estimates and Measurement of Uncertainty   The          preparation of consolidated financial statements in conformity with          Canadian generally accepted accounting principles requires management          to make estimates and assumptions that affect the reported amount of          assets and liabilities at the date of the consolidated financial          statements and expenses during the period reported. Significant areas          of estimate include the valuation of the loan receivable, stock          options and warrants and income taxes. By their nature, these          estimates are subject to uncertainty and the effect on the          consolidated financial statements of changes in these estimates in          future periods could be significant. 6    MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   2.Significant          Accounting Policies (continued)   Stock-          Based Compensation   The          Company grants stock options to directors, officers, employees and          service providers.   The          Company applies the fair-value method of accounting for stock-based          awards. Stock-based compensation for employees is determined based on          the grant date fair value of the stock options calculated using the          Black-Scholes option pricing model. The expense is charged to earnings          or capitalized as appropriate on a straight-line basis over the          vesting period. For non-employees, stock-based compensation is          determined based on the fair value of the options on the earliest of          the date at which the counterparty's performance is complete, a          performance commitment is reached, or the equity instruments are          granted if they are fully vested and non-forfeitable at that date. If          stock options are ultimately exercised, the applicable amounts of          contributed surplus are transferred to share capital.   Acquisition,          Exploration and Development of Mineral Interests   Exploration          expenditures other than direct acquisition costs are expensed before a          mineral resource is identified as having economic potential.   The          Company's policy is to capitalize mineral property acquisition costs          and to commence capitalization of mineral property exploration and          development costs when a mineral resource is identified as having          economic potential on a property.   Where          a specific mineral interest property is identified as having a mineral          resource with economic potential, costs specific to the development of          the particular project are capitalized as development costs and          carried at cost until the properties to which they relate are placed          into commercial production, sold, abandoned or determined by          management to be impaired in value.   A          mineral resource is considered to have economic potential when it is          expected that documented resources can be legally and economically          developed considering long-term metal prices. Therefore, prior to          capitalizing such costs, management determines that the following          conditions have been met: i.There          is a probable future benefit that will contribute to future cash          inflows;    ii.The          Company can obtain the benefit and control access to it; and    iii.The          transaction or event giving rise to the benefit has already occurred. 7    MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   2.Significant          Accounting Policies (continued)   Acquisition,          Exploration and Development of Mineral Interests (continued)   Costs          relating to any producing mineral interest would be amortized on a          unit-of-production basis over the estimated ore reserves. Costs          incurred after a property is placed into production that increase          production volume or extend the life of a mine are capitalized.   The          recoverability of mineral interests is dependent upon the          determination of economically recoverable ore reserves, confirmation          of the Company's interest in the underlying mineral claims, the          ability to farm-out its resource properties, the ability to obtain the          necessary financing to complete their development and future          profitable production or proceeds from the disposition thereof.   Property,          Plant and Equipment   Property,          plant and equipment are recorded at cost less accumulated amortization          and depletion.   Amortization          is calculated using the straight-line method based on the assets'          estimated useful lives:    Estimated          useful lifeComputer          Equipment5          yearsMining          Equipment5          yearsMotor          Vehicles10          yearsOffice          Equipment and Furniture5          years   The  amortization of leasehold improvements is calculated using the straight-line  method based on the remaining lease term.   Impairment   The  carrying values of mineral interests and property, plant and equipment are  reviewed when changes in circumstances suggest their carrying value may have  become impaired. Management considers assets to be impaired if the carrying  value exceeds the estimated undiscounted future projected cash flows from the  use of the asset or mineral interests and its eventual disposition. If  impairment is deemed to exist, the assets or development property will be  written down to fair value with a charge to operations. 8    MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   2.Significant          Accounting Policies (continued)   Asset          Retirement Obligations   The          Company recognizes the fair value of liabilities for asset retirement          obligations in the period in which they are incurred and in which a          reasonable estimate of such costs can be made. The asset retirement          obligation is recorded as a liability with a corresponding increase to          the carrying amount of the related asset and depreciated over the life          of the asset. Over time, the liability is increased to reflect an          interest element (accretion expenses) considered in its initial          measurement at fair value. The amount of liability will be adjusted          for changes in amounts and timing of cash flows at each reporting          period. It is possible that the Company's estimates of its ultimate          reclamation and closure liabilities could change as a result of          changes in regulations, the extent of environmental remediation          required, and the means of reclamation or cost estimates. Changes in          estimates are accounted for prospectively from the period the estimate          is revised.   As          at December 31, 2009 and 2008, the Company did not have any asset          retirement obligations.   Financial          Instruments                    The          Company's financial instruments consist of cash and cash          equivalents, short-term investments, receivables, loan receivable,          accounts payable and accrued liabilities, and payables to related          parties. a)Cash          and Cash Equivalents     Cash          and cash equivalents comprise cash at banks and on hand and guaranteed          investment certificates with initial maturities of less than three          months. Cash and cash equivalents have been classified as held for          trading and are recorded at fair value.    b)Short-term          Investments     Short-term          investments comprise of guaranteed investment certificates with          initial maturity of greater than three months. Such investments have          been classified as held for trading and are recorded at fair value.    c)Receivables     Receivables          are classified as loans and receivables and accordingly are recorded          initially at fair value, net of transaction costs incurred, and          subsequently at amortized cost using the effective interest rate          method. 9    MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   2.Significant          Accounting Policies (continued)       Financial          Instruments (continued)        d)Loan          Receivable   The          loan receivable is classified as loans and receivables and accordingly          is recorded initially at fair value, and subsequently at amortized          cost using the effective interest rate method.         The          Company assesses at each balance sheet date whether there is any          objective evidence that the loan receivable is impaired. Evidence of          impairment may include indications that the debtor is experiencing          significant financial difficulty, default or delinquency in interest          or principal payments, the probability that the debtor will enter          bankruptcy or other financial reorganization, and where observable          data indicate that there is a measurable decrease in the estimated          future cash flows, such as changes in arrears or economic conditions          that correlate with defaults.         When          loans are identified as impaired, their carrying amounts should be          reduced to their estimated realizable amounts. Estimated realizable          amounts should be measured by discounting the expected future cash          flows at the original effective interest rate inherent in the loans.          When the amounts and timing of future cash flows cannot be estimated          with reasonable reliability, estimated realizable amounts may be          measured at either:          I.the          fair value of any security underlying the loans, net of expected costs          of realization and any amounts legally required to be paid to the          borrowers; or          II.observable          market prices for the loans.        e)Accounts          Payable, Accrued Liabilities and Payables to Related Parties         Accounts          payable, accrued liabilities and payables to related parties are          classified as other financial liabilities and are recognized initially          at fair value, net of transaction costs incurred, and are subsequently          stated at amortized cost.       Income          Tax                    The          Company follows the liability method of accounting for income taxes.          Future income taxes are recognized for the future tax consequences          attributable to differences between the carrying values of assets and          liabilities and their respective income tax bases on the balance sheet          date. Future income tax assets and liabilities are measured using          substantively enacted income tax rates expected to apply in which          temporary differences are expected to be recovered or settled. The          effect on future tax assets and liabilities of a change in          substantively enacted rates is included in operations. A future income          tax asset is only recorded to the extent it is more likely than not to          be realized. 10    MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   2.Significant          Accounting Policies (continued)   Loss          Per Share   Basic          loss per share is computed using the weighted average number of common          shares outstanding during the year. Diluted loss per share amounts are          calculated giving effect to the potential dilution that would occur if          securities or other contracts to issue common shares were exercised or          converted to common shares using the treasury stock method. If the          Company incurs net losses in a fiscal year, basic and diluted loss per          share are the same.   Translation          of Foreign Currencies   The          Company's measurement currency is the Canadian dollar. The Company          follows the temporal method of accounting for the translation of its          integrated foreign operations and for foreign currency transactions.          Under this method, transactions denominated in foreign currencies are          translated into Canadian dollars at the exchange rates prevailing at          the transaction dates. At year-end, monetary assets and liabilities          are re-measured at the year-end exchange rates, and non-monetary          assets and liabilities denominated in foreign currencies are          translated to Canadian dollars at their historical exchange rates.          Exchange gains and losses on translation are charged to operations.   Newly          Adopted Accounting Policies   Goodwill          and Intangible Assets   Effective          from 1 January, 2009, the Company adopted the recommendations included          in Section 3064, "Goodwill and Intangible Assets," of the Canadian          Institute of Chartered Accountants ("CICA")Handbook, which          replaced CICA Section 3062, "Goodwill and Other Intangible Assets".          The adoption of this Section had no material impact on the Company's          financial statements.   Credit          Risk and the Fair Value of Financial Assets and Financial Liabilities   Effective          from January 1, 2009, the Company adopted the EIC 173, "Credit Risk          and the Fair Value of Financial Assets and Financial Liabilities".          This guidance clarified that an entity's own credit risk and the          credit risk of the counterparty should be taken into account in          determining the fair value of financial assets and financial          liabilities including derivative instruments. The adoption of this          Section had no material impact on the Company's financial          statements.   Mining          Exploration Costs   Effective          March 27, 2009, the Company adopted the EIC 174, "Mining Exploration          Costs". This standard provides guidance on the capitalization of          exploration costs related to mining properties, in particular, and on          impairment of long-lived assets. The adoption of this standard did not          have a significant impact on the Company's financial statements. 11    MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   2.Significant          Accounting Policies (continued)   New          Accounting Pronouncements   Section          1582, Business Combinations, 1601, Consolidations and 1602,          Non-controlling Interests   In          January 2009, the CICA issued three new sections to replace Section          1581, "Business Combinations" and Section 1600, "Consolidated          Financial Statements."   Section          1582 will apply to a transaction in which the acquirer obtains control          of one or more businesses (as defined in the Section). Most assets          acquired and liabilities assumed, including contingent liabilities          that are considered to be improbable, will be measured at fair value.          A bargain purchase will result in the recognition of a gain.          Acquisition costs will be expensed.   Any          non-controlling interest will be recognized as a separate component of          shareholders' equity and net income will be allocated between the          controlling and non-controlling interests. These new standards will          apply to fiscal years beginning on or after January 1, 2011. These          Sections will not have an impact on the Company's financial          statements unless the Company enters into a business combination          subsequent to January 1, 2011.  3.Short-term          Investments   As          at December 31, 2009, short-term investments consisted of cashable          guaranteed investment certificates ($10.3 million) with a yield          ranging from 0.65% to 0.80%.   As          at December 31, 2008, short-term investments consisted of cashable          guaranteed investment certificates ($3.5 million) and corporate notes          ($0.2 million). The yields on these investments were 1.50% to 4.55%.  4.Loan          Receivable   On          July 22, 2008, the Company announced the execution of a Letter of          Intent with Sterling Mining Company ("Sterling") to acquire 100%          of the issued and outstanding common shares of Sterling.   The          Company also extended a line of credit in the amount of US$15 million          under the terms of a Credit Facility Agreement dated July 21, 2008          (the "Facility") to be advanced from time to time to meet general          working capital and other operating expenses to carry on Sterling's          business, of which US$5 million was advanced on July 30, 2008, bearing          10% simple interest plus fees and expenses. It was a term of the          Letter of Intent and the Facility that Minco Silver's obligation to          amalgamate with Sterling and the payment of any and all subsequent          advances were conditional upon the successful completion of a due          diligence review of Sterling's operations and the execution of a          definitive agreement.   On          August 27, 2008, at the conclusion of Minco Silver's due diligence          review, the Company terminated its obligation to amalgamate with          Sterling and its obligation to advance the additional US$10 million          under the Facility. 12    MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   4.Loan          Receivable (continued)    To          secure the US$5 million advance (plus interest and fees) Minco Silver          and Sterling executed the following:    (a)secured          promissory note to secure and evidence the US$5 million advance in          which Sterling promises to pay to the order of the Company;    (b)all          assets security agreement and a mortgage, assignment of leases and          rents security agreement and fixture filing in which Sterling agree to          provide a second charge security on all of the assets and properties          of Sterling with the exception of the Sunshine Precious Metals, Inc.          (the "Sunshine Lease"); and    (c)assignment          and assumption agreement in which Sterling assigns the Sunshine Mine          under a lease dated June 6, 2003 between Sterling and the Sunshine          Lease to the Company.    The          Company's secured interest is seconded to a previous loan in the          amount of US$1.4 million whereby another secured creditor has a          priority secured interest over Sterling's assets. The Company also          has a perfected secured interest in the Sunshine Lease.    On          February 18, 2009, Minco Silver filed an action in the District Court          of the First Judicial District of the State of Idaho commencing a          foreclosure proceeding to foreclose on Sterling and appoint a receiver          to realize on the US$5 million advance. On March 3, 2009 Minco Silver's          foreclosure action was stayed in favour of Sterling's filing of a          voluntary petition under Chapter 11 of the United          States Bankruptcy Code in the United States Bankruptcy Court          for the District of the State of Idaho (the "Bankruptcy Court").    On          May 15, 2009, the Bankruptcy Court rendered its first decision          declaring that Sterling has the right to re-assume all of Sterling's          leased hold interests including the Sunshine Lease. The Court held          that as a condition to re-assuming the Sunshine Lease, Sterling must          cure all monetary defaults pursuant to the terms of the Sunshine Lease          as determined by the Court.    On          May 15, 2009, the Court also approved, on an interim basis, a US$1          million post petition financing offer by Minco Silver to Sterling to          fund Sterling's administration costs during its bankruptcy and to          start covering the costs to cure any defaults under the Sunshine Lease          to be determined by the Bankruptcy Court any defaults.    On          August 21, 2009, the Court rendered its second decision declaring          (with the exception of penalties payable on a 7% Net Smelter Royalty ("NSR")          pursuant to the terms of a Consent Decree Judgment between Sterling,          The Environmental Protection Agency (the "EPA") and the Coeur d'Alene          Indian Tribe (the "Tribe") (see Note 14 - Subsequent Events)) the          preliminary amount to cure and bring the Sunshine Lease into good          standing at US$1.32 million.    On          October 14, 2009, the Court approved a supplemental post petition          financing offer from Minco Silver to Sterling in the amount of US $3          million, an increase of US $2 million, to finance the costs associated          with the care and maintenance of the Sunshine Mine, and preliminary          costs as determined by the Bankruptcy Court to cure the Sunshine          Lease. 13 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   4.Loan          Receivable (continued)   On          December 2, 2009 Sterling filed with the United States Bankruptcy          Court a second amended disclosure statement providing information          concerning Sterling's proposed plan of reorganization. Pursuant to          the provisions of Sterling's plan of reorganization, Minco Silver          has made a bid to purchase Sterling in the amount of US $12.5 million.          Purchase consideration will be satisfied by the secured claim against          the assets of Sterling with the balance paid in cash.   The          Company believes that the estimated fair value of Sterling's assets          in which it holds a security interest is in excess of the carrying          value of the loan as at December 31, 2009. The loan receivable is          presented as a non-current asset because the time frame to realization          is indeterminate.   Sterling          Loan December          31,2009  December          31,2008 Principal          (US$5,000,000) Interest on principal (US$332,125) $5,247,000  $6,114,000    330,610   386,231    5,577,610   6,500,231          Post          petition financing and expenses (US$2,550,176) Interest on expenses          (US$7,078)  2,613,355   155,916    7,428   7,428    2,620,783   163,344          Late          payment penalty (US$87,715)  92,048   107,493   $8,290,441  $6,771,068    5.Mineral          Interests    (a)Fuwan          Silver Deposit     On          July 20, 2005, the Ministry of Land and Resources of China approved          the transfer of the Fuwan exploration permit to Minco Mining (China)          Corporation ("Minco China"), a wholly-owned subsidiary of Minco          Gold, at a cost of $1.59 million (RMB 10,330,000). The total amount of          the exploration permit had been fully paid.     The          exploration permits owned by the Company were held through Minco China          for and on behalf of the Company. Although the Company has taken steps          to verify the title to mineral properties in which it has an interest          in accordance with industry standards for the current stage of          exploration of such properties, these procedures do not guarantee the          Company's title. Property title may be subject to unregistered prior          agreements or transfers and title may be affected by undetected          defects. 14 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   5.Mineral          Interests (continued)   In          July 2008 the Company incorporated Foshan Minco as the operating          company for the Fuwan project. In December 2008, the Fuwan exploration          permit held by Minco China was transferred to Foshan Minco. Minco          Silver currently has a 100% interest in Foshan Minco subject to a 10%          net profit interest held by Guangdong Geological Bureau ("GGB").          There will be no distributions to or participation by GGB, until such          time as Minco Silver's investment in the project is paid back. GGB          is not required to fund any expenditures related to the Fuwan project.   Management          has determined that the Fuwan Silver Deposit area met the criteria for          capitalization of development costs in the first quarter of 2008 and          has been capitalizing development costs relating to the main Fuwan          Silver Deposit since that time.   The          following is a summary of the project development costs capitalized in          the mineral interest from January 1, 2008 to December 31, 2009:     December          31,2008  Additions  December          31,2009   Consulting          fees $742,482  $524,667  $1,267,149   Drilling  1,738,039   80,220   1,818,259   Labor  229,311   448,057   677,368   Feasibility          study  1,113,032   767,495   1,880,527   Stock          based compensation  360,086   704,121   1,064,207   Other          development costs  1,111,148   1,182,244   2,293,392   $5,294,098  $3,706,804  $9,000,902     (b)Fuwan          Silver Belt     In          2005, the Company acquired three additional silver exploration permits          on the Fuwan belt, referred to as the Guanhuatang Property, the          Luoke-Jilinggang Property and the Guyegang-Sanyatang Property at a          cost of $267,427 (RMB 1,500,000).     The          following is a summary of the Fuwan Silver Belt exploration costs          incurred for the years ended December 31, 2009 and 2008:     Year          ended  Year          ended   December          31,  December          31,   2009  2008 Consulting          fees $151,150    Drilling  -   560,574 Labor          cost  -   69,405 Other          exploration costs  -   273,065   $-  $1,054,194  15 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   5.Mineral          Interests (continued)    (c)Chanqkenq          Silver Mineralization    Minco          Gold has assigned its right to earn a 51% interest in the Changkeng          Silver Mineralization to the Company. Minco Gold is responsible for          all the costs related to the gold mineralization on the Changkeng          Property; Minco Silver is responsible for the costs related to the          silver mineralization. The Company recorded $207,710 (2008 - $Nil) as          the exploration costs in 2009, which is 51% of the costs for the          Changkeng Silver Mineralization, payable to Minco Gold.    The          total cost to acquire the Changkeng Exploration Permit is          approximately $8 million (RMB 48.36 million), of which $2.9 million (RMB          19.36 million) was paid by Mingzhong in 2008, with the remaining          balance of approximately $5.1 million (RMB 29 million) due February 5,          2010.    In          2009, the Company and Minco Gold entered into an agreement under which          the Company will pay Minco Gold 30% of Minco Gold's 51% share of the          cost of the permit for the Changkeng Silver Mineralization.          Accordingly, in the year ended December 31, 2009, the Company recorded          $1,205,298 exploration permit costs for Changkeng Silver          Mineralization and amount due to Minco Gold. Subsequent to December          31, 2009, such amount has been fully repaid.   6.Plant,          Property and Equipment     December          31,2009   Accumulated  Net          Book      Cost  Amortization  Value           Computer          equipment $111,729  $67,287  $44,442 Leasehold          improvements  47,892   21,987   25,905 Mining          equipment  2,735   1,401   1,334 Site          motor vehicles  146,929   36,645   110,284 Office          equipment and furniture  39,087   18,002   21,085   $348,372  $145,322  $203,050    December          31,2008       Accumulated  Net          Book    Cost  Amortization  Value            Computer          equipment $115,169 $46,471 $68,698 Leasehold          improvements  45,618  12,409  33,209 Mining          equipment  2,735  854  1,881 Site          Motor vehicles  146,929  21,952  124,977 Office          equipment and furniture  50,702  13,906  36,796   $361,153 $95,592 $265,561  16 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   7.Share          Capital and Contributed Surplus    (a)Common          Shares and Contributed Surplus     Authorized:          Unlimited number of common shares without par value.     Issued:     Shares  Share          Capital  ContributedSurplus Balance          - December 31, 2007  31,137,132  $21,804,253  $6,260,998 Stock-based          compensation  1,483,435         Stock          options exercised  240,001   666,267   (281,234)Share          purchase warrants exercised  741,357   3,328,693   (771,011)Balance          - December 31, 2008  32,118,490   25,799,213   6,692,188 Private          placement (net of share issuance costs of $296,184)  8,175,179   10,669,497   2,932,123 Stock-based          compensation  -   -   1,163,510 Stock          options exercised  320,000   578,283   (261,883)Balance          - December 31, 2009  40,613,669  $37,046,993  $10,525,938    On  October 22, 2009, the Company closed a non-brokered private placement  financing of 8,175,179 units at a price of $1.70 per unit for gross proceeds  of $13,897,804. Each unit consists of one common share and one half of one  common share purchase warrant. Each whole warrant entitles the subscriber to  purchase a common share at a price of $2.15 for a period of twelve months. The  fair value of the warrants was estimated at $2,932,123. 17 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   7.Share          Capital and Contributed Surplus (continued)    (b)Stock          Options     The          Company may grant up to 10% of its issued and outstanding shares as          options to its Directors, officers, employees and consultants under          its stock option plan. The Board of directors grants such options for          periods of up to five years, with vesting periods determined at its          sole discretion and at prices equal to or greater than the closing          market price on the day preceding the date the options were granted.     Stock          option compensation is expensed over the vesting period of each          option. During the year ended December 31, 2009, the Company granted          1,110,000 stock options to directors, employees and consultants with          exercise prices ranging from $1.05 to $2.20 vesting over a three-year          period.     The          Company recorded $1,163,510 of stock-based compensation for the year          ended December 31, 2009. Stock- based compensation expense of $459,389          was recorded in the income statement and stock-based compensation          expense of $704,121 was capitalized to mineral interests.     A          summary of the options granted by the Company is as follows:        Weighted   Number  average   outstanding  exercise          price December          31, 2007  3,905,668  $1.77 Granted  1,132,500   1.91 Exercised  (240,001)  1.60 Forfeited  (648,333)  2.25 December          31, 2008  4,149,834   1.74 Granted  1,110,000   1.40 Exercised  (320,000)  0.99 Forfeited  (666,168)  1.91 December          31, 2009  4,273,666  $1.68  18 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   7.           Share  Capital and Contributed Surplus (continued)                (b)           Stock  Options (continued)   Options          Outstanding  Options          Exercisable      Weighted                Average  Weighted     Weighted Range          of     Remaining  Average     Average Exercise  Number  Contractual  Exercise  Number  Exercise Prices  Outstanding  Life          (yr)  Price  Exercisable  Price $0.46-$1.30   2,842,666   2.05  $1.13   1,921,667  $1.39 $1.57-$3.67   1,431,000   3.09  $2.58   747,343  $2.22      4,273,666   2.04  $1.68   2,669,010  $1.69     The          Company used the Black-Scholes option pricing model to determine the          fair value of the options with the following assumptions:     2009  2008   Risk-free          interest rate  1.58%-2.77%  1.96%-3.46%  Dividend          yield  0%  0%  Volatility  102%-107%  68%-102%  Approximate          expected lives 5          years  5          years      Option          pricing models require the use of highly subjective estimates and          assumptions including the expected stock price volatility. Changes in          the underlying assumptions can materially affect the fair value          estimates and therefore, in management's opinion, existing models do          not necessarily provide a reliable measure of the fair value of the          Company's stock options.    (c)Warrants     The          summary of warrants granted by the Company is as follows:     Numberoutstanding  Weighted          averageexercise          price December          31, 2007  2,875,000  $3.45 Exercised  (741,357)  3.45 Expired  (2,133,643)  3.45 Granted  -   - December          31, 2008  4,087,590   2.15 December          31, 2009  4,087,590  $2.15  19 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   7.Share          Capital and Contributed Surplus (continued)   In          connection with the non-brokered private placement described in Note          7(a), each unit consists of one common share and one half of one          common share purchase warrant. Each whole warrant entitles the          subscriber to purchase a common share at a price of $2.15 for a period          of twelve months. The fair value of the warrants was estimated at          $0.72 for each and $2,932,132 for a total of 4,087,590 warrants.   The          Company used the Black-Scholes option pricing model to determine the          fair value of the options with the following assumptions:     2009  2008    Risk-free          interest rate  1.22%  -    Dividend          yield  0%  -    Volatility  145.13%  -    Approximate          expected lives 1          year   -    (d)Capital          Risk Management   The          Company's objectives in the managing the liquidity and capital are          to safeguard the Company's ability to continue as a going concern          and provide financial capacity to meet its strategic objectives. The          capital structure of the Company consists of equity attributable to          common shareholders, comprising issued share capital, common share          purchase warrants, contributed surplus, accumulated and other          comprehensive income and accumulated deficit.   The          Company manages the capital structure and makes adjustments to it in          light of changes in economic conditions and the risk characteristics          of the underlying assets. To maintain or adjust the capital structure,          the Company may attempt to issue new shares, issue new debt, acquire          or dispose of assets to facilitate the management of its capital          requirements, the Company prepares annual expenditure budgets that are          updated as necessary depending upon various factors, including          successful capital deployment and general industry conditions. The          annual and updated budgets are approved by the Board of Directors.   As          at December 31, 2009, the Company does not have any long- term debt          and is not exposed to any externally imposed capital requirements.   The          Company expects that its current capital resources will be sufficient          to carry on certain development and exploration business plan and          support its operational expenses. 20 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   8.Income          Taxes   The          Company has two branches in China, Foshan Minco and Foshan Minco          Beijing Branch for Canadian tax purposes. The operating results of          these two branches are included in the Company's tax reporting for          Canadian tax purposes.   Income          tax expense differs from the amount that would result from applying          the Canadian federal and provincial income tax rates to earnings          before income taxes. These differences result from the following          items:     2009  2008  2007 Loss          before income taxes $(4,601,133) $(2,295,138) $(7,275,117)Statutory          income tax rate  30%  31%  34%Expected          tax recovery at statutory income tax rate $(1,380,340) $(711,493) $(2,482,270)Non-deductible          expenses and other items  247,100   167,111   440,065 Effect          of share issuance costs not recognized  (88,855)  -   - Impact          of change in tax rate  451,585   233,532   697,875 Cost          (benefit) of previously unrecognized tax pools  -   123,978   1,344,330 Change          in valuation allowance  499,795   240,998     Other  (84,020)  (54,126)  - Income          tax recovery $(354,735) $-  $-  21 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   8.Income          Taxes (continued)   Future          income taxes arise from temporary differences in the recognition of          income and expenses for financial reporting and tax purposes. The          significant components of future income tax assets and liabilities at          December 31 are as follows:     2009  2008    26%  26%Future          income tax assets:        Non-capital          losses $1,542,196  $1,447,140 Mineral          interests  2,619,109   2,274,490 Other  149,173   202,841    4,310,478   3,924,471 Loan          receivable  (26,938)  (140,725)   4,283,540   3,783,746 Less:          valuation allowance  (4,283,540)  (3,783,746)Total          future income tax assets $-  $-     The          Company has non-capital losses carry-forward for Canadian income tax          purposes as follows:   Loss          Expiry Amount 2014 $52,800 2015  746,632 2026  1,449,119 2027  998,751 2028  1,003,546 2029  1,917,936   $6,168,784     Included          in future income tax assets is $19,477,336 of cumulative foreign          resource expenses for Canadian income tax purposes which can be          carried forward indefinitely and used to reduce future taxable income          in Canada. Certain of these non-capital losses and the cumulative          foreign resource expenses are related to the Company's exploration          activities in China. Consequently, certain of the related expenditures          may be deductible for Chinese tax purposes (subject to China tax law          deductibility limitations). 22 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   9.Related          Party Transactions    (a)The          amount due to Minco China as at December 31, 2009 was $713,732 (2008 -          $939,806). It represents the expenditures on the Fuwan Property and          shared office expenses. The amount is unsecured, non-interest bearing          and payable on demand.    (b)The          amount due to Minco Gold as at December 31, 2009 was $1,395,553 (2008          - $306,476). It represents the exploration expenditures on the          Changkeng Silver Mineralization, shared expenses for the Vancouver          office and the sharing of salaries and administration costs. The          amount is unsecured, non-interest bearing and payable on demand.    In          the year ended December 31, 2009, the Company paid or accrued $127,897          (2008 - $78,122) in respect of rent, $1,205,298 (December 31, 2008 -          $Nil) in respect of exploration permit costs and $207,710 in respect          of sharing of exploration costs of Changkeng Silver Mineralization,          and $429,794 (2008 -$778,833) in respect of shared office expenses and          administration costs to Minco Gold.    (c)In          the year ended December 31, 2009, the Company paid consulting fees          totaling $575,591 (2008 - $407,231) to companies controlled by the          Chief Executive Officer, Chief Operating Officer, Chief Financial          Officer and Vice President, Exploration of the Company. Of this          amount, $173,311 was recorded in the income statement (2008 -          $145,219) and $402,280 was capitalized in the development cost          (2008-$262,012).    The          above transactions are conducted in the normal course of business and          are measured at the exchange amount, which is the amount of          consideration established and agreed to by the parties. 23 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)  10.Geographical          Information   The          Company's business is considered as operating in one segment,          mineral exploration and development. The geographical division of the          Company's assets and liabilities and net loss is as follows:     December          31,2009  December          31,2008 Current          Assets      Canada $5,940,989  $4,044,325 China  5,585,017   1,354,433   $11,526,006  $5,398,758 Long-term          Assets        Canada $11,449,692  $8,273,155 China  6,044,701   4,057,572   $17,494,393  $12,330,727 Current          Liabilities        Canada $1,480,769  $654,369 China  924,383   1,295,001   $2,405,152  $1,949,370      Year          endedDecember          31, 2009  Year          endedDecember          31, 2008  Year          endedDecember          31, 2007 Net          Loss         Canada $3,879,289  $851,038  $2,492,865 China  367,109   1,444,101   4,782,252   $4,246,398  $2,295,139  $7,275,117  24 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   11.Commitments a)The          Company has commitments in respect of office leases in China and          Canada, requiring minimum payments of $1,002,663, as follows:   2010 $167,039 2011  167,039 2012  167,039 2013  167,100 2014  167,223 2015  167,223   $1,002,663     (b)The          Company has a commitment in respect of the Fuwan mine design contract          requiring payments of RMB 8 million (approximately $1.23 million).   12.Financial          Management Risk     The          Company's operations consist of the acquisition, exploration and          development of mineral properties in China. The Company examines the          various financial risks to which it is exposed and assesses the impact          and likelihood of occurrence. These risks may include credit risk,          liquidity risk, currency risk and interest rate risk. Management          reviews these risks on a monthly basis and when material, they are          reviewed and monitored by the Board of Directors.     Credit          risk - Counterparty credit risk is the risk that the financial          benefits of contracts with a specific counterparty will be lost if the          counterparty defaults on its obligations under the contract. This          includes any cash amounts owed to the Company by these counterparties,          less any amounts owed to the counterparty by the Company where a legal          right of set-off exists and also includes the fair value contracts          with individual counterparties which are recorded in the consolidated          financial statements. The Company considers the following financial          assets to be exposed to credit risk:      i.Cash          and cash equivalents - In order to manage credit and liquidity risk,          the Company places its short-term investment funds into government and          Canadian bank debt securities with terms of 90 days or less when          acquired. At December 31, 2009, the balance of $847,439 was placed          with three institutions.      ii.Short          term investments - are investment grade bonds and guaranteed          investment certificates with maturities of greater than 90 days when          acquired. At December 31, 2009, these totalled $10.29 million and were          placed with two institutions. The yields on these investments were          0.65% to 0.80%.      iii.Loan          receivable - see Note 4. At year-end, the repayment date of the loan          receivable is indeterminable.     The          Company does not have any derivative financial instruments nor has it          invested in asset backed paper instruments. 25 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   12.Financial          Management Risk (continued)   Fair          value measurement   It          is required that the classification of fair value measurements uses a          fair value hierarchy that reflects the significance of the inputs used          in making the measurements, including the following levels:   Level          1 - quoted prices in active markets for identical assets or          liabilities, Level          2 - valuation methods that make use of directly or indirectly          observable inputs, and Level          3 - valuation methods that make use of unobservable market data used          as inputs.   The          fair value of the Company's cash and cash equivalents and short-term          investments is their carrying value (level 2). The marketable          securities are measured on its fair value based on quoted market price          (level 1). The fair value of the Company's receivables and payables          approximates their carrying value given their short-term nature.   Liquidity          risk - Liquidity risk includes the risk that the Company cannot 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          support the Company's normal operating requirements and its          exploration and development plans. The annual budget is approved by          the Board of Directors. The Company insures that there are sufficient          cash balances to meet its short-term business requirements. At          December 31, 2009, the Company has positive working capital of          approximately $9.12 million and therefore has sufficient funds to meet          its current operating and exploration and development obligations.          However, the Company will require significant additional funds in the          future to complete its plans for the Fuwan Silver Deposit.   Currency/Foreign          exchange risk - The Company's functional currency is the Canadian          dollar and therefore the Company's net earnings are impacted by          fluctuations in the valuation of foreign currencies in relation to the          Canadian dollar. The Company raises funds in Canadian dollars and          lends either Canadian or US dollar amounts to support the Chinese          operations. As the Company operates in China and many of its          exploration and development expenditures are payable in either US          dollars or the Chinese currency RMB, there exist foreign currency          risks arising from changes in exchange rates with the Canadian dollar.          The Company maintains its excess cash in Canadian based assets. The          Company does not hedge its exposure to currency fluctuations.   Interest          rate risk - Financial instruments that expose the Company to interest          rate risk are the cash and cash equivalents, short-term investments          and loan receivable owned by the Company.   The          Company has completed a sensitivity analysis to estimate the impact          that a change in foreign exchange rates would have on the net loss of          the Company, based on the Company's net US$12.9 million assets and          liabilities at year- end. This sensitivity analysis shows that a          change of +/- 10% in US$foreign exchange rate would have a +/-US$1.3          million impact on net loss for the year ended December 31, 2009. This          impact is primarily as a result of the Company having year- end cash          balances and loan receivable denominated in US dollars. 26 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   12.Financial          Management Risk (continued)   The          Company has also completed a sensitivity analysis to estimate the          impact that a change in interest rates would have on the net loss of          the Company. This sensitivity analysis shows that a change of +/- 100          basis points in interest rate would have a +/-$0.2 million impact on          net loss for the year ended December 31, 2009. This impact is          primarily  13.Reconciliation          of Canadian and United States Generally Accepted Accounting Principles   As          a result of the Company having cash and short-term investments          invested in interest bearing accounts. The financial position of the          Company may vary at the time that a change in interest rates occurs          causing the impact on the Company's results to differ from that          shown above.   These          consolidated financial statements have been prepared in accordance          with generally accepted accounting principles in Canada ("Canadian          GAAP"). These consolidated financial statements also conform, in all          material respects, with generally accepted accounting principles in          the United States of America ("United States GAAP") with respect          to recognition, measurement and presentation except as described and          quantified below.      Consolidated          Balance Sheets December          31,2009  December          31,2008    Total          assets under Canadian GAAP $29,020,399  $17,729,485    Adjustment          for capitalized development costs (a)  (9,000,902)  (5,294,098)   Total          assets under US GAAP $20,019,497  $12,435,387             Shareholders'          equity under Canadian GAAP $26,615,247  $15,780,115    Adjustment          for capitalized development costs (a)  (9,000,902)  (5,294,098)            Total          shareholders' equity under US GAAP $17,614,345  $10,486,017     Consolidated        Statements of Operations and Comprehensive Loss and Deficit: 2009  2008    Net          Loss - Canadian GAAP  4,246,398   2,295,138    Adjustment          for capitalized development cost (a)  3,706,804   5,294,098    Net          Loss - US GAAP  7,953,202   7,589,236    Loss          per share - US GAAP  023   0.24  27 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   13Reconciliation          of Canadian and United States Generally Accepted Accounting Principles          (continued)   Consolidated          Statements of Cash Flows Dec          31, 2009  Dec          31, 2008    Cash          flows (used) in operating activities under Canadian GAAP  (2,504,670)  (4,407,843)   Adjustment          for development costs (a)  (2,647,947)  (4,675,120)   Cash          flows (used) in operating activities under US GAAP  (5,152,617)  (9,082,963)            Cash          flows (used in) from investing activities under Canadian GAAP  (11,739,932)  (8,398)   Adjustment          for development costs (a)  2,647,947   4,675,120    Cash          flows (used in) from investing activities under US GAAP  (9,091,985)  4,666,722     There          were no reconciling items between US GAAP and Canadian GAAP identified          for the year ended December 31, 2007.    (a)Mineral          properties development:     Mineral          properties are accounted for in accordance with Canadian GAAP as          discussed in Note 5. During 2008, management determined that the Fuwan          Silver Deposit area had met the criteria for treatment as a          development property effective March 5, 2008 and as such has          capitalized expenditures in the amount of $9,000,902 relating to the          Fuwan silver project under Canadian GAAP as at December 31, 2009.     For          US GAAP purposes, in accordance with Emerging Issues Task Force ("EITF")          04-2, "Whether Mineral Rights Are Tangible or Intangible Assets",          exploration expenditures as well as acquisition costs for properties,          leases and permits are expensed as incurred unless commercial          feasibility is established. Therefore, the amount of $9,000,902          capitalized under Canadian GAAP would be expensed in accordance with          US GAAP.     Under          Canadian GAAP, the net loss of 2009 was increased by $3,706,804          related to mineral property exploration, which was adjusted to          exploration costs under US GAAP (2008 - $5,294,098, 2008 - Nil).     Under          Canadian GAAP, cash flow of $2,647,947 (2008 - $4,675,120, 2007 - Nil)          related to mineral property exploration was included in the investing          activities, which was adjusted to the operating activities under US          GAAP. 28 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   13Reconciliation          of Canadian and United States Generally Accepted Accounting Principles          (continued)     (b)Recently          adopted accounting standards - US GAAP:      1)In          June 2009, FASB issued Accounting Standards Codification ("ASC")          Topic 105, "Generally Accepted Accounting Principles." ASC Topic          105 establishes the FASB Accounting Standards Codification ("Codification")          as the source of authoritative accounting principles recognized by the          FASB to be applied by non-governmental entities in the preparation of          financial statements in conformity with US GAAP for the Securities and          Exchange Commission ("SEC") registrants. All guidance contained in          the Codification carries an equal level of authority. The Codification          supersedes all existing non-SEC accounting and reporting standards.          The FASB will no longer issue new standards in the form of Statements,          FASB Staff Positions or Emerging Issues Task Force Abstracts. The FASB          will instead issue new standards in the form of Accounting Standards          Updates ("ASU"). The FASB will not consider ASUs as authoritative          in their own right and ASUs will serve only to update the          Codification, provide background information about the guidance and          provide the basis for conclusions on changes in Codification. These          changes and the Codification itself do not change US GAAP. The          adoption of these changes has only impacted the manner in which new          accounting guidance under US GAAP is referenced. It did not impact to          the Company's consolidated financial statements.      2)In          September 2006, the Financial Accounting Standards Board ("FASB")          issued an amendment included in ASC 820 Fair Value Measurements and          Disclosures (formerly SFAS 157, Fair Value Measurements), which          defines fair value, establishes a framework for measuring fair value          and expands fair value disclosures. The standard does not require any          new fair value measurements. The effective date for certain          non-financial assets and non-financial liabilities was deferred to          years beginning after November 15, 2008, and interim periods within          those years. The Company adopted the standard on January 1, 2009          without significant effect on the Company's consolidated financial          statements.      3)In          December 2007, the FASB issued an amendment to ASC 805 Business          Combinations (formerly SFAS 141(R), Business Combinations), which          retains the fundamental requirements that the acquisition method of          accounting be used for all business combinations and for an acquirer          to be identified for each business combination. The standard applies          prospectively to business combinations for which the acquisition date          is on or after the beginning of the first annual reporting period          beginning on or after December 15, 2008. The Company adopted the          standard on January 1, 2009 without significant effect on the Company's          consolidated financial statements.    29 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   13Reconciliation          of Canadian and United States Generally Accepted Accounting Principles          (continued)     (b)Recently          adopted accounting standards - US GAAP: (continued)      4)In          December 2007, the FASB issued an amendment to ASC 810 Consolidations          (formerly SFAS 160, Non controlling interests in consolidated          financial statements, which amended ARB 51) to establish accounting          and reporting standards for a non-controlling interest in a subsidiary          and for deconsolidation of a subsidiary. The standard applies          prospectively to business combinations for which the acquisition date          is on or after the beginning of the first annual reporting period          beginning on or after December 15, 2008. The Company adopted the          standard on January 1, 2009 without significant effect on the Company's          financial statements.      5)In          March 2008, the FASB issued an amendment to ASC 815 Derivatives and          Hedging (formerly FASB Statement No. 161, Disclosure about Derivative          Instruments and Hedging Activities - an amendment of FASB Statement          No. 133 ("FAS 161")) which provides revised guidance for enhanced          disclosures about how and why an entity uses derivative instruments,          how derivative instruments and the related hedged items are accounted          for under ASC 815, and how derivative instruments and the related          hedged items affect an entity's financial position, financial          performance and cash flows. The Company adopted the standard on          January 1, 2009 without significant effect on the Company's          financial statements.      6)In          April 2008, the FASB issued an amendment to ASC 350 Intangibles -          Goodwill and Other (formerly FSP No. FAS 142-3, Determination of the          Useful Life of Intangible Assets) which amends the factors that should          be considered in developing renewal or extension assumptions used to          determine the useful life of a recognized intangible asset under ASC          350. The intent of this amendment is to improve consistency between          the useful life of a recognized intangible asset under ASC 350 and the          period of expected cash flows used to measure the fair value of the          asset under ASC 805 Business Combinations (formerly FASB Statement No.          141, Business Combinations). The amendment is effective for the          Company's fiscal year beginning January 1, 2009 and has been applied          prospectively to intangible assets acquired after the effective date.          The Company adopted the standard on January 1, 2009 without          significant effect on the Company's financial statements,      7)In          April 2009, an amendment was issued to ASC 815 Derivatives and Hedging          which addresses whether an equity-linked financial instrument (or          embedded feature) is indexed to an entity's own stock, an important          consideration in determining the instrument's accounting          classification. The amendment is effective for annual periods          beginning after December 15, 2008. The Company adopted the standard on          January 1, 2009 with no impact on the Company's financial          statements. 30 MINCO          SILVER CORPORATION(A          development stage enterprise)Consolidated          Statement of Operations and Comprehensive Loss and Deficit(in          Canadian Dollars)   13Reconciliation          of Canadian and United States Generally Accepted Accounting Principles          (continued)     (b)Recently          adopted accounting standards - US GAAP: (continued)      8)In          May 2009, the FASB issued ASC 855 Subsequent Events which establishes          general standards of accounting for and disclosure of events that          occur after the balance sheet date but before financial statements are          issued. The standard is based on similar principles as those that          previously existed in the auditing standard. The standard is effective          for interim and annual periods ending after June 15, 2009. The Company          has adopted the standard for the annual period ending December 31,          2009 without significant effect.     (c)Future          accounting pronouncements impacting the Company      1)In          June 2009, the Financial Accounting Standards Board ("FASB")          issued an amendment to ASC 820 Fair Value Measurements and Disclosures          (formerly SFAS 166 "Accounting for Transfers of Financial Assets,"          which amends FAS 140, "Accounting for Transfers and Servicing of          Financial Assets and Extinguishing of Liabilities") significantly          changing how companies account for transfers of financial assets. The          standard provides revised guidance in a number of areas including the          elimination of qualifying special purpose entity concept, the          introduction of new "participating interest" definition that must          be met for transfers of portions of financial assets to be eligible          for sale accounting, clarification and amendments to the derecognition          criteria for a transfer to be accounted for as a sale when beneficial          interests are received by the transferor, and extensive new          disclosures. The provisions are to be applied to transfers of          financial assets occurring in years beginning after November 15, 2009.          The Company is currently evaluating the potential effect of adopting          this standard on our financial statements and disclosures.      2)In          June 2009, the FASB issued an amendment to ASC 810 Consolidation          (formerly SFAS 167, "Amendments to FASB Interpretation No. 46 (R),"          which amends the consolidation guidance for variable interest entities          ("VIE") under FIN 46(R), "Consolidation of Variable Interest          Entities"). The changes include the elimination of the exemption for          qualifying special purpose entities and a new approach for determining          who should consolidate a variable interest entity. In addition,          changes to when it is necessary to reassess who should consolidate a          variable interest entity have also been made. In determining the          primary beneficiary, or entity required to consolidate a VIE,          quantitative analysis of who absorbs the majority of the VIEs expected          losses or receives a majority of the VIEs expected residual returns or          both is no longer required. Under the amendment, an entity is required          to assess whether its variable interest or interests in an entity give          it a controlling financial interest in the VIE, which involves more          qualitative analysis. Additional disclosures will be required under          the amendment to provide more transparent information regarding an          entity's involvement with a VIE. The provisions are to be applied to          transfers of financial assets occurring in years beginning after          November 15, 2009. The Company is currently evaluating the potential          effect of adopting this standard on our financial statements and          disclosures. 31 MINCO          SILVER CORPORATION(A          development stage enterprise)Notes          to Consolidated Financial Statements(in          Canadian Dollars)   14.Subsequent          Events   On          January 26, 2010, the Company settled with the EPA and the Tribe          penalties in the amount of US$1.25 million on the 7% NSR royalty          payable pursuant to the Consent Decree Judgment between Sterling, the          EPA and the Tribe ("the Settlement"). The Settlement completes the          outstanding cure amount to the Sunshine Lease.   On          March 2, 2010, the Bankruptcy Court approved a settlement achieved in          principle on January 26, 2010 of the penalties due and owing to the          Tribe and the EPA on the 7% NSR pursuant to the Consent Decree          Judgment in the amount of US$1.25 million bringing the Sunshine Lease          into good standing. The Bankruptcy Court also approved a third post          petition supplemental financing offer from the Company to finance the          settlement and Sterling's continued administrative and the care and          maintenance costs of the Sunshine Mine to April 15, 2010 in the amount          of US$2 million.   Subsequent          to the year-end, the Company paid back the amounts due to Minco Gold          totaling approximately $1,395,553. 32    Minco  Silver Corporation   Consolidated  Financial StatementsDecember  31, 2010, 2009 and 2008(expressed  in Canadian dollars) 1    Management's  Responsibility for Financial Reporting   The  consolidated financial statements and the information contained in the annual  report are the responsibility of the Board of Directors and management. The  consolidated financial statements have been prepared by management in  accordance with Canadian generally accepted accounting principles and include  certain estimates that reflect management's best judgments on information  currently available. In the opinion of management, the accounting practices  utilized are appropriate in the circumstances and the consolidated financial  statements fairly reflect the financial position and results of operations of  the Company within reasonable limits of materiality.   The  Audit Committee of the Board of Directors is composed of three directors and  meets periodically with management and the independent auditors to review the  scope and results of the annual audit and to review the consolidated financial  statements and related financial reporting matters prior to submitting the  consolidated financial statements to the Board of Directors for approval.   The  consolidated financial statements have been audited by PricewaterhouseCoopers  LLP, Chartered Accountants, who were appointed by the shareholders. The  auditor's report outlines the scope of their examination and their opinion  on the consolidated financial statements.   Dr.          Ken CaiPaul          Zhang, C.A.President          and CEOCFO          and V.P. Finance  Vancouver,          Canada March          28, 2011  2    March  28, 2011   Independent  Auditor's Report   To  the Shareholdersof  Minco Silver Corporation   We  have audited the accompanying consolidated financial statements of Minco  Silver Corporation ("Minco Silver" or the "Company"), which comprise  the consolidated balance sheets as at December 31, 2010 and 2009 and the  consolidated statements of operations, comprehensive loss and deficit and cash  flows for the years then ended, and the related notes including a summary of  significant accounting policies.   Management's  responsibility for the consolidated financial statementsManagement  is responsible for the preparation and fair presentation of these consolidated  financial statements in accordance with Canadian generally accepted accounting  principles 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.   Auditor's  responsibilityOur  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 the standards of the Public  Company Accounting Oversight Board (United States). Those standards require  that we plan and perform the audit to obtain reasonable assurance about  whether the consolidated financial statements are free from material  misstatement. Canadian generally accepted auditing standards require that we  comply with ethical requirements.   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 auditor's judgment, including the  assessment of the risks of material misstatement of the consolidated financial  statements, whether due to fraud or error. We were not engaged to perform an  audit of the company's internal control over financial reporting. Our audits  included consideration of internal control over financial reporting as a basis  for designing audit procedures that are appropriate in the circumstances, but  not for the purpose of expressing an opinion on the effectiveness of the  company's internal control over financial reporting. Accordingly, we express  no such opinion. 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. 3    OpinionIn  our opinion, the consolidated financial statements present fairly, in all  material respects, the financial position of the Company as at December 31,  2010 and 2009 and the results of its operations and cash flows for the years  then ended in accordance with Canadian generally accepted accounting  principles.   (signed)  PricewaterhouseCoopers LLP   Chartered  Accountants 4 Minco          Silver CorporationConsolidated          Balance SheetsAs          at December 31, 2010 and 2009(expressed          in Canadian dollars)      2010$  2009$ Assets               Currentassets       Cash          and cash equivalents  5,110,554  847,439 Short-term          investments (note 3)  24,086,725  10,288,326 Receivables  327,755  104,885 Prepaid          expenses and deposits  504,417  285,356            30,029,451  11,526,006         Loan          receivable (note 4)  -  8,290,441         Mineral          interests (note 5)  12,960,162  9,000,902         Property,          plant and equipment (note 6)  656,880  203,050            43,646,493  29,020,399         Liabilities               Current          liabilities       Accounts          payable and accrued liabilities  521,408  295,867 Due          to related parties (note 9(a))  839,304  2,109,285            1,360,712  2,405,152 Shareholders'          Equity               Share          capital (note 7(a))  58,595,288  37,046,993         Contributed          surplus (note 7(a))  8,808,160  10,525,938         Deficit  (25,117,667) (20,957,684)           42,285,781  26,615,247            43,646,493  29,020,399    Commitments  (note 11)   Subsequent  events (note 14)   Approved          by the Board of Directors       (signed)          Chan-Seng Lee Director(signed)          William Meyer DirectorSee  accompanying notes to consolidated financial statements. 5 Minco          Silver CorporationConsolidated          Statements of Operations, Comprehensive Loss and DeficitFor          the years ended December 31, 2010, 2009 and 2008(expressed          in Canadian dollars)      2010$  2009$  2008$ Exploration          permit costs  -  1,205,298  -            Exploration          costs  -  207,710  1,814,641               -  1,413,008  1,814,641 Administration          expenses          Accounting          and audit  183,069  165,122  76,155 Amortization  57,473  49,729  49,147 Consulting  512,300  173,311  145,219 Directors'          fees  71,000  60,500  55,250 Field          office  279,833  194,536  119,996 Foreign          exchange loss (gain)  807,189  1,141,070  (1,440,314)Interest  -  8,534  - Investor          relations  699,209  319,227  545,518 Legal,          regulatory and filing  119,593  116,125  83,779 Office          administration  183,265  99,066  91,512 Property          investigation  40,682  -  40,016 Rent  136,281  142,898  142,851 Salaries          and benefits  272,513  253,937  253,828 Stock-based          compensation (note 7(b))  2,339,863  459,389  1,123,350 Travel          and entertainment  87,131  91,113  82,975    5,789,401  3,274,557  1,369,282            Loss          before undernoted  (5,789,401) (4,687,565) (3,183,923)           Gain          on loan settlement (note 4)  1,198,417  -  -            Interest          and sundry income  125,569  86,432  888,785            Loss          before income taxes  (4,465,415) (4,601,133) (2,295,138)           Future          income tax recovery (note 8)  305,432  354,735  -            Loss          and comprehensive loss for the year  (4,159,983) (4,246,398) (2,295,138)           Deficit          - Beginning of year  (20,957,684) (16,711,286) (14,416,148)           Deficit          - End of year  (25,117,667) (20,957,684) (16,711,286)           Loss          per share - basic and diluted  (0.09) (0.13) (0.07)           Weighted          average number of common shares          outstanding          - basic and diluted  43,790,214  33,855,997  31,767,488    See  accompanying notes to consolidated financial statements 6 Minco          Silver CorporationConsolidated          Statements of Cash FlowsFor          the years ended December 31, 2010, 2009 and 2008(expressed          in Canadian dollars)      2010$  2009$  2008$ Cash          flows used in operating activities          Loss          for year  (4,159,983) (4,246,398) (2,295,138)           Adjustment          for items not involving cash Stock-based compensation (note 7(b))  2,339,863  459,389  1,123,350 Amortization  57,473  49,729  49,147 Foreign          exchange loss (gain) on loan receivable  -  1,000,866  (1,440,314)Future          income tax recovery  (305,432) (354,735) - Gain          on sterling loan settlement  (1,198,417) -  -    (3,266,496) (3,091,149) (2,562,955)Changes          in non-cash working capital items          Receivables  (222,870) 42,377  45,760 Prepaid          expenses and deposits  (219,061) 85,613  (348,264)Accounts          payable and accrued liabilities  225,541  (404,514) (524,085)Due          to related parties (note 9(a))  (1,269,982) 863,003  -    (4,752,868) (2,504,670) (3,389,544)Cash          flows from financing activities                     Proceeds          from exercise of options and warrants (note 7(a))  12,689,724  -  - Proceeds          from issuance of common shares (note 7(a))  3,884,636  13,918,020  2,942,716 Advances          from (repayments to) related parties (note 9(a))  -  -  (1,463,613)   16,574,360  13,918,020  1,479,103 Cash          flows from (used in) investing activities          Development          costs  (2,737,533) (2,647,947) (4,675,120)Property,          plant and equipment  (511,303) 10,074  (70,624)Proceeds          from loan settlement (note 4)  12,121,340  -  - Loan          receivable (note 4)  (2,632,482) (2,520,239) (5,776,068)Short-term          investments  (13,798,399) (6,581,820) 10,513,414    (7,558,377) (11,739,932) (8,398)Effects          of exchange rate changes on cash  -  -  445,314            Increase          (decrease) in cash and cash equivalents  4,263,115  (326,582) (1,473,525)           Cash          and cash equivalents - Beginning of year  847,439  1,174,021  2,647,546            Cash          and cash equivalents -End of year  5,110,554  847,439  1,174,021            Supplemental          disclosure of cash flow information          Interest          paid  -  8,534  -    See  accompanying notes to consolidated financial statements. 7    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 20081Nature            of business   Minco            Silver Corporation ("Minco Silver" or the "Company") was            incorporated on August 20, 2004 under the laws of British Columbia,            Canada. Its principal business activities include the acquisition,            exploration and development of silver mineral properties.   At            December 31, 2010, Minco Gold Corporation ("Minco Gold") owned a            26.2% (2009 - 32.01%) equity interest in Minco Silver.   Minco            Silver is exploring, evaluating and developing silver-dominant            mineral properties and projects. The ability of the Company to meet            its commitments as they become payable, the exploration and            development of mineral properties and projects, and the underlying            value of the mineral properties are entirely dependent upon the            existence of economically recoverable reserves, the ability of the            Company to arrange appropriate financing to complete the exploration            and development of its properties, the receipt of necessary permits            and upon achieving future profitable production or receiving            proceeds from the disposition of the properties.  2Significant            accounting policies   Basis            of presentation and consolidation   These            consolidated financial statements have been prepared in accordance            with Canadian generally accepted accounting principles. These            consolidated financial statements include the accounts of Minco            Silver Corporation, Minco Silver Ltd., Minco Yinyuan Co. and Minco            Silver (US) Corporation. In addition, these consolidated financial            statements include the accounts of Foshan Minco Fuwan Mining Co.            Ltd. ("FoshanMinco") Foshan Minco is legally owned by Minco            Mining (China) Corporation, ("Minco China") a subsidiary of            Minco Gold, in trust for Minco Silver. Foshan Minco is subject to a            10% net profit interest held by Guangdong Geological Bureau ("GGB").   All            material inter-company accounts and transactions have been            eliminated upon consolidation.   Use            of estimates and measurement of uncertainty   The            preparation of consolidated financial statements in conformity with            Canadian generally accepted accounting principles requires            management to make estimates and assumptions that affect the            reported amount of assets and liabilities at the date of the            consolidated financial statements and expenses during the period            reported. Significant areas of estimate include mineral interest            valuation, stock-based compensation and future income taxes. By            their nature, these estimates are subject to uncertainty and the            effect on the consolidated financial statements of changes in these            estimates in future periods could be significant. 8    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008Stock-based  compensationThe  Company grants stock options to directors, officers, employees and service  providers.The  Company applies the fair-value method of accounting for stock-based awards.  Stock-based compensation for employees is determined based on the grant date  fair value of the stock options calculated using the Black- Scholes option  pricing model. The expense is charged to earnings or capitalized, as  appropriate, on a straight- line basis over the vesting period. For  non-employees, stock-based compensation is determined based on the fair value  of the options on the earliest of the date at which the counterparty's  performance is complete, a performance commitment is reached, or the equity  instruments are granted if they are fully vested and non-forfeitable  at that date. If stock options are ultimately exercised, the applicable  amounts of contributed surplus are transferred to share capital.Acquisition,  exploration and development of mineral interestsExploration  expenditures other than direct acquisition costs are expensed before a mineral  resource is identified as having economic potential.The  Company's policy is to capitalize mineral property acquisition costs and to  commence capitalization of mineral property exploration and development costs  when a mineral resource is identified as having economic potential on a  property.Where  a specific mineral property interest is identified as having a mineral  resource with economic potential, costs specific to the development of the  particular project are capitalized as development costs and carried at cost  until the properties to which they relate are placed into commercial  production, sold, abandoned or determined by management to be impaired in  value.A  mineral resource is considered to have economic potential when it is expected  that documented resources can be legally and economically developed  considering long-term metal prices. Therefore, prior to capitalizing such  costs, management determines that the following conditions have been met:a)       There is a probable future benefit that will  contribute to future cash inflows;b)       The Company can obtain the benefit and control access to it; andc)       The transaction or event giving rise to the benefit has already occurred.Costs  relating to any producing mineral interest would be amortized on a  unit-of-production basis over theestimated  ore reserves. Costs incurred after a property is placed into production that  increase productionvolume  or extend the life of a mine are capitalized.    9    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   The  recoverability of mineral interests is dependent upon the determination of  economically recoverable ore reserves, confirmation of the Company's  interest in the underlying mineral claims, the ability to farm-out its  resource properties, the ability to obtain the necessary financing to complete  their development and future profitable production or proceeds from the  disposition thereof.   Property,  plant and equipment   Property,  plant and equipment are recorded at cost less accumulated amortization and  depletion.   Amortization  is calculated using the straight-line method based on the assets' estimated  useful lives:     Computer          equipment5          years  Leasehold          improvements3          years  Mining          equipment5          years  Motor          vehicles10          years  Office          equipment and furniture5          years    The  amortization of leasehold improvements is calculated using the straight-line  method based on the remaining lease term.   Impairment   The  carrying values of mineral interests and property, plant and equipment are  reviewed when changes in circumstances suggest their carrying value may have  become impaired. Management considers assets to be impaired if the carrying  value exceeds the estimated undiscounted future projected cash flows from the  use of the asset or mineral interests and its eventual disposition. If  impairment is deemed to exist, the assets or development property will be  written down to fair value with a charge to operations.   Asset  retirement obligations   The  Company recognizes the fair value of liabilities for asset retirement  obligations in the period in which they are incurred and in which a reasonable  estimate of such costs can be made. The asset retirement obligation is  recorded as a liability with a corresponding increase to the carrying amount  of the related asset and depreciated over the life of the asset. Over time,  the liability is increased to reflect an interest element (accretion expenses)  considered in its initial measurement at fair value. The amount of liability  will be adjusted for changes in amounts and timing of cash flows at each  reporting period. It is possible that the Company's estimates of its  ultimate reclamation and closure liabilities could change as a result of  changes in regulations, the extent of environmental remediation required, and  the means of reclamation or cost estimates. Changes in estimates are accounted  for prospectively from the period the estimate is revised.   As  at December 31, 2010 and 2009, the Company did not have any asset retirement  obligations.    10 Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   Financial  instruments   The  Company's financial instruments consist of cash and cash equivalents,  short-term investments, receivables, accounts payable and accrued liabilities,  and payables to related parties.    a)Cash          and cash equivalents     Cash          and cash equivalents comprise cash at banks and on hand and guaranteed          investment certificates with  initial          maturities of less than three months. Cash and cash equivalents have          been classified as held for  trading          and are recorded at fair value.    b)Short-term          investments     Short-term          investments comprise guaranteed investment certificates with initial          maturity of greater than  three          months. Such investments have been classified as held for trading and          are recorded at fair value.    c) Receivables     Receivables          are classified as loans and receivables and accordingly are recorded          initially at fair value, net  of          transaction costs incurred, and subsequently at amortized cost using          the effective interest rate method.    d)Accounts          payable and payables to related parties     Accounts          payable and accrued liabilities and payables to related parties are          classified as other financial  liabilities          and are recognized initially at fair value, net of transaction costs          incurred, and are subsequently  recorded          at amortized cost.   Income  taxes   The  Company follows the liability method of accounting for income taxes. Future  income taxes are recognized for the future tax consequences attributable to  differences between the carrying values of assets and liabilities and their  respective income tax bases on the balance sheet date. Future income tax  assets and liabilities are measured using substantively enacted income tax  rates expected to apply in which temporary differences are expected to be  recovered or settled. The effect on future tax assets and liabilities of a  change in substantively enacted rates is included in operations. A future  income tax asset is only recorded to the extent it is more likely than not to  be realized.   Loss  per share   Basic  loss per share is computed using the weighted average number of common shares  outstanding during the year. Diluted loss per share amounts are calculated  giving effect to the potential dilution that would occur if securities or  other contracts to issue common shares were exercised or converted to common  shares using the treasury stock method. If the Company incurs net losses in a  fiscal year, basic and diluted loss per share are the same.    11 Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008    Translation          of foreign currencies   The          Company's measurement currency is the Canadian dollar. The Company          follows the temporal method of accounting for the translation of its          integrated foreign operations and for foreign currency transactions.          Under this method, transactions denominated in foreign currencies are          translated into Canadian dollars at the exchange rates prevailing at          the transaction dates. At year-end, monetary assets and liabilities          are re-measured at the year-end exchange rates, and non-monetary          assets and liabilities denominated in foreign currencies are          translated to Canadian dollars at their historical exchange rates.          Exchange gains and losses on translation are charged to operations.  3Short-term          investments   As          at December 31, 2010, short-term investments consisted of cashable          guaranteed investment certificates ($8.1 million) and discount notes          ($16.0 million). The yields on these investments were 0.4% to 1.6%.   As          at December 31, 2009, short-term investments consisted of cashable          guaranteed investment certificates of $10.3 million with a yield          ranging from 0.65% to 0.80%.  4Loan          receivable   On          July 22, 2008, the Company announced that it executed a letter of          intent with Sterling Mining Company ("Sterling") to acquire 100%          of the issued and outstanding common shares of Sterling. Sterling's          principal asset was the Sunshine Mine.   The          Company also extended a line of credit in the amount of US$15 million          under the terms of a Credit Facility Agreement dated July 21, 2008          (the "Facility") to be advanced from time to time to meet general          working capital and other operating expenses to carry on Sterling's          business, of which US$5 million was advanced on July 30, 2008, bearing          10% simple interest plus fees and expenses. It was a term of the          Letter of Intent and the Facility that Minco Silver's obligation to          amalgamate with Sterling and the payment of any and all subsequent          advances were conditional upon the successful completion of a due          diligence review of Sterling's operations and the execution of a          definitive agreement.   On          August 27, 2008, at the conclusion of Minco Silver's due diligence          review, the Company terminated its obligation to amalgamate with          Sterling and its obligation to advance the additional US$10 million          under the Facility.   On          February 18, 2009, Minco Silver filed an action in the District Court          of the First Judicial District of the State of Idaho commencing a          foreclosure proceeding to foreclose on Sterling and appoint a receiver          to realize on the US$5 million advance. On March 3, 2009, Minco Silver's          foreclosure action was stayed in favour of Sterling's filing of a          voluntary position under Chapter 11 of the United States Bankruptcy          Code in the United States Bankruptcy Court for the District of the          State of Idaho (the "Bankruptcy Court"). 12 Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008 During          the bankruptcy proceedings the Company advanced a total of US$4.8          million to Sterling by way of post-petition financing to fund Sterling's          administration costs and cure monetary defaults pursuant to the terms          of the Sunshine Lease.   On          December 2, 2009, Sterling filed with the Bankruptcy Court a second          amended disclosure statement and plan of reorganization (the "Plan")          providing information concerning Sterling's bankruptcy and its          proposed reorganization. Pursuant to the provisions of the Plan, Minco          Silver made a bid to purchase Sterling in the amount of US$12.5          million.   The          Company was unsuccessful in its bid to acquire 100% of the shares of          Sterling during the bankruptcy auction held on April 21, 2010. As a          result, the Company made a claim to receive the repayment of all          amounts advanced and incurred, with interest, in the aggregate amount          of US$11.7 million. The Court confirmed the winning bid and the sale          of Sterling to the winning bidder on May 7, 2010.   By          June 4, 2010 the Company received US$11.7 million ($12.1 million) from          Sterling for the repayment of the loan. The Company recognized a gain          in the amount of $1.2 million which represents the difference between          the funds received and the amount recorded as loan receivable          immediately prior to the receipt of the repayment.5Mineral          interests   a)Fuwan          Silver Deposit     Minco          Silver has a 100% beneficial interest in Foshan Minco, the operating          company and permit holder for the Fuwan project, subject to a 10% net          profit interest held by GGB. There will be no distributions to or          participation by GGB, until such time as Minco Silver's investment          in the project is recovered. GGB is not required to fund any          expenditures related to the Fuwan project. The current permit for the          Fuwan project is the Luoke-Jilinggang exploration permit, which          expires in July 2011. The Company is in the process of applying for a          mining permit for the Fuwan project.     Although          the Company has taken steps to verify the title to mineral properties          in which it has an interest in accordance with industry standards for          the current stage of exploration of such properties, these procedures          do not guarantee the Company's title. Property title may be subject          to unregistered prior agreements or transfers. 13 Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   The  following is a summary of the project development costs capitalized in the  mineral interest from January 1, 2008 to December 31, 2010:      2008$  Additions$  2009$  Additions$  2010$                  Consulting          fees  742,482  524,667  1,267,149  887,149  2,154,298 Drilling  1,738,039  80,220  1,818,259  39,332  1,857,591 Labor  229,311  448,057  677,368  426,919  1,104,287 Feasibility          study  1,113,032  767,495  1,880,527  -  1,880,527 Stock-based                compensation  360,086  704,121  1,064,207  916,295  1,980,502 Mining          design costs  -  -  -  265,896  265,896 Mining          license                application  142,222  157,495  299,717  458,387  758,104 Mining          permit  220,965  -  220,965  -  220,965 Environment          impact                assessment  138,391  286,945  425,336  185,233  610,569 Travel          to the mine site  -  -  -  213,559  213,559 Future          income taxes  69,291  285,444  354,735  305,432  660,167 Other          development costs  540,279  452,360  992,639  261,058  1,253,697                     5,294,098  3,706,804  9,000,902  3,959,260  12,960,162 b)Fuwan          Silver Belt   In          2005, the Company acquired three additional silver exploration permits          on the Fuwan belt, referred to as the Guanhuatang Property, the Hecun          Property and the Guyegang Property at a cost of $267,427          (RMB1,500,000). These three permits expire in 2012 and are currently          held by Minco China in trust for Minco Silver.   During          the year ended December 31, 2010, the Company did not conduct any          regional exploration activities, except for maintaining the three          exploration permits.  c)Changkeng          Silver Mineralization   Minco          Gold has assigned its right to earn a 51% interest in the Changkeng          Silver Mineralization to the Company. Minco Gold is responsible for          all the costs related to the gold mineralization on the Changkeng          Property; Minco Silver is responsible for the costs related to the          silver mineralization. The Company recorded $nil (2009 - $207,710) as          the exploration costs in 2010.   In          2009, the Company and Minco Gold entered into an agreement under which          the Company will pay Minco Gold 30% of Minco Gold's 51% share of the          cost of the permit for the Changkeng Silver Mineralization.          Accordingly, in the year ended December 31, 2009, the Company accrued          $1,205,298 as permit costs due to Minco Gold. As at December 31, 2010,          this amount was fully paid.    14    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   6                  Property, plant and equipment   2010     Cost$  Accumulated          amortization$  Net$                                                  Computer          equipment  153,475  90,064  63,411  Leasehold          improvements  188,459  29,138  159,321  Mining          equipment  2,735  2,735  -  Site          motor vehicles  424,480  53,519  370,961  Office          equipment and furniture  90,525  27,338  63,187                 859,674  202,794  656,880                2009     Cost$  Accumulated          amortization$  Net$                                Computer          equipment  111,729  67,287  44,442  Leasehold          improvements  47,892  21,987  25,905  Mining          equipment  2,735  1,401  1,334  Site          motor vehicles  146,929  36,645  110,284  Office          equipment and furniture  39,087  18,002  21,085     348,372  145,322  203,050     15    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008            7     Share capital and contributed surplus                    a)       Common shares and  contributed surplus                           Authorized                             Unlimited number of common shares without par value                        Issued    Shares  Share          capital$  Contributed          surplus$              Balance          - December 31, 2008  32,118,490  25,799,213  6,692,188              Private          placement - net of share           issuance          costs of $296,184  8,175,179  10,669,497  2,932,123  Stock-based          compensation  -  -  1,163,510  Stock          option exercised  320,000  578,283  (261,883)             Balance          - December 31, 2009  40,613,669  37,046,993  10,525,938              Private          placements - net of share           issuance          costs of $48,365  2,300,000  3,345,412  539,223  Stock-based          compensation  -  (27,223) 3,283,381  Stock          options exercised  2,408,861  5,969,096  (2,515,963) Share          purchase warrants exercised  4,296,089  12,261,010  (3,024,419)             Balance          - December 31, 2010  49,618,619  58,595,288  8,808,160    On  April 14 and April 22, 2010, the Company closed non-brokered private placement  financings totaling 2,300,000 units at a price of $1.71 per unit for total  gross proceeds of $3,933,000. Each unit consists of one common share and one  half of one common share purchase warrant. Each whole warrant entitles the  subscriber to purchase a common share at a price of $2.15 for a period of  twelve months from the closing date.   b)  Stock  options   The  Company may grant up to 15% of its issued and outstanding shares as options to  its directors, officers, employees and consultants under its stock option  plan. The Board of Directors grants such options for periods of up to five  years, with vesting periods determined at its sole discretion and at prices  equal to or greater than the closing market price on the day preceding the  date the options were granted.    16    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   The  Company recorded $3,283,381 of stock-based compensation for the year ended  December 31, 2010. Stock-based compensation expense of $2,339,863 was recorded  in the statement of operations; stock-based compensation expense of $916,295  was capitalized to mineral interest and stock-based compensation expense of  $27,223 was recorded as share issue costs due to the grant of stock options  related to a private placement of common shares.   A  summary of the options granted by the Company is as follows:             Number          outstanding   Weighted          average exercise price $  December          31, 2008  4,149,834                    1.74  Granted  1,110,000  1.40  Exercised  (320,000) 0.99  Forfeited  (666,168) 1.91  December          31, 2009  4,273,666  1.68  Granted  1,662,731  2.90  Exercised  (2,408,861) 1.43  Forfeited  (496,700) 1.26  Expired  (90,000) 1.25  December          31, 2010  2,940,836  2.33     Options          outstanding     Options          exercisable                    Range          of exercise prices  Number          outstanding  Weighted          average remaining contractual life (years)  Weighted          average exercise price  Number          exercisable  Weighted          average exercise price                    1.05          - 1.50  889,002  2.93  1.10  358,337  1.11  1.51          - 2.25  551,668  3.18  2.03  274,167  2.10  2.26          - 3.12  643,500  2.63  2.75  470,167  2.67  3.13          - 3.67  816,666  3.42  3.35  233,334  3.49  6.30          - 6.45  40,000  4.94  6.38  -  -                       2,940,836  3.08  2.33  1,336,005  2.28     17    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   The  Company used the Black-Scholes option pricing model to determine the fair  value of the options with the following assumptions:    2010  2009  Risk-free          interest rate  1.31          - 2.68% 1.58          - 2.77% Dividend          yield  0% 0% Volatility  87          - 127% 102          - 107% Approximate          expected lives  5          years  5          years                  c)   Warrants                       The  summary of warrants outstanding is as follows:    2010  2009$  Balance          - December 31, 2008  -  -           Warrants          issued  4,087,590  2.15           Balance          - December 31, 2009  4,087,590  2.15           Warrants          issued  1,150,000  2.15  Warrants          exercised  (4,296,090) 2.15           Balance          - December 31, 2010  941,500  2.15          The Company used the Black-Scholes option pricing model to determine the fair  value of the warrants with the following assumptions:    2010  2009           Risk-free          interest rate  1.40          - 1.84% 1.22% Dividend          yield  0% 0% Volatility  78          - 80% 145.13% Approximate          expected lives  1          year  1          year                               As at December 31, 2010, the weighted-average remaining contractual life  of the outstanding warrants is 0.29 years.    18 Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008           d)     Capital risk management   The  Company's objectives in the managing of the liquidity and capital are to  safeguard the Company's ability to continue as a going concern and provide  financial capacity to meet its strategic objectives. The capital structure of  the Company consists of equity attributable to common shareholders, comprising  of issued share capital, common share purchase warrants, contributed surplus,  accumulated and other comprehensive income and accumulated deficit.   The  Company manages the capital structure and makes adjustments to it in light of  changes in economic conditions and the risk characteristics of the underlying  assets. To maintain or adjust the capital structure, the Company may attempt  to issue new shares, issue new debt, acquire or dispose of assets to  facilitate the management of its capital requirements. The Company prepares  annual expenditure budgets that are updated as necessary depending upon  various factors, including successful capital deployment and general industry  conditions. The annual and updated budgets are approved by the Board of  Directors. As at December 31, 2010, the Company does not have any long-term  debt and has sufficient funds to meet its current operating and exploration  and development obligations. However, the Company will require significant  additional funds to complete its plans for the construction of Fuwan silver  mine. 8               Income taxes            The Company has two branches in China, Foshan Minco and Foshan Minco Beijing  Branch for Canadian tax purposes. The operating results of these two branches  are included in the Company's tax reporting for Canadian tax purposes.             Income tax expense differs from the amount that would result from  applying the Canadian federal and provincial income tax rates to earnings  before income taxes. These differences result from the following items:    2010$  2009$  2008$  Loss          before income taxes  (4,465,415) (4,601,133) (2,295,138)             Statutory          income tax rate  28.50% 30% 31%             Expected          tax recovery at statutory income tax rate  (1,272,643) (1,380,340) (711,493) Non-deductible          expenses and other items  675,150  247,100  167,111  Effect          of share issuance costs not           recognized  (21,542) (88,855) -  Impact          of change in tax rate  44,069  451,585  233,532  Cost          benefit of previously unrecognized           tax          pools  -  -  123,978  Change          in valuation allowance  269,534  499,795  240,998  Other  -  (84,020) (54,126)             Income          tax recovery  (305,432) (354,735) -  19 Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   Future  income taxes arise from temporary differences in the recognition of income and  expenses for financial reporting and tax purposes. The significant components  of future income tax assets and liabilities at December 31, 2010 are as  follows:    2010$  2009$  Future          income tax assets        Non-capital          losses  2,157,873  1,542,196  Mineral          interest  2,313,677  2,619,109  Other  81,525  122,235              4,553,075  4,283,540  Less:          Valuation allowance  (4,553,075) (4,283,540)             -  - The  Company has non-capital losses carry-forward for Canadian income tax purposes  which expire as follows:    $     2014  52,800     2015  746,632     2026  1,449,119     2027  998,751     2028  1,003,546     2029  1,940,808     2030  2,439,836        8,631,492       Included  in future income tax assets is $22,214,869 of cumulative foreign resource  expenses for Canadian income tax purposes which can be carried forward  indefinitely and used to reduce future taxable income in Canada. Certain of  these non-capital losses and the cumulative foreign resource expenses are  related to the   Company's  exploration activities in China. Consequently, certain of the related  expenditures are currently deductible for Chinese tax purposes (subject to  China tax law deductibility limitations) which have resulted in tax losses in  China that can only be carried forward for a five-year period to a maximum  date of 2011.            9      Related party transactions a)Amounts          due to related parties as at December 31, 2010 are $839,304 (2009 -          $2,109,285) and consist of the following:  Amount          due to Minco China as at December 31, 2010 of $754,066 (2009 -          $713,732) representing the expenditures on the Fuwan Property and          shared office expenses.    20    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008     Amount          due to Minco Gold as at December 31, 2010 of $85,238 (2009 -          $1,395,553) representing shared office expenses and in 2009 the          expenditure on Changkeng Silver Mineralization.     The          amounts due are unsecured, non-interest bearing and payable on demand.    b)In          the year ended December 31, 2010, the Company paid consulting fees          totaling $1,169,454 (2009 - $575,591) to companies controlled by the          Chief Executive Officer, Chief Financial Officer, Chief Operating          Officer, President, Foshan Minco and Vice President, Exploration of          the Company.    c)In          the year ended December 31, 2010, the Company paid or accrued $87,309          (2009 - $127,897) in respect of rent, $nil (2009 - $1,413,008) in          respect of exploration costs and $372,692 (2009 - $429,794) in respect          of shared office expenses and administration costs due to Minco Gold.    d)During          the year, the Company advanced US$ 2.1 million to Minco Gold to          increase the registered capital of Minco Gold's subsidiary as          prescribed by the Chinese authorities. In December 2010, Minco Gold          repaid this advance.     The          above transactions are conducted in the normal course of business and          are measured at the exchange amount, which is the amount of          consideration established and agreed to by the parties.       10     Geographical informationThe  Company's business is considered as operating in one segment, mineral  exploration and development. The geographical division of the Company's  assets and liabilities and net loss is as follows:    2010$  2009$                             Current          assets        Canada  25,330,503  5,940,989  China  4,698,948  5,585,017              30,029,451  11,526,006           Long-term          assets        Canada  35,502  8,645,176  China  13,581,540  8,849,217              13,617,042  17,494,393           Current          liabilities        Canada  488,401  1,480,769  China  872,311  924,383              1,360,712  2,405,152              21    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008                2010$  2009$  2008$  Net          loss           Canada  3,626,277  3,879,289  851,037  China  533,706  367,109  1,444,101                 4,159,983  4,246,398  2,295,138                        11    Commitments                    a)       The Company has commitments in respect  of office leases in China and Canada, requiring minimum payments of  $1,303,317, as follows:          $        2011  391,539  2012  387,028  2013  308,829  2014  161,403  2015  54,518           1,303,317                  b)        The Company has a  commitment in respect of the Fuwan mine design contract requiring payments of  RMB 9.88 million (approximately $1.5 million). The payments are anticipated to  continue through to 2013.        12    Financial management  risk   The  Company's operations consist of the acquisition, exploration and development  of mineral properties in China. The Company examines the various financial  risks to which it is exposed and assesses the impact and likelihood of  occurrence. These risks may include credit risk, liquidity risk, currency risk  and interest rate risk. Management reviews these risks on a monthly basis and  when material, they are reviewed and monitored by the Board of Directors.   Credit  risk   Counterparty  credit risk is the risk that the financial benefits of contracts with a  specific counterparty will be lost if the counterparty defaults on its  obligations under the contract. This includes any cash amounts owed to the  Company by these counterparties, less any amounts owed to the counterparty by  the Company where a legal right of set-off exists. The Company considers the  following financial assets to be exposed to credit risk:    22    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008    a)Cash          and cash equivalents     In          order to manage credit and liquidity risk, the Company places its cash          and cash equivalents into Canadian and Chinese banks.At December 31,          2010, the balance of $5.1 million was placed with theseinstitutions.    b)Short          term investments     Short-term          investments are discount notes and guaranteed investment certificates          with maturities of greater than 90 days when acquired.At December 31,          2010, these totalled $24.1 million and were placed with Canadian          banks. The yields on these investments were 0.4% to 1.60%.   The  Company does not have any derivative financial instruments nor has it invested  in asset backed paper.   Fair  value measurement   The  classification of fair value measurements uses a fair value hierarchy that  reflects the significance of the inputs used in making the measurements, with  the following levels:   Level  1 - quoted prices in active markets for identical assets or liabilities,   Level  2 - valuation methods that make use of directly or indirectly observable  inputs, and   Level  3 - valuation methods that make use of unobservable market data used as  inputs.   The  fair value of the Company's cash and cash equivalents and short-term  investments is their carrying value (level 2). The fair value of the Company's  receivables and payables approximates their carrying value given their  short-term nature.   Liquidity  risk   Liquidity  risk includes the risk that the Company cannot 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 support the Company's normal operating  requirements and its exploration and development plans. The annual budget is  approved by the Board of Directors. The Company ensures that there are  sufficient cash balances to meet its short-term business requirements. At  December 31, 2010, the Company has a positive working capital of approximately  $28.7 million and therefore has sufficient funds to meet its current operating  and exploration and development obligations (see note 14). However, the  Company will require significant additional funds to complete its plans for  the construction of Fuwan silver mine.    23    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   Currency/foreign  exchange risk   The  Company's measurement currency is the Canadian dollar and therefore the  Company's net earnings impacted by fluctuations in the valuation of foreign  currencies in relation to the Canadian dollar. The Company raises funds in  Canadian dollars and invests either Canadian or US dollar amounts to support  the Chinese operations. As the Company operates in China and many of its  exploration and development expenditures payable in either US dollars or the  Chinese currency RMB, there exists foreign currency risks arising changes in  exchange rates with the Canadian dollar. The Company maintains its excess cash  in Canadian assets. The Company does not hedge its exposure to currency  fluctuations.   The  Company has completed a sensitivity analysis to estimate the impact that a  change in foreign exchange rates would have on the net loss of the Company,  based on the Company's net RMB 21.5 million and US$16 million monetary  assets at year-end. This sensitivity analysis shows that a change of +/- 10%  in foreign exchange rate would have a +/- $0.3 million impact on net loss for  the year ended December 31, This impact is primarily as a result of the  Company having cash balances denominated in RMB. In addition, this sensitivity  analysis shows that a change of +/- 10% in US$ foreign exchange rate would  have a +/- US$1 million impact on net loss for the year ended December 31,  2010. This impact is primarily as a result of Company having year-end  short-term investment balances denominated in US dollars.   Interest  rate risk   Financial  instruments that expose the Company to interest rate risk are the cash and  cash equivalents, short term investments and loan receivable owned by the  Company.   The  Company has completed a sensitivity analysis to estimate the impact that a  change in interest rates have on the net loss of the Company. This sensitivity  analysis shows that a change of +/- 100 basis points interest rate would have  a +/- $0.4 million impact on net loss for the year ended December 31, 2010.  impact is primarily as a result of the Company holding short-term investments  such as guaranteed investment certificates and discount notes and as a result  of the Company having cash invested in interest bearing accounts The financial  position of the Company may vary at the time that a change in interest rates  occurs causing impact on the Company's results to differ from that shown  above.    24    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008               13Reconciliation          of Canadian and United Stated generally accepted accounting principles   These          consolidated financial statements have been prepared in accordance          with generally accepted accounting principles in Canada ("Canadian          GAAP"). These consolidated financial statements also conform, in all          material respects, with generally accepted accounting principles in          the United States of America ("United States GAAP") with respect          to recognition, measurement and presentation except as described and          quantified below.    2010$  2009$  Consolidated          balance sheets        Total          assets under Canadian GAAP  43,646,493  29,020,399  Adjustment          for capitalized development costs  (12,960,162) (9,000,902) Total          assets under US GAAP  30,686,331  20,019,497  Shareholders'          equity under Canadian GAAP  42,285,781  26,615,247  Adjustment          for capitalized development costs  (12,960,162) (9,000,902)    29,325,619  17,614,345 Consolidated  statements of operations, comprehensive loss and deficit:    2010$  2009$  2008$  Net          loss - Canadian GAAP  4,159,983  4,246,398  2,295,138  Adjustment          for capitalized development costs  3,959,260  3,706,804  5,294,098  Net          loss - US GAAP  8,119,243  7,953,202  7,589,236  Loss          per share - US GAAP  0.19  0.23  0.24              Consolidated          statements of cash flows:              2010$  2009$  2008$  Cash          flows (used in) operating activities under Canadian GAAP  (4,752,868) (2,504,670) (3,389,544) Adjustment          for development costs  (2,737,533) (2,647,947) (4,675,120) Cash          flows (used in) operating activities under US GAAP  (7,490,401) (5,152,617) (8,064,664) Cash          flows (used in) from investing activities  (7,558,377) (11,739,932) (8,398) Adjustment          for development costs  2,737,533  2,647,947  4,675,120     (4,820,844) (9,091,985) 4,666,722     25    Minco          Silver CorporationNotes          to Consolidated Financial StatementsDecember          31, 2010, 2009 and 2008   Mineral  interests   Mineral  interests are accounted for in accordance with Canadian GAAP as discussed in  note 5. During 2008, management determined that the Fuwan Silver Deposit area  had met the criteria for treatment as a development property effective March  5, 2008 and as such has capitalized expenditures in the amount of $12,960,162  relating to the Fuwan silver project under Canadian GAAP as at December 31,  2010.   For  US GAAP purposes, in accordance with Emerging Issues Task Force ("EITF")  04-2, "Whether Mineral Rights Are Tangible or Intangible Assets",  exploration expenditures as well as acquisition costs for properties, leases  and permits are expensed as incurred unless commercial feasibility is  established. Therefore, the amount of $12,960,162 capitalized under Canadian  GAAP would be expensed under US GAAP.   Under  Canadian GAAP net loss of 2010 was increased by $3,959,260 related to mineral  property exploration, which was adjusted to exploration costs under US GAAP  (2009 - $3,706,804; 2008 - $nil).   Under  Canadian GAAP, cash flow of $2,737,533 (2009 - $2,647,947) related to mineral  property exploration was included in the investing activities, which was  adjusted to the operating activities under US GAAP.   Recent  pronouncements   Starting  January 1, 2011, the Company will adopt International Financial Reporting  Standard ("IFRS") and future US GAAP pronouncement will not affect the  Company's consolidated financial statements.   14           Subsequent  events   On  February 9, 2011, the Company announced that it had entered into an agreement  with a syndicate of underwriters, under which the underwriters have agreed to  buy, on a bought deal basis by way of a short form prospectus, 7,600,000  common shares (the "Common Shares"), at a price of $5.95 per Common Share  for gross proceeds of $45,220,000. In addition, the underwriters will also  have an option exercisable at any time until 30 days following the closing of  the offering to increase the size of this offering by up to an additional 15%  of the offering to cover over-allotments, if any.   On  March 3, 2011, the Company received the gross proceeds of $45,220,000, out of  which, the Company paid a 5.5% commission in an amount of $2,487,100 and  $100,000 legal fees.Effective  January 14, 2011, the Company granted stock options for 2,003,000 common  shares to various employees and directors at an exercise price of $5.36 that  vest over an 18-month period from the issue date. The options expire in  January 2016.    26