sorry to whoever holds them., page-36

re: the full report SILEX SYSTEMS LIMITED 2003-06-04 ASX-SIGNAL-G

HOMEX - Sydney

+++++++++++++++++++++++++
I am writing to you today in order to provide comments and updates on
the following matters:

* Current market perceptions of Silex
* Arrangements with USEC
* Status and plans for the SILEX Uranium Project
* Status of other projects and business activities

1) CURRENT MARKET PERCEPTIONS OF SILEX:

Following our press release of 1 May 2003, regarding USEC's
withdrawal from the SILEX Uranium Project, our share price has
slumped to levels barely above our current cash backing (30c per
share) as the market expresses its disquiet.

At the outset, I would like to reassure shareholders that despite
USEC's withdrawal from the SILEX Uranium Project, Silex remains a
strong and financially healthy company. We currently have good
prospects for a successful commercial outcome in several of our
technology development projects, including our core uranium
enrichment project. We remain confident of ultimate success.

I believe that the market reaction to USEC's withdrawal ignores the
momentum being maintained in all our various technology programs, and
the potential returns from these programs if commercially successful.
Whilst I agree it is often difficult to place a commercial value on
developmental technology, I am surprised that the market currently
places so little value on our impressive technology portfolio. I
therefore provide the following updates so that recent events are put
in better perspective.

2) UPDATE ON ARRANGEMENTS WITH USEC:

In our press release of 1 May 2003, we advised you that USEC had
decided to withdraw from the SILEX Uranium Project. The withdrawal
from the project was not anticipated, particularly as it came shortly
after Silex had achieved definitive uranium enrichment test results
in the existing "Direct Measurement Program", and shortly before that
testing program was due to be completed. It also came at a time when
both parties were discussing approaches to introduce a third party to
assist with funding for the project.

Nevertheless, Silex has acted quickly to ensure that delays to the
completion of the testing program as a result of USEC's withdrawal
are kept to a minimum. We are now pressing ahead with the SILEX
Uranium Project without USEC's involvement. An update on thestatus
of the existing testing program and our current plans for the future
of the SILEX uranium project is detailed in section 3 below.

We stated in the May press release that there may be a number of
issues to be resolved with USEC in connection with USEC's withdrawal.
Silex's and USEC's respective obligations to each other during the
development and commercialisation of the SILEX Technology were
detailed in a Development and Licence Agreement. USEC has purported
to terminate that Agreement and has asserted certain rights and
sought to impose obligations on Silex in connection with that
purported termination. We disagree with several of these assertions,
including USEC's claims that it is entitled to certain equipment
which has been acquired as part of the SILEX Uranium Project. USEC
has purported to demand a return of that equipment but has also
offered to sell it to Silex. There is, however, no dispute regarding
Silex's rights to the SILEX Technology or its ability to proceed with
the Uranium Project.

Silex is in the process of exploring resolution of the outstanding
issues with USEC. However, despite Silex's willingness to be
realistic and commercial, we cannot be sure that negotiations or,
ultimately, the resolution processes, will provide an outcome which
is acceptable to Silex. If an acceptable resolution to these issues
cannot be reached, your board of directors is fully prepared to
defend Silex's rights against USEC and to take all action which is
necessary to enforce those rights, even though this may involve
significant expenditure.

3) STATUS AND PLANS FOR THE URANIUM PROJECT:

The SILEX Uranium Project has been progressing well, although USEC's
withdrawal has caused some delays. It is expected that USEC's
withdrawal could result in delays of approximately 6 to 12 months in
the completion of the Direct Measurement Program, although this
depends on resolution of contractual issues with USEC (as outlined
above), and how quickly related equipment procurement issues can be
overcome. A 6 to 12 month delay would result in completion of the
Direct Measurement Program in the early to mid 2004 time-frame, but
Silex needs to obtain clearer resolution on arrangements with USEC
before committing more firmly to a new schedule for the Uranium
Project. Shareholders will be appropriately updated in this regard,
but in the meantime, an indicative draft schedule is provided below.

In relation to Direct Measurement Program testing activities, work
has continued in our Lucas Heights Laboratories unabated. The core
uranium project team remains largely intact, including a number of
scientists previously contracted by USEC, who wish to remain on the
SILEX Program. There are still several more weeks of current
activities that can be conducted before the abovementioned delays
take full effect.

The Direct Measurement Program tests that we have been able to
conduct over the past few months have confirmed earlier results that
the SILEX uranium enrichment technology works. Furthermore, we remain
confident that the technology can be commercialised in other words,
is scalable and cost effective. The SILEX approach to uranium
enrichment is unique, and at present is the only third generation
laser-based enrichment technology in the world.

With regard to future plans and strategies for the SILEX Uranium
Project, we intend to find a new commercial partner in due course.
However, since Silex has sufficient funds to complete the Direct
Measurement Program, we believe it would be in our best commercial
interest to endeavour to resolve issues relating to USEC's withdrawal
and to complete that program before we actively pursue a new
commercial partner. We will then potentially be in a much stronger
position technically, and if so, will therefore be able to attract
the strongest partner under the most favourable terms.

In order to provide shareholders with a perspective on revised timing
for the SILEX Uranium Project, the following draft schedule is
provided for preliminary guidance only. It must be emphasised that
this draft schedule is forward-looking and is currently under review
by the Silex board. The actual schedule which we adopt will depend on
several factors not within our control, including the timing of
resolution of matters with USEC, technical progress and securing a
new commercial partner. It may therefore change as these factors are
taken into account in finalising the schedule. (Note all dates are
calendar years).

i) Completion of Direct Measurement Program: Early to mid 2004
ii) Commercial Partnership discussions/
negotiations: Mid 2003 to mid 2004
iii) Demonstration Loop (Pilot Plant): Mid 2004 to end 2006
iv) Commercial Plant (Phase I) design/
construction: Mid 2006 to end 2008
v) Commencement of initial commercial
operations: 2009 or later

4) STATUS OF OTHER PROJECT AND BUSINESS ACTIVITIES:

4.1 SILEX STABLE ISOTOPE PROGRAM

The Company continues to make substantial progress in the Stable
Isotope Program, with the primary focus on Silicon, Zirconium and
Oxygen. We provide the following summary on the status of each of
these applications of the SILEX Technology.

* SILICON ENRICHMENT PROJECT

Good results have been achieved in the SILEX Silicon Project. The
highlight of the period since the last update in March was the
enrichment of Silicon to 99.7% Silicon-28 in a single process step
(from the natural assay of approximately 92%). This is already very
promising, even without process optimization. We intend to
characterize the process further over a wide range of operating
conditions in the coming quarter. Analysis of process costs for
Silicon enrichment continues in parallel with these activities and
current indications of that analysis are favourable. Economics is now
the single most important issue for Silicon enrichment, as we have
high confidence in our ability to scale-up the technology.

The Silicon Pilot Plant Program, which commenced earlier this year,
is currently on track with the concept design for Phase I of the
Pilot Plant nearly complete. The objective of Phase I is to
demonstrate continuous Silicon enrichment at a modest production rate
by the end of 2003. After completion of this phase of the program, we
will evaluate whether to upgrade the facility during 2004 in a second
phase pilot program, to provide for a much larger semi-commercial
production capacity.

Meanwhile, good progress has been achieved in our collaboration
project with Sumitomo Mitsubishi Silicon Corporation (SUMCO), one of
the largest Silicon wafer manufacturers in the world. The first
shipment of enriched Silicon (sourced from Russia) was shipped in May
to SUMCO's plant in Saga, Japan. SUMCO intends to use this material
to fabricate enriched Silicon-28 test wafers later this year, with a
view to those wafers being subsequently tested by semiconductor
device manufacturers for improved performance.

Depending on the outcome of those tests, we anticipate that similar
wafers will be manufactured in the second half of 2004 using SILEX
derived Silicon-28, and results from all tests compared.

We are hopeful that this project will lead to a new enriched Silicon
wafer technology with superior technical performance compared to
today's natural Silicon wafers. The Silicon wafer industry is
currently worth approximately US$6 billion per annum. We believe that
the SILEX technology could enable the commercial availability of
enriched Silicon-28 for the first time.

* OXYGEN ENRICHMENT PROJECT

The construction of a small diagnostic facility to investigate Oxygen
enrichment with the SILEX Process is nearly complete. This facility
will enable Silex to undertake a technical and economic feasibility
study during the second half of 2003. A decision will then be made
whether to proceed with a Pilot Plant, which may be capable of
producing a significant portion of the current annual requirements
for the Oxygen-18 isotope, used in PET Medical Imaging. The world
market for Oxygen-18 is currently estimated to be about US$40Mper
annum, although Silex believes there is considerable potential for
expansion.

* ZIRCONIUM ENRICHMENT PROJECT

Silex and US-based Westinghouse have been conducting a collaborative
R&D project on Zirconium enrichment using the SILEX laser process
since late 2000. Westinghouse has estimated the incremental value of
Zirconium enrichment in application to nuclear fuel tubing to be in
the order of US$100M per annum. We expect this feasibility project to
be completed in the second half of 2003, leading to a decision on the
future development of this application.

Specialised equipment has been constructed and installed at our Lucas
Heights Laboratories for making and manipulating volatile Zirconium
compounds, and examining the effect of laser radiation on these
compounds. Initial diagnostic tests resulted in modifications to the
equipment being undertaken. These modifications are nearing
completion, allowing for a resumption of tests in the near future.
Concurrent process modeling is also being used to identify the
technical avenues that could achieve Zirconium enrichment in a most
cost-effective manner.

4.2 TRANSLUCENT PHOTONICS PROJECT

In April 2001 SILEX reached agreement with US based semiconductor
start-up Translucent Photonics Inc (Translucent), to fund the
development of an invention in the field of photonic semiconductor
technology known as Planar Lightwave Circuits (PLCs).

The agreement involves the funding of a A$10million development
program in return for a 30% equity interest in Translucent, and an
option to move to 55% upon successful completion of the demonstration
program.

The Translucent PLC has enormous commercial potential because it aims
to push low cost silicon into the photonics arena (optical
communications technology) for the first time, delivering significant
cost and performance benefits. If successful, Translucent PLC's are
expected to have broad application in the very substantial photonics
and semiconductor markets.

In our March 2003 market release, we indicated the Translucent
Project was moving steadily towards the final milestone for the core
technology. We are informed that positive progress to this end has
been maintained. Additionally, we reported in the same release a
potentially significant spin-off technology for the main-stream
microprocessor industry. We continue to be optimistic about the
prospects for this spin-off technology.

Translucent's 3-phase development is now approximately half-way
through the third and final phase, and the critical issues relating
to the core technology have been largely answered. Translucent is
hopeful of demonstrating the Milestone results in July August 2003.
This is a very important period for the Translucent project.

Upon or before the evaluation of the Milestone demonstration, Silex
will consider the extent to which additional funding will be required
by Translucent in order to commence initial commercialization
activities. One option to be addressed in this respect is whether
Silex should provide further funding in return for increased equity.

The combination of Translucent's optical technology and Silex's
isotopic Silicon technologies could enable significant increases in
the speed, and reduction of the heat-load, of electronics Processors
(ie integrated circuits (ICs)) of the type used in the personal
computer (PC) and telecommunications industries).

With PC speeds and communications data rates growing ever faster,
Translucent anticipates strong acceptance of this new technology. The
fast processor (ICs) market exceeds $140B, split approximately evenly
between telecommunications chips and PC chips. Silex's recently
announced strategic relationship with SUMCO is the first step in
entering that mainstream electronics market. With success in the
Translucent Project, we anticipate additional strategic partnerships
with major semiconductor/photonics manufacturers.

4.3 SILICON ISOTOPE SUPERLATTICE (SIS)

As discussed in our March update, the SIS Feasibility Project being
conducted by Silex and Prof Itoh's group at Keio University can be
described by five key steps. These steps, and the current status of
each, are summarised below:

i) Fabrication of initial SIS structures completed.
ii) Identification of practical SIS fabrication
techniques completed.
iii) Measurement of zone-folded Raman Phonon spectra completed.
iv) Measurement of enhanced electron mobility
'Hall Effect' delayed.
v) Preliminary Cost/Benefit assessment in progress.

The completion of the SIS electron mobility measurements (step (iv)
above) continues to suffer delays due to material impurities. A
potential solution to this issue may have been identified in recent
days, and will be actively pursued. If this solution is effective, we
expect to be able to complete the mobility measurements and
feasibility assessment during the final quarter of this calendar
year.

The SIS technology has the potential to increase the speed of
conventional Silicon semiconductor devices significantly, at a time
when manufacturers are finding it increasingly difficult and costly
to extend the performance of Silicon. However, it must be emphasised
that this project is still in the research phase, and still has some
way to go before any commercial potential can be quantified.

4.4 FIBERBYTE PTY LTD

In May 2002, Silex acquired a controlling interest in Fiberbyte Pty
Ltd, an Adelaide based Photonics company with a unique suite of
optical communications products and technologies. Since that time,
Fiberbyte has focused on developing its technology in line with
market needs and expectations, resulting in a series ofmodifications
to its initial products and business strategy.

Since launching its first products at the Optical Fiber
Communications Convention (OFC 2003) in Atlanta in March, the
Fiberbyte sales team has been following up on leads and building
contacts with potential future customers. Whilst Fiberbyte has
received some initial request for quotes, it has become apparent
through the OFC interaction that market conditions in the optical
communications industry remain very depressed, and that it will take
some time to recover.

Accordingly, Silex will closely monitor Fiberbyte's progress over the
next few months, to ensure that the prospects for success are
appropriately factored into our investment strategy.

5. CONCLUSION:

USEC's withdrawal from the SILEX Uranium project has surprised us,
particularly in view of the positive status of the project. However,
I would like to reassure our shareholders that Silex remains
confident of the commercial potential of the SILEX Technology and
intends to pursue its development vigorously.

I confirm that, with nearly $40M in the bank, Silex has sufficient
financial reserves for the foreseeable future with respect to current
activities. Subject to the various outcomes of each of our projects,
Silex may seek high quality partners to help fund the
commercialisation of some of its technologies. This strategy,
combined with a committed team and a portfolio of promising
technologies, means that Silex is well placed to pursue its vision to
become a successful technology company on the world stage.

In closing, I would like to express my gratitude to the many
shareholders who have written to us conveying their continued support
and best wishes for the Company.

Dr M Goldsworthy
CEO AND MANAGING DIRECTOR

Contacts:

Dr Michael Goldsworthy (02) 9532 1331
Chris Wilks (02) 9855 5555