Arian Silver Corporation (“Arian” or the “Company”) (TSX VENTURE:AGQ)(AIM:AGQ)(PLUS:AGQ)(FRANKFURT:I3A), a silver exploration, development and production company with a focus on projects in the silver belt of Mexico, today announced the release of its Management’s Discussion and Analysis (“MD&A”) and unaudited Financial Statements (“Financials”) for the six months ended 30 June 2011.

The MD&A and Financials will be available at SEDAR at www.sedar.com and on the Company’s website at www.ariansilver.com. These documents can also be obtained on application to the Company. The following information has been extracted from the MD&A and Financials. The financial information in this announcement does not constitute full statutory accounts.

Arian’s Chief Executive Officer, Jim Williams, commented today, “The conclusion of Q2 has shown a gross profit with our San José mining and milling operation and we continue to fine tune our operations with a view to significantly improving on this. In addition, during July we released an updated NI 43-101 and JORC-compliant resource estimate where we have more than doubled our in-situ silver resources at the San José project; we have also significantly upgraded resources to the “indicated” resource category. We have started yet another drilling programme (Phase-4) at San José where we have outlined a 40-hole, 10,000 m programme, with the intention of drilling the entirety of the San José Vein, and most of the other known associated mineralised targets within the confines of our concession areas, which we are now more than 25% of the way through. Our balance sheet remains strong and we continue to have no debt.”

OVERVIEW OF SECOND QUARTER OF 2011 AND SUBSEQUENT EVENTS

Financial (all amounts expressed in US dollars unless otherwise stated)

• Total assets of $18.8 million, including intangible assets of $2.4 million, property, plant and equipment of $6.4 million, trade and other receivables of $1.8 million and cash of $7.2 million, as at 30 June 2011.
  
  


• Consolidated pre-tax loss for the six months ended 30 June 2011 was $9.9 million including a non-cash employee share options expense of $8.0 million.
  
  


• Working capital was $9.1 million, as at 30 June 2011.
  
  


• Revenue of $2.7 million and a gross loss of $154,000 for the six months ended 30 June 2011 for the San José mining operation.
  
  


• Revenue of $1.5 million and a gross profit of $59,000 for the three months ended 30 June 2011 for the San José mining operation.
  
  

Operations

• San José production Q2:
  
  
  
  • 22,387 tonnes mined.
  
  
  • 18,348 tonnes milled.
  
  
  • 144 concentrate tonnes produced.
  
  
  • 59,568 silver ounces produced.

• San José exploration:
  
  
  
  • Phase-3 drilling programme completed and new resource estimate complete; and
  
  
  • Phase-4 drilling programme has commenced.

Post 30 June 2011

• Independent resource estimate updated by CSA Global (UK) Limited and announced 20 July 2011:
  
  
  
  • 88.45 million contained silver ounces, an increase of 105%.
  
  
  • 30.03 million ounces in the “indicated” resource category.
  
  
  • 58.42 ounces in the “inferred” resource category.
  
  
  • Plus lead and zinc.

• Extended the mill and plant lease for up to two years.
  
  


• Continuous upgrades made to plant and equipment at custom mill in order to improved throughput and recoveries.
  
  


• Independent plant audit completed and recommendations are being reviewed and implemented.
  
  


• As at the end of July 2011 Phase-4 drilling programme has drilled approximately 2,200 metres.
  
  

REVIEW OF FINANCIAL PERFORMANCE

In the six months ended 30 June 2011, the Company incurred a pre-tax loss of $9.9 million (2010 – $0.6 million) which includes a gross loss for the San José mine of $0.2 million, recognising the fair value non-cash expense of share purchase options vesting of $8.0 million (2010 – $14,000) and other administrative expenses of $1.4 million (2010 – $0.7 million). Interest income from cash resources was $24,000 (2010 – $4,000). Finance loss was $0.3 million (2010 – $0.1 million).

As at 30 June 2011, the Company had working capital of approximately $9.1 million (31 December 2010 – $10.2 million). See Liquidity, Capital Resources and Working Capital for the items of working capital. Intangible assets amounted to $2.4 million (31 December 2010 – $1.2 million) which relate to deferred exploration and evaluation costs in respect of the Company’s Mexican projects. Property, plant and equipment amounted to $6.4 million (31 December 2010 – $5.4 million); $6.3 million of this relates to the San José mine development costs. Share capital increased by $1.9 million to $47.3 million (31 December 2010 – $45.4 million) as a result of the issue of common shares in connection with the exercise of share options and share purchase warrants.

REVIEW OF OPERATIONS

The Company currently owns 32 mineral concessions in Mexico totalling approximately 8,038 hectares (“ha”).

San José Project, Zacatecas State

The San José property lies 55 kilometres to the southeast of Zacatecas City and covers 11 mining concessions totalling approximately 6,300 ha. The property has significant infrastructure, including a 4 x 4 metre (“m”) main haulage ramp (“SJ Ramp”), which extends for nearly 3.2 km along the footwall of the San José Vein (“SJV”) system, and a 350 m deep, 500 tonne per day (“tpd”), vertical shaft with operational hoist. In addition, a number of shallower vertical shafts are located in a westerly direction along the SJV.

Production Information

Mining Operations

The initial mining operation is limited to the Ramal Norte/Sur, San José 75 m Level Central Zone and Santa Ana resource blocks. These were selected by Arian, from seven delineated resource blocks, to support an initial four-year mining operation with the potential to increase the mining rate to 1,500 tpd subject to milling capacity being available.

From January to the end of June 2011 approximately 161 m were developed along the main westerly strike of the SJ Ramp in a combination of Run-Of Mine (“ROM”) and waste material. In addition, some 73 m were developed off the main SJ Ramp, initially in a northerly direction before running parallel and with a steeper decline; this was to access deeper seated sulphide-rich material of the Santa Ana Block (less oxidation) which should further increase recoveries at the mill. Anticipated grades of silver in this area, based on diamond drilling information, are in the order of 450 g/t.

Mining expectations remained unchanged at 500 tpd for the contract mining operation. Mining was planned to operate 20 days per month. Total costs to mine and deliver ore to the mill were estimated at approximately $26/tonne.

Milling Operations

Q2 recoveries increased 49% to 56.66% from the Q1 result of 38.08%. Arian is continuing to focus on the custom mill and plant operations and is overseeing changes in the reagents and modifications to the physical plant to increase the recoveries. It is anticipated that recoveries will increase to the level initially planned.

During Q2 the plant was audited and those recommendations are being reviewed and implemented. The decisive action taken during May as a result of the previously reported theft has, consequently, provided improved results for Q2; Arian expects results to continue to improve. Arian has also implemented actions to ensure that the smelter and plant results are correlated to an acceptable level.

Arian has signed a new lease with the custom mill and plant owner for a period of up to two years at a cost of MXP 6 million (approx. US$ 0.5 million) per month. There is an early break provision in favour of the owner of the plant in the event that an option to purchase the plant held by a third party is exercised on 31 October 2011. However, if this option is exercised Arian currently believes it would be able to negotiate continued use of the plant with the new owner. The lease also has an early break provision in favour of Arian giving it the right to terminate the lease after twelve months. The increase in the lease cost is due to the operation of a new 200 tpd mill which is currently being commissioned and should allow Arian to meet its expected milling target of 400 tpd (for 30 days), with up to 125 tonnes of concentrate to be produced per month with an anticipated silver content of between 370 and 440 ounces per tonne (“opt”).

The mill is rated a 400 tpd throughput mill, however Arian only started with a daily throughput of 120 tonnes and is currently around 250 per day. The plant is not designed for the hardness and abrasiveness of the San José ROM material ore. This issue was partially overcome with the installation of a reconditioned impact crusher placed within the circuit to more finely grind the ROM material before the ground rock entered the flotation stage of the plant.

This phase of milling has allowed Arian to review all the key data as it would if it were operating a test plant and provides information for Arian to build an optimised plant, should it decide to build one. Arian is currently reviewing alternatives as well as continuing to work to improve the mill design and recoveries.

Based on a contained silver content of 405 opt at $35/oz silver, a concentrate value of $12,700/tonne, after deductions, is forecast to be achieved although the higher the silver price, which is calculated based on a quotation period paying the average of the second month after delivery, the greater the return.

A 2% NSR (net smelter royalty) on concentrate value is payable to the vendor of the San José property.

Exploration Drilling

In May 2011 Arian completed the Phase 3 drill programme, which commenced in November 2010, drilling over 10,000m. The purpose of the drill programme was to delineate additional areas of high grade mineralisation and to upgrade existing resources, between the Santa Ana and Guanajuatillo resource areas along the SJV. The drill programme had also started to explore in detail the SJV system that lies to the west of the village of Guanajuatillo. The results of Phase 3 are included in the resource table under the heading ‘Exploration Resource’.

In April and June 2011 the drilling results from the Phase 3 drilling programme were released (see the Company’s press releases dated 4 April 2011 entitled “Arian Silver’s continuing exploration drilling intercepts high-grade silver at San José” and 27 June 2011 entitled “Arian Silver Reports Wide High-Grade Silver and Base Metal Intercepts”).

In June 2011, Phase 4 drilling programme commenced and at the end of July 2011 there were approximately 2,200 m drilled. The purpose of this drilling phase is to drill the entire SJV combining infill and step out drilling which will endeavour to maximise the data points in the given area and upgrade the resource categories.

Arian’s overall objective is to develop additional resources on the San José property concurrently with the existing mining operation, complete a full feasibility study, and move to large-scale independent commercial production.

Exploration Resource

On 20 July 2011 Arian announced a significant resource estimate upgrade (see the Company’s press release entitled “Arian Silver Announces Significant increase in Mineral Resources at San José”). The highlights of this announcement were:

• 86% increase in resource tonnage along the SJV over the August 2008 mineral resource estimate:
  
  
  
  
  
  • 10% higher average silver grade;
    
    
  
  
  • 105% increase in contained silver; and
    
    
  
  
  • 34% of gross silver mineral content now in the “indicated” category.
    
    


• Mineral resource estimates based on all Phase-1, 2 and 3 drill holes (152 drill holes totaling over 28,000 m); and
  
  


• Mineralisation remains completely open along the western strike and to depth.
  
  

Arian’s new resource estimate upgrade which includes all drill programmes from 2006 along the SJV has a delineated NI 43-101 and a JORC Code compliant resource estimate of approximately 30.03 million ounces of silver, 69.9 million pounds of lead and 126.6 million pounds of zinc in the “indicated” mineral resource category and 58.42 million ounces of silver, 140.1 million pounds of lead and 291.1 million pounds of zinc in the “inferred” mineral resource category. The NI 43-101 and JORC code compliant mineral resources mentioned above is summarized in the table below:

1. Geological characteristics and +30 ppm grade envelopes used to define resource volumes.


2. Each mineral resource estimate is in accordance with CIM standards.


3. The effective date of each mineral resource estimate is 15th July 2011.


4. The estimates are based on geological, statistical and geostatistical data assessment and computerised IDW³, Ag grade wireframe restricted, linear block modelling.


5. The resource was estimated using 152 drill holes and more than 28,000 metres.


6. Resource figures were prepared under the supervision of Malcolm Titley who is a Qualified Person (as defined in Canadian National Instrument 43-101).


7. Tonnage figures have been rounded to reflect this as an estimate.


8. Ag (silver) ounces have been calculated using 31.1035 g = 1oz.


9. Pb (lead) and Zn(zinc) tonnes have been calculated using 2204.622 lbs = 1 tonne.


10. The mineral resource is 100% owned by Arian.

Readers are reminded that mineral resources are not mineral reserves and have not demonstrated economic viability. There is no certainty that mineral resources can be upgraded to mineral reserves through continued exploration.

Laboratory Update

The laboratory purchased in November 2010 from Stewart Group’s Geochemical & Assay Division (“Stewart Group”) became fully operational in April 2011. The laboratory comprises a comprehensive sample preparation facility, a fire assay laboratory and a wet chemistry laboratory with Atomic Absorption Spectrometry (“AAS”), and is operated under the sole control and management of professional personnel from the Stewart Group in order that results are fully compliant with Arian’s quality assurance and quality control (QA/QC) programme. The laboratory has significantly increased the turnaround times for analysis of Arian’s sampled drill cores.

LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL

During the period the Group received new funding from:

• the exercise of 1,400,000 share purchase options and 17,342,000 “F” share purchase warrants which generated £90,000 and Cdn$1,734,200 respectively.

• the exercise of the Tepal option by Geologix which resulted in the receipt of a final instalment of $1.55 million, satisfied as to $775,000 in cash and the issue of to the Company of 1,089,318 common shares of Geologix at a price of approximately Cdn$0.70.

The following share purchase options are currently outstanding, each entitling the holder to acquire one common share of the Company:

• 18,485,000 share purchase options with exercise prices in the range £0.055/£0.4925 (Cdn$0.10/Cdn$0.79) expiring on various dates up to June 2016.

Working Capital – 30 June, 2011

As at 30 June 2011, the Company had working capital of approximately $9.1 million (31 December, 2010 – $10.2 million). The items of working capital and changes compared to 31 December 2010 are as follows:

Current assets:

• Cash and cash equivalents – $7.2 million (2010 – $8.3 million).


• Assets held for sale – $nil (2010 – $2.9 million) – relates to the carrying value of the Tepal project reclassified from intangible assets as a result of the grant of the Tepal option. This asset was realised on exercise of the option from Geologix during the period.


• Trade and other receivables – $1.8 million (2010 – $0.9 million) – increase largely due to $0.9 million relating to the trade debtor for the sale of silver concentrate from the San José mining operation and $0.3 million increase in Mexican Sales Tax debtor, offset by $0.3 million for the transfer of the deposit for the assay laboratory to non-current assets.


• Inventories – $0.6 million (2010 – $0.1 million) – relates to stockpile held at cost relating to production at the San José mine.


• Other financial assets at fair value through profit and loss -$0.4 million (2010 – $nil) – relates to the Geologix shares received as part consideration for the final instalment for the sale of the Tepal project.

Current liabilities:

• Deferred income – $nil (2010 – $1.5 million) – relates to the value of the non-refundable first instalment of the Tepal option consideration pending exercise or termination of the Tepal option. This was recognised in Q1 2011 as part of the Tepal option exercise.


• Trade payables – $0.9 million (2010 – $0.5 million) – the increase relates to invoices outstanding relating to the production and exploration costs at the San José project.

Qualified Person

Mr. Jim Williams, Eur Ing, Eur Geol, BSc, MSc, D.I.C., FIMMM, the Chief Executive Officer of Arian, a “Qualified Person” as defined in the AIM guidelines of the London Stock Exchange, and a “Qualified Person” as such term is defined in Canadian National Instrument 43-101 (“NI 43-101”), has reviewed and approved the technical information in the Review of Operations other than the mineral resource estimates.

About the Company

Arian is a silver exploration and development company and is listed on London’s AIM; trades on London’s “PLUS” market; is listed on Toronto’s TSX Venture Exchange and on the Frankfurt Stock Exchange. Arian is active in Mexico, the world’s second largest silver producing country. The Company’s main project is the San José project in Zacatecas State. Part of Arian’s forward-looking strategy lies in the envisaged use of large scale mechanized mining techniques over wider mineralized structures, which reduces the overall unit operating cost of metals, and to build up NI 43-101 compliant resources.

Further information can be found by visiting Arian’s website: www.ariansilver.com or the Company’s publicly available records at www.sedar.com.

This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities of the Company in the United Sates. The securities of the Company have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.