IONDRIVE LIMITED - Annual Report 2007

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Southern Gold Limited ACN 107 424 519 ABN 30 107 424 519

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chairman’s Letter . . . . . . . . . . . . . . . . . . . . . . . 2 Managing Director’s Report . . . . . . . . . . . . . . . 4 Exploration review - Gold . . . . . . . . . . . . . . . . 6 Exploration review - Gold and base metal . . 12 Exploration review - Nickel sulphide . . . . . . . 14 Tenement schedule . . . . . . . . . . . . . . . . . . . . 17 Corporate Governance Statement . . . . . . . . . 18 Directors Report . . . . . . . . . . . . . . . . . . . . . . . 21 Auditor’s Independence Declaration . . . . . . . . 26 Consolidated income statement . . . . . . . . . . 27 Consolidated balance sheet . . . . . . . . . . . . . . 28 Statement of change in equity . . . . . . . . . . . . 29 Consolidated cash flow statement . . . . . . . . . 30 Notes to the financial statements . . . . . . . . . 31 Directors’ declaration . . . . . . . . . . . . . . . . . . . 41 Independent audit report to the members . . . 42 Shareholder information . . . . . . . . . . . . . . . . . 44

Corporate Directory

Directors Cedric (Ric) Murray Horn Stephen Richard Biggins John Alexander Anderson Michael Walsh McDonald Michael Robert Billing Company Secretary

(Chairman) (Managing Director) (Non-Executive Director) (Non-Executive Director) (Non-Executive Director) Michael Robert Billing

Registered and Principal Address

58 North Terrace Kent Town South Australia 5067 Telephone: 61 8 8132 0044 Facsimile: 61 8 8132 0199 Solicitor McDonald Steed McGrath 262-266 Pirie Street Adelaide South Australia 5000 Telephone: 61 8 8223 5088 Facsimile: 61 8 8223 5290

Share Registry

Computer Share Registry Services Level 5 115 Grenfell Street Adelaide South Australia 5000 Telephone: 61 8 8236 2300 Facsimile: 61 8 8236 2305

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Auditor

Grant Thornton Pty Ltd Level 1 67 Greenhill Road Wayville South Australia 5034

Web site

www .southerngold .com .au

High grade gold intersections in first drilling on Challenger Area JV, S.A.
Nickel Sulphide discovery at Bulong Project ,W.A.
Gold/Copper mineralisation expanded at Eurow Project, N.S.W
JV partner to fund $4m of drilling IOCGU targets on Torrens South Project near Olympic Dam, S.A.
Positioned to lead the Mining Industry into Cambodia through a major gold discovery
Continued exposure to uranium upside through 45,000,000 shares (39%) in Southern Uranium (ASX:SNU)

Highlights

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SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 1

3 October 2007

Dear Shareholder

On behalf of the Board of Directors, I have pleasure in presenting to you the 2007 Annual Report. The resources sector of the ASX has experienced significant growth over the past two years and we have seen commodity prices maintained at high levels and demand for mineral products sustained. Southern Gold has achieved its fair share of success in the past year which has confirmed our faith in the quality and potential of the projects we have in our portfolio

Our team of highly-skilled professionals has worked diligently throughout the past twelve months exploring for and locating significant mineral deposits throughout Australia and SouthEast Asia. The team has built on the previously identified exploration targets, moved each of our projects forward and increased the value of the Southern Gold assets providing a sound basis for early exploration success in 2007-2008.

In August 2006 Southern Gold Limited secured two Exploration Licences covering the Eurow-Vychan coppergold-lead-zinc-silver deposit near Forbes

in NSW, where drilling by previous explorers had produced intersections up to 8 m @ 2.9% copper, 1.0% zinc, 1 g/t gold and 80 g/t silver prior to Southern Gold recognizing its potential this exciting new prospect had not been followed up and taken advantage of in the current exploration climate. In May 2007 the drilling of 9 holes extended known mineralisation from 80–240 m depth and 280 m in strike length with assays up to 10% copper and 3.2 g/t gold. Mineralisation is open both down-dip and along strike and a recent airborne magnetic survey has identified numerous new target areas. Southern Gold is also examining other opportunities in the Lachlan Fold belt in NSW.

discovery of new nickel sulphides with grades up to 2.1% nickel and elevated levels of cobalt, copper and gold. Southern Gold has increased its ground holding at Bulong with the acquisition of new tenements and expects to undertake more drilling in the last quarter of 2007 on this impressive new discovery

Southern Gold inked a Joint Venture agreement with internationally listed, Crescent Gold Limited in December 2006, whereby Crescent agreed to farm in on several Olympic Dam style, iron-oxide-copper-gold-uranium (IOCGU) properties on the highly prospective Gawler Craton, near the Carapateena (Teck Cominco) and Punt Hill (Monax Limited) discoveries. Directors believe that joint ventures can be very beneficial, especially when the joint venture partner is funding the exploration. Crescent Gold can acquire a 50% interest in the Torrens South

Following our earlier success in drilling for nickel at Bulong, 20 km east of Kalgoorlie, we undertook an 11 hole Reverse Circulation and diamond core drilling program resulting in the

Drilling nine holes at Eurow extended known mineralisation from 80–240 m depth and 280 m in strike length with assays up to 10% copper and 3.2 g/t gold

Chairman’s Letter

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2 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007
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IOCGU project by spending $4,000,000 by 31 December 2008. Five high priority gravity anomalies interpreted as dense hematite IOCGU targets have been scheduled for drilling in the third and fourth quarters of 2007.

Global gold demand continued to rise during 2006-07 boosted by increased jewellery consumption in India, China, the Middle East and the USA. Although there has been significant price volatility for gold, the first half of 2007 has seen a stabilisation of higher prices which has encouraged the Southern Gold exploration for a new Challenger style gold deposit on the Gawler Craton. Our Joint Venture with Dominion Mining Limited has targeted the Golf Bore, Mainwood, Typhoon and Monsoon occurrences where high-grade gold intercepts had previously been drilled. An air-core drilling program at the Typhoon and Monsoon prospects identified a broad zone of similar rocks to the Challenger deposit and produced encouraging gold intersections which extended known mineralisation and further drilling is scheduled in the third quarter of 2007.

Offshore, Southern Gold is actively exploring in Cambodia. Numerous large copper and gold deposits have been developed in the neighboring countries of Laos (Phu Bia, Phu Kham and Sepon) and Thailand (Chatree) and this, together with our early-mover advantage, encouraged our exploration for world-class mineral deposits. Four Memorandum of Understanding (MOU) agreements were negotiated

with the Cambodian Ministry of Mines and Energy in September 2006 on highly prospective gold and base metal prospects exhibiting large alteration halos around granodiorite intrusives. Southern Gold is also earning an 80% interest in four tenements held by local Cambodian Company, taking our total land holding to 1842 km[2] .

At the Snoul prospect reconnaissance rock chip sampling produced gold values up to 71.2 g/t over vein-style mineralisation and 24 g/t gold, 246 g/t silver and 14.2% lead from the adjoining Phnum Knach MOU. Initial soil sampling produced a large gold anomaly with values up to 0.33 g/t with anomalous copper and arsenic. We are very confident that our exploration in Cambodia will lead to the development of significant mining operations.

In November 2006, Southern Gold foreshadowed its intention to proceed with an IPO to list its 100% owned subsidiary Southern Uranium Limited on the ASX. Southern Uranium Limited acquired interests in a number of exploration tenements covering more than 10,000 km[2] of the highly prospective Gawler Craton in South Australia which hosts over one third of the worlds known uranium resources. These projects include sandstonehosted, Beverley-style, “roll-front” and Olympic Dam-style IOCGU uranium targets. The successful fully underwritten IPO raised $14,000,000. Southern Gold retains a 39% interest in Southern Uranium which the Directors believe will reward our shareholders through the discovery of economic uranium deposits.

During the year, Southern Gold welcomed Talbot Group Holdings and CITIC Australia Pty Ltd to our list of shareholders with the purchase of a 15% interest in the Company for $2,225,000. This investment enhanced the capacity for the Company to rapidly advance its exploration projects. Directors will continue to secure adequate funding for an aggressive exploration program through 2007 to 2008 which will ensure the transition of Southern Gold to a mineral producer.

With the resources sector running at full steam and despite a shortage of skilled personnel, Southern Gold has assembled a competent team of geoscientists and office personnel who are extremely capable of tackling the challenges that lie ahead. I wish to express my gratitude to all our staff for their continued support. I believe Southern Gold is well placed to take advantage of the continued surge in the mining industry and that shareholders can look forward to further exploration successes.

Please join me along with my fellow Directors and staff at our Annual General Meeting on Thursday 29 November 2007. Details are included in the enclosed Notice of Meeting.

Yours sincerely

Ric Horn CHAIRMAN

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SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 3

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Managing Director’s Report

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Our Company has made substantial progress to increase the value of our exploration projects through an aggressive and successful exploration program.

Our Exploration Team led by our Exploration Manager, Peter Hill, has made significant new discoveries, such as the ore grade nickel sulphide discovery on the 100% owned Bulong South Project. High grade gold intersections have been extended at Typhoon and Monsoon in our first drilling program on the Challenger Area Gold JV with Dominion. Gold/copper mineralisation at Eurow in NSW has also increased in size through efficient and targeted drilling. JV partners Crescent Gold are fully funding the first $4m of drilling for IOCGU targets on our Torrens South Project.

Southern Gold is leading the mining industry into Cambodia through our global expansion for gold and base metals. Cambodia’s stabilisation combined with Southern Gold substantial tenure over areas of local mining operations gives us an early mover advantage as the global mining industry increases its investment in this mining frontier. We believe we are on the verge of a major gold discovery in Cambodia.

The Company has grown its human resources alongside our strengthening portfolio of projects. Even though the market for good people is tightening, Southern Gold has added three senior geologists each with over 20 years experience in the mining industry to our Australian exploration team. In addition, our General Manager Cambodia, Nick Steel, has recruited another four geologists to our Phnom Penh office. As this report goes to print, our new exploration manager starts in Cambodia to add to our capability to deliver exploration success.

Southern Gold’s uranium interest were listed in a separate ASX listed company Southern Uranium (ASX:SNU) in April 2007 when the uranium price was close to US$140/lb. SNU has created a strong platform for future growth in the uranium industry. Southern Gold retains a 39% interest (45,000,000 shares) in SNU and the market value of our investment in SNU was $11.5 million as at 30 June 2007.

The capacity of the company to aggressively advance its portfolio of highly prospective projects was confirmed by the introduction of CITIC Australia Pty Ltd and Talbot Group Holdings to the Southern Gold share register. Our largest shareholders (15%) recognised the development potential of the exploration projects and the skills

4 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Southern Gold is leading the mining industry into Cambodia through our global expansion for gold and base metals.

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and expertise of the Southern Gold team. CITIC Australia Pty Ltd is 100% owned by the CITIC Group is one of China’s largest state-owned companies with assets in excess of US$100 billion. Talbot Group Holdings is a Queensland owned and operated investment group focusing on the resource sector with an asset base is in excess of $500 million.

Southern Gold has built a strong foundation of projects and has laid the groundwork for the next exciting stage of the Company’s development as we plan to move from advanced exploration to resource drilling during the next year. Southern Gold will continue to grow organically through exploration success and expand by new project acquisitions.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 5

Gold

Challenger Area Gold Project, S.A.

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Challenger Area Gold Project, S.A.

(three ELs – SAU 100%; eight ELs – SAU earning 51%)

Southern Gold has had interest in the north-west Gawler Craton since 2004, and has actively explored the region since then.

In October 2006, Southern Gold entered into a Joint Venture (JV) to find the next “Challenger” with Dominion Mining Ltd (ASX:DOM) on Dominion’s Exploration Licences in the north-west Gawler Craton, South Australia. Challenger Gold Mine is currently one of Australia’s highest grade and most profitable gold mines.

The timing of this JV decision has proven to be ideal as the gold price has recently increased above US$700/oz and Dominion have subsequently announced that Challenger is now a million ounce gold mine. We now have an interest, both through our 100% held tenure and earning 51% through the JV, in over 5,000 km[2] of advanced exploration gold targets in proven million ounce gold terrain.

Gold mineralisation in the Archean rocks, as displayed at Challenger, is in high grade shoots that are elongated parallel to the regional structural fabric. The footprint of economic mineralisation within these shoots is in the order of 40 metres by 40 metres. This all combines to make targeting of economic mineralisation reliant on close spaced drilling.

As now evidenced by the Challenger system, significant blind high grade shoots such as the “Shadow Zone” can be discovered in close proximity to defined resources. Mineralisation may cluster in this way at other prospects and to evaluate the potential close spaced definition drilling is required.

Typhoon and Monsoon Prospects : Aircore (AC) Drilling

This initial drilling success provides encouragement for a number of drilling programs we have scheduled on the incompletely tested gold prospects in the highly prospective region of the million ounce Challenger Gold Mine. The Directors strongly believe there is potential for more million plus ounce ore bodies in the Archean geology that hosts Challenger in northern South Australia.

Our first drilling program under the JV with Dominion Mining has confirmed previous company drilling and extended the gold mineralisation at Typhoon and Monsoon near Challenger. Shallow aircore drilling intersected both broad and higher grade intervals of gold mineralization such as 12 m at 2.2 g/t and 3 m at 8.1 g/t. A number of holes ended in gold mineralization (5 gt at 5051 m) and over a much larger area than indicated by prior drilling (refer Table 1 below).

94 air core holes totalling 5,238 metres were drilled on the Monsoon and Typhoon Prospects during June. Drilling comprised 27 holes at Typhoon and 67 holes at Monsoon.

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6 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Table 1. Drilling results, Monsoon and Typhoon Prospects

Typhoon Prospect

TY07AR27 12 m @ 2.1 g/t from 39 m Sited 7 m north of Dominion hole 98TNR121 including 6 m @ 3.1 42-48 m (angled to the south; 8 m @ 5.5 g/t from 48 m) TY07AR 19 3 m @ 1.1 g/t from 48 m 25 m west of TY27 TY07AR 19 1 m @ 1.0 g/t from 54 m Monsoon Prospect - Northeast MN07AR 05 3 m @ 5.6 g/t from 39 m Sited 15 m south of Dominion hole 99MNR267 (angled to the south; 1m @ 9.8 g/t from 47 m) MN07AR 07 6 m @ 2.7 g/t from 39 m Sited 10 m north of Dominion hole 99MNR267 MN07AR 17 1 m @ 1.0 g/t from 50 m to end Sited 7 m north of Dominion hole 97MNR217 of hole (vertical; 2 m @ 0.7 g/t 49 m to EOH) Monsoon Prospect MN07AR 20 3 m @ 8.1 g/t from 15 m Sited 5 m east of Dominion hole 97MNAR126 (angled to the south; max Au 1m @ 0.8 g/t from 33 m) MN07AR 21 12 m @ 2.2 g/t from 30 m Sited 5 m east of Dominion hole 97MNR122 (angled to the north; 5 m @ 0.89 g/t from 58 m). MN07AR 30 3 m @ 4.3g/t from 36 m MN07AR 30 10 m @ 0.4 g/t from 48 m to end of hole MN07AR 31 9 m @ 0.7 g/t from 45 m MN07AR 31 1 m @ 5.02 g/t from 54 m to end of hole MN07AR 36 3 m @ 2.9 g/t from 30 m MN07AR 47 3 m @ 1.6 g/t from 27 m MN07AR 53 3 m @ 1.8 g/t from 45 m

Note: 1. Drill holes are vertical.

2. Air core drill chips sampled and composited with spear from 1 m chip piles (splittter not used).

3. Gold analysed by Fire assay with ICPOES/MS (Amdel Laboratories).

4. Reported value includes averages of duplicate or repeat assays, if they exist.

5. A 0.50 g/t cut off was used for intervals which average greater than 1 g/t.

Followup drilling is planned to test the depth extensions to the revitalized Typhoon and Monsoon prospects and to undertake drilling of other prospects initially delineated by calcrete geochemistry and shallow drilling in the 1990s before structural models were established for the Challenger region.

gold mineralisation and extended the volume of known gold zones (refer table and figure). Even though some of our drill holes were collared in the range of 5 m to 30 m from previous drilling, these new holes are given high significance because these are on par with the dimensions of a Challenger style M1 shoot.

Drilling at both prospects identified broad zones containing similar rocks and sulphides as at Challenger, reconfirmed

Holes MN17, MN30 and MN31 finished in fresh rock whilst still assaying high gold levels . The gold at the end of these holes is believed to represent portions of the primary gold mineralisation (refer table).

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Drilling delineated a broader gold ‘plume’ where gold has been remobilised from basement rock and concentrated higher up in the weathering profile. This presents a larger

target enabling followup drilling directed toward primary gold targets in the basement.

Gold Bore and Mainwood Prospects : Reverse Circulation (RC) Drilling Southern Gold completed initial Reverse Circulation (RC) on the Golf Bore Resource and Mainwood Prospects in September 2007 as part of the JV. We are confident that this program of 31 RC holes totalling 3000m will confirm and extend the previously outlined JORC Resource at Golf Bore.

Previous RAB and RC drilling by Dominion and others in 1996 and 1997 has been used to estimate a Gold Resource at Golf Bore. In 1997 an historical inferred resource of 726,000 t grading 3.3 g/t Au (77,000 contained ounces) was estimated for the Golf Bore Prospect.

In 2005, Dominion reviewed the resource delineated above the 1120 mRL (approximately 40 m depth from surface) to a JORC Indicated Resource of 116,750 t @ 2.66 g/t for 10,000 ounces.

Mineralisation at Golf Bore is associated with a regional scale NE/SW trending shear zone. The host rock is a weak to strongly foliated biotite, quartz, feldspar gneiss that has been variably chlorite and/or sericite altered. Gold occurs in quartz veins and is closely associated with arsenopyrite and pyrite. Interpretation of mineralised intervals within the RAB and RC drilling, suggest veins dip moderate - steep to the west. Anomalous gold zones, generally occurred when there was an increase in frequency of thin veins and the foliation became parallel with pegmatitic veining.

In 1998, RAB holes were drilled at the Mainwood prospect following up on a calcrete geochemical anomaly. Further RAB and then RC drilling was completed by Dominion in 2003.

A 400m step out north of the Mainwood anomaly, intersected gold grades of 3 m @ 3.10 g/t Au from 18 m. The fact that the intersection was shallower than other holes and that drill spacing is currently 100 x 400 m leaves scope for further investigation.

Drilling at Mainwood will focus on confirming previous hits and testing proximal extensions to weathered and primary mineralisation gold shoots as outlined by earlier Dominion drilling.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 7

Gold Cambodia

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CAMBODIA

High grade gold and base metals

(Phnum Khtong, Preak Khlong, O’Khtung, EELs – 100%) (Snoul, Romdul, Srea Pok P. Khnach - MOUs 80%) (Puchar Leu MOU - 100%)

Over the past 18 months, Southern Gold has built a large project portfolio in Cambodia, which includes artisanal mining of gold occurrences. Combined with Cambodia’s stabilising political and economic scene, Southern Gold is in a strong position to lead the mining industry into Cambodia.

Southern Gold is currently assessing areas of local mining and reviewing the stream of new projects brought to us through our established networks. The Company’s exploration team is active with our first drilling to start in the December 2007 Quarter. The Directors believe we are on the verge of a major discovery in Cambodia that will trigger a flood of investment into the Mekong region.

Background

The Cambodian mining industry currently comprises small scale artisinal gold mining activities and mining of stone, sand, gravel and laterite blocks for construction purposes. Small scale gemstone mining (rubies, sapphires and zircons) also takes place in the north west of the country.

The mineral resources of Cambodia remain largely unmapped and unexplored. The last regional geological mapping of any substance was undertaken by the Russian Geological survey in the 1980s and 1990s. Prior to the Russian survey work the French Geological Survey carried out regional mapping in the late 1960s and early 1970s.

Oxiana and BHP Billiton are also currently actively exploring in the Mondul-Kiri province in north east Cambodia. Oxiana’s drilling has intersected significant gold mineralisation on its Okkvau Project immediately adjacent to the north of one of Southern Gold’s newly granted EELs.

Investment in the Cambodian mining industry has been increasing since the late 1990s. The Council for the Development of Cambodia (CDC) reported the approval of US$181 million of investment in mining projects in 2005. Much of this investment has come from Chinese and Korean companies. However the high prospectivity and unexplored nature of the country together with the presence of major mining operations in nearby Laos, Vietnam and Thailand has encouraged Australian companies such as Oxiana Resources Limited and BHP Billiton to take up exploration tenements.

Geology

The known mineralisation in the licence areas shows an exceptionally close spatial relationship with outcropping intrusives and associated hornfels halos. Mineralisation is dominated by pyrite rich, fine comb quartz veins. These styles are typical of shallow plutonic environments with dioritic intrusives.

Projects

We have continued to increase our security of tenure to explore for gold in Cambodia after converting three of our 100%-owned Memorandum Of Understanding (MOU) tenements to granted Exploration and Exploitation Licences (EEL). EELs are valid for six years but must be renewed every two years during the term of the EEL.

The veins are very similar in character to those at Ravenswood, North Queensland Australia. The Ravenswood camp has a range of mineralisation styles including large vein, stockwork and breccia pipe Total production was approximately 3 Moz. It is likely that similar styles will be found in Eastern Cambodia.

The three EELs, O’Khtung, Preak Khlong and Pnhum Khatong and five additional MOU’s are located within Southern Gold’s total of 1,842 square kilometres of tenure in Cambodia’s eastern provinces.

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8 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

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Some evidence of epithermal mineralisation conditions (at Mt Romdul) combined with calcareous host rocks suggest the possibility of large, high grade Carlin style (up to 5Moz) carbonate replacement styles. The intrusives, hornfels halos and the proximal fold axes represent attractive exploration targets for intrusive related gold (IRG) deposits in epithermal and possibly porphyry settings.

Analogues for more distal mineralisation styles are found in the Pine Creek Geosyncline (Cosmo Howley 0.9Moz) and Arunta block (Callie 3.9Moz), Northern Territory Australia. These deposits generally form as sheeted vein sets and replacement deposits in anticline axes peripheral to hornfels halos.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 9

Gold

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Cambodia

Although the area of the our tenements is large and unexplored, outcropping mineralization is evident. Each visit by Southern Gold’s exploration teams has resulted in the discovery of new and potentially important Au mineralisation. An unnamed prospect of gossan veins was located during a regional soil sampling program in the O’khtung licence as well as mineralised quartz veins (Table 1).

Sample	Prospect	Description /	Au	Ag	Cu	Pb	Zn	As
No.		Comment	ppm	ppm	ppm	ppm	ppm	ppm
KHT1	O’Khtung	qtz vein at	0.888	22.60	52	10,600	200	>10,000
		Lacquer village
SAU21	O’Khtung	qtz vein + Pb	0.740	130.00	122	14,700	196	6,445
SAU22	O’Khtung	qtz vs	1.250	32.50	246	5,039	73	>10,000
P125	Pk. Khlong	Gossan	3.080	0.66	881	38	134	85

Planned Exploration

Detailed mapping and geochemical surveys are planned by Southern Gold over identified areas of gold mineralisation and artisinal mining, with a focus on refining these prospects for drilling.

Ongoing regional exploration on the EELs includes regional geological mapping and surficial rock-chip, stream sediment and soil sampling.

Drilling may start as early as the December Quarter 2007.

Table 1. Significant assays from samples collected during reconnaissance mapping at O’Khtung and P. Khlong.

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10 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Gold

Grenfell Goldfield Project, N.S.W

(EL 6122 – 100%)

EL 6122 covers an area of approximately 250 square kilometres surrounding the town of Grenfell, including the historic Grenfell goldfield about 380 km west of Sydney, in Central Western New South Wales.

The Grenfell Goldfield is one of the significant historic goldfields in New South Wales. It was discovered in 1865 with an ensuing rush. The Project lies within the triangle containing the large Cowal, Northparkes and Cadia porphyry gold mines. The Grenfell Goldfield produced over 300,000 oz. of gold and Southern Gold believes it has the potential for more hidden hardrock sources to historic gold-producing alluvial leads.

Our first round of drilling of gold targets at Grenfell, NSW in 2006 discovered a hydrothermally altered porphyry system with a potential strike length of over 1.5km in the Grenfell area.

These results and the large size of the verified hydrothermal system are encouraging for a continued program of target definition and testing along the remainder of the drainage divide. As such, Southern Gold is conducting soil sampling surveys over large targeted areas of the licence during September/ October 2007.

The next round of drilling at Grenfell is currently scheduled for early 2008.

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SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 11

Gold and base metal Torrens South IOCGU Project, S.A.

Torrens South IOCGU Project, S.A.

(EL 3513 & EL 3515 - SAU 100%,, Crescent Gold earning 50%)

Southern Gold entered into a series of Joint Ventures (JV) with internationally listed Crescent Gold Limited (ASX:CRE, TSX: CRA, FFT:CRE5) (“Crescent”) in the Gawler Craton in South Australia in December 2006. This included a farm-in agreement by Crescent into our Torrens South IOCGU project in the attractive Prominent Hill - Olympic Dam - Carrapateena corridor.

The Torrens South project consists of two tenements (EL 3513 and EL 3515) encompassing approximately 1,500 square kilometres located on the eastern margin of the Gawler Craton within the Olympic IOCGU province, host to the world-class Olympic Dam deposit, Prominent Hill and the recently discovered Carrapateena prospect, and including recent IOCGU discoveries at Punt Hill. This makes Southern Gold’s Torrens South Project extremely prospective for further IOCGU discoveries (refer figure).

JV partner Crescent Gold (ASX:CRE) is fully funding the exploration program on the Torrens South Project by spending $4 million by 31/12/2008 to earn 50% in the Joint Venture.

The first hole, targeting the Magnate anomaly on the southern portion of EL 3515 (refer figure), will be part of a least an initial 5 hole program with depths ranging to 1000 m. Southern Gold believes the size of the mineralisation style as seen in recent drilling results from nearby Carrapateena (905 m at 2% copper and 1 g/t gold) justifies its plans to drill deep holes.

The subsequent Baron and Kaiser targets, further to the northwest in EL 3513, are 10 km SE along strike from the Punt Hill discoveries being drilled on the adjacent tenement.

The Shah/Mogul and Lord targets in the southern EL 3515, are located on the margin of an interpreted Hiltaba Granite and controlled by strong NW structures. These targets are in similar geological setting to Punt Hill and Carrapateena (refer figure).

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Drilling will continue on the Torrens South Project for at least 3 months.

An additional 5 potential IOCGU drill targets have also been prioritized based on recent detailed gravity surveys completed by Southern Gold. Over 5,000 gravity stations at 1 km and 250 m spacing have been collected by Southern Gold since 2006.

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We have commenced our maiden drilling of high priority IOCGU targets on its Torrens South project near Carrapateena in South Australia. Five gravity anomalies, interpreted as dense hematite alterations, have been selected for drilling in the program.

12 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

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Eurow Gold/Copper Project, N.S.W.

(EL 6653 & EL 6698 – 100%)

Southern Gold Limited’s 100% owned Eurow project (EL 6653 and EL 6698) covers a major intrusive and mineralization centre with substantial base metals and gold potential in the Parkes district of the Lachlan Fold Belt of New South Wales.

RC Drilling in April 2007 has extended the known massive sulphide mineralisation to a vertical depth of 240 m. Drilling at the Eurow prospect has intercepted a stratabound zone of massive and vein-breccia sulphide mineralisation with >2% Cu over a strike distance of 280 m (refer Table) Sub-intervals of 0.4-1 m grade up to 10% Cu.

The Eurow project is centered on the historic Eurow-Vychan copper-gold mine that has depth and strike potential for a large sulphide system. Records indicate that approximately 50 tonnes of hand-picked ore (1899-1903) yielded on average 4.4 g/t Au, 81 g/t Ag and approximately 14% Cu (from enriched supergene ore). Underground mining was to a depth of 46 m. Relatively shallow drilling around the mine area by previous workers intercepted sulphides and encouraging gold and base metal grades to a vertical depth of around 80 m (Table 2).

Assay results for the recent drilling program and significant intercepts from the sulphide horizon are listed in Table 2.

Table 2. Assay results for the best mineralised intervals from the recent drilling by Southern Gold Ltd.

Southern	Gold Ltd.
Drill Hole	Depth from-to	Interval	Au	Ag	Cu	Pb	Zn
	(m)	(m)	(ppm)	(ppm)	(%)	(%)	(%)
EU018	123-125	2.00	0.73	22.70	0.30	0.16	0.94
EU019	92-95	3.00	0.22	9.90	0.51	0.05	0.24
EU021	131.26-135.19	3.93	0.44	7.60	0.36	0.07	0.34
EU022	212.74-217.15	4.41	0.63	21.46	1.57	0.14	1.49
including and	212.74-214.57 215.5-216.25	1.83 0.75	0.55 1.47	17.00 50.60	2.01 2.86	0.05 0.29	2.01 2.80
EU026	245.3-248.45	3.15	0.98	39.50	2.45	0.22	1.08
including	246.65-247.58	0.93	1.49	60.60	5.16	0.07	2.18
and	247.89-248.45	0.56	1.10	69.80	4.16	0.25	2.34
EU027	277.71-279.91	2.20	1.78	59.70	4.28	0.21	0.41
including	277.71-278.29	0.58	2.36	81.90	6.24	0.20	0.64
	278.56-278.96	0.40	2.49	87.30	5.41	0.43	0.98

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RC and Diamond Core Drilling Program, April 2007

Drilling (from previous Company work and the recent Southern Gold campaign) at the Eurow prospect has intercepted a stratabound zone of massive and vein-breccia sulphide mineralisation with >2% Cu over a strike distance of 280 m with a thickness of 2-3 m (see Figure 4). Narrower sub-intervals of 0.4-1 m grade up to 10% Cu. The overall zone of mineralisation varies in thickness from 1 m near the interpreted deposit edge to up to 4-6 m. The deposit dips at approximately 70° to the southwest and mineralisation is still open down dip and along strike to the south.

Gold associated with the >2% Cu intervals ranges from 0.98 g/t Au (from 3.15 m half NQ core sample) to 4.89 g/t Au (2 m RC), with corresponding irregularly distributed zinc grades ranging from 0.45-4.8% Zn. A coherent zone of low grade zinc (as intercepted in 3 drill holes over a strike distance of 104 m with average grades of 2.4%, 4.6% and 5.8% Zn (over 2 m intervals with a maximum grade of 9.2% Zn over 1 m) does however make up part of the massive sulphide horizon and indicates that potential exists for the outlining of further coherent zinc zones, thus increasing the overall metal inventory at Eurow.

Follow-up Work Program

A detailed aeromagnetic survey over EL 6653 and adjacent EL 6698 was completed in August 2007.

Detailed structural analysis has highlighted potential fault and faulted (e.g. graben) structures that may have had associated topographic depressions where thicker accumulations of sulphides may be present. Magnetic features parallel to that of the drilled mineralised zone have also been identified.

Rock ship sampling, additional EM surveys and soil surveys will also be undertaken in order to finalise drill targets.

These surveys also aim to identify further VHMS and possible porphyry targets along the considerable strike length of prospective geology held by Southern Gold in EL 6653 and EL 6698.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 13

Nickel sulphide Bulong South Nickel Sulphide Project, W.A.

Bulong South Nickel Sulphide Project, W.A.

(Eight tenements - SAU 100%)

Nickel sulphide grades of up to 2.1% have been discovered by Southern Gold Limited from the first round RC and diamond core drilling on our 100% owned Bulong South Project located 25 km east of Kalgoorlie, Western Australia.

Two mineralised intervals in drill hole BSRC004 assayed 2 m at 2.06% nickel and 2 m at 1.7% nickel from 52 m and 56 m respectively (see table 1). The nickel sulphide occurs with elevated levels of cobalt, copper and gold and is hosted within Archaean komatiite of the Yilgarn Craton, typical of Kambalda style nickel ore bodies (refer figure).

The intersections in BSRC004 represent a new discovery of nickel sulphides in a portion of a komatiite sequence which has not previously been explored for nickel. The nearest nickel sulphide occurrence is located 10 km to the southwest at the Blair Nickel mine and smelter at Kambalda 40 km to the south.

From late December 2006 to early January 2007, eleven drill holes (1408 m RC, 323 m core) tested nickel and gold targets initially detected our RAB drilling and other historical drilling as well as three deeper targets delineated by our exploration team’s follow-up electromagnetic survey in March 2006.

BSRC004 was sited in a traverse with three other RC holes to follow up gold intersected in Southern Gold’s RAB drilling program of June 2005 (BSR048 17-22 m, 1.2 ppm Au (averaged)).

Table 1. BSRC004. (-60° to grid East, total drill depth 100 m).

Drill interval	Nickel	Cobalt	Sulphur	Copper	Mg	Au
52-54 m	2.06%	372 ppm	2.7%	0.17%	18.0%	69 ppb
54-56 m	0.4%	102 ppm	0.44%	0.03%	19.7%	9 ppb
56-58 m	1.7%	219 ppm	2.1%	0.20%	16.8%	51 ppb

NB: analyses of 2 m composite samples completed by Genalysis Laboratory Services P/L using 4 Acid Digest in Teflon tube and Optical Emission Spectroscopy for Ni, Co, S, Cu, Mg (and other elements not reported here); Gold assay by Aqua regia digest and graphite furnace atomic absorption spectroscopy.

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14 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

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Additional significant nickel intersections (10 m at 1.2% nickel) and gold intersections (14 m at 2.41 g/t - Including 2 m at 12.1 g/t) have also been encountered in holes BSRC002, BSRC006 and BSRC007 (Table 2).

Table 2. Other significant intersections from the December 2006 RC drilling

Drill hole	Interval	metals	Geology
BSRC002	12-22 m	1.2% nickel;	supergene enriched saprolite/
(angled -60° to 140°)		700 ppm cobalt	saprock; follow-up to SAU’s RAB
			program.
	82-84 m	5.4 g/t gold	ultramafic
BSRC007	86-88 m 24-26 m	2.3 g/t gold 5.9 g/t gold	ultramafic granitoid
	36-38 m	0.61 g/t gold	granitoid
BSRC006	52-54 m	1.42 g/t gold	granitoid
BSRC006	56-58 m 62-64 m 64-66 m	2.9 g/t to 12.1 g/t gold 0.86 g/t to 1.5 g/t 3.82 g/t to 7.4 g/t	sheared margin to granitoid granitoid sheared margin to granitoid
Other elements
BSRC005	56-58 m	0.53% zinc
BSRC004	28-30 m	0.49% zinc
BSRC011	70-72 m	0.26 % zinc

NB:1. where primary and repeat assays differ significantly due to a ‘nugget effect’ (granules of free gold in sample) they have been reported as a range of values.

2. Analyses of 2 m composite samples using 4 Acid Digest in Teflon tube and Optical Emission Spectroscopy Gold assay by Aqua regia digest and graphite furnace atomic absorption spectroscopy and where Au >500 ppb repeat assay by lead collection fire assay with atomic absorption spectroscopy.

Petrological study of drill chips from BSRC004 has identified pentlandite and violarite as the nickel bearing minerals. Pentlandite and violarite are intergrown and formed interstitially with olivine.

holes, the spatial continuation may be better developed along strike.

The large amount of valuable geological and geochemical data obtained from the December 2006 drilling program to guide the next phase of exploration of the Bulong South Project. Focus will be on the two main nickel zones that have been identified, the Central and the Eastern komatiites.

Strong EM conductors

Strong EM Conductors have been mapped by detailed ground EM survey conducted in June 2007. These indicate potential for an expanded nickel sulphide system.

Ultra-detailed airborne magnetic surveys at 25-50 m line spacing were also completed earlier in April 2007 to cover Southern Gold’s expanded 100% holding in the Blair/Bulong region.

Southern Gold expands footprint

Southern Gold has increased the size of its tenement holding at the Bulong nickel sulphide discovery 25 km NE of Kambalda. The wholly owned holding in the area has been increased by over 400% through the acquisition of two tenements, a third by the replacement of an exploration licence recently held by Mincor.

Interpretation of assay drill data places the nickel bearing intervals near the base of a discrete komatiite sequence which is the typical for komatiite hosted nickel mineralisation. Though the mineralisation was not well developed in adjacent drill

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SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 15

Nickel sulphide Bulong South Nickel Sulphide Project, W.A.

The expanded Bulong South project comprises 8 titles covering a highly prospective package of ultramafics proven to host nickel sulphides. The project tenements trend north-easterly between the NSW Blair nickel sulphide mine and the nickel rich laterite resources at Bulong (refer figure).

Comprehensive reverse circulation (RC) drilling is scheduled in the December Quarter 2007. The drilling is focussed on extending the nickel sulphide intersections in the previous program and complemented by the aforementioned geophysics.

Harris Greenstone Project, S.A

(EL 3284 – 100%)

Harris Greenstone Project (HGP) covers the western end of the recently recognised Harris Greenstone Domain, a belt of Archaean rocks in the Gawler Craton, similar to the Kalgoorlie – Kambalda region of Western Australia.

The presence of komatiite rocks within the previously unexplored Harris Greenstone sequence makes this area prospective for nickel sulphide mineralisation of the Kambalda type. This project is also prospective for gold mineralisation, either associated with the Archaean greenstones or related to Hiltaba Suite granite intrusions intruded along the Yerda Shear Zone, analogous to the gold mineralisation at Tunkillia, 80 km to the southeast.

Southern Gold completed a detailed airborne electromagnetic (AEM) survey over the HGP in September 2006. The survey data will be interpreted and modelled with the aim of developing a follow-up drill program based on identified basement conductors of the underlying Harris Greenstone Belt. The survey data will then be evaluated for nickel sulphide targets in this Achaean greenstone terrain.

Drilling on this program is planned for the first half of 2008 once environmental approvals for drilling within the Yellabinna Regional Reserve have been granted

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16 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Tenement schedule

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Project Name Tenement Tenement Name Registered Holder Area (sq km) Application/ Expiry Date Expenditure
No Grant Date Commitment - $
SOUTH AUSTRALIA
Challenger West 3080 Garford Challenger West Holdings Pty Ltd 497 30/4/2003 4/29/2008 400,000 (5 yrs)
(80%), CMH Resources Pty Ltd (20%)
Challenger West 3097 Indooroopilly Challenger West Holdings Pty Ltd 496 12/6/2003 6/11/2008 400,000 (5 years)
(80%), CMH Resources Pty Ltd (20%)
Challenger West 3308 Half Moon Lake Southern Gold Limited 517 17/2/2005 2/16/2008 240,000 (3 years)
Warrior South 3284 Mount Finke Challenger West Holdings Pty Ltd 321 2/12/2004 12/1/2007 180,000 (3 years)
Yarlbrinda 3217 Nuckulla Southern Gold Limited 372 12/7/2004 7/11/2008 260,000 (4 years)
Torrens South 3513 Lake Torrens Sunthe Uranium Pty Ltd 860 31/1/2006 1/30/2008 230,000 (2 years)
Torrens South 3515 Harris Crossing Southern Gold Limited 634 1/31/2006 1/30/2008 180,000 (2 years)
Challenger 3782 Campfire Bore Dominion Gold Operations Pty Ltd, 42 21/5/2007 5/20/2008 na
Dominion JV Coombedown Resources Pty Ltd
Challenger 3044 Mulgathing Dominion Gold Operations Pty Ltd 1704 19/11/2002 11/18/2007 na
Dominion JV
Challenger 3262 Sandstone JV Dominion Gold Operations Pty Ltd, 226 14/10/2004 13/10/2007 - na
Dominion JV Coombedown Resources Pty Ltd renewal pending
Challenger 3270 Jumbuck Dominion Gold Operations Pty Ltd 933 27/10/2004 26/10/2007 - na
Dominion JV renewal pending
Challenger 3300 Mobella Dominion Gold Operations Pty Ltd 270 24/1/2005 1/23/2008 na
Dominion JV
Challenger 3435 Sandstone Dominion Gold Operations Pty Ltd 89 20/10/2005 19/10/2007 - na
Dominion JV renewal pending
Challenger 3554 Blowout Dominion Gold Operations Pty Ltd 336 8/5/2006 5/7/2008 na
Dominion JV
Challenger 3629 Skye Dominion Gold Operations Pty Ltd 48 15/9/2006 14/09/2007 - na
Dominion JV renewal pending
WESTERN AUSTRALIA
Bulong South P25/1680 Bulong South Southern Gold Limited 200 ha 8/2/2001 8,000
[M25/333] [21/1/2005]
Bulong South P25/1681 Bulong South Southern Gold Limited 200 ha 8/2/2001 8,000
[M25/333] [21/1/2005]
Bulong South P25/1729 Bulong South Southern Gold Limited 54 Ha 1/3/2006 2/28/2010 2,160
Bulong South E25/349 Bulong South Southern Gold Limited 900 Ha 7/5/2007 na
Bulong South M25/182 Bulong South Phillip John Epis & Eric Alexander Epis 430 Ha 8/9/1995 na
Bulong South M25/183 Bulong South Phillip John Epis & Eric Alexander Epis 295 Ha 8/9/1995 na
Bulong South P25/1896 Bulong South Southern Gold Limited 50 Ha 13/12/2006 na
Bulong South P25/1990 Bulong South Southern Gold Limited 120 Ha 10/5/2007 na
NEW SOUTH WALES
Grenfell 6122 Grenfell Southern Gold Limited 250 1/9/2003 31/08/2007 - 114,000
renewal pending
Eurow-Vychan 6653 Devil’s Elbow Southern Gold Limited 283 20/10/2006 10/19/2008 67,500
Eurow-Vychan 6698 Mandagery Southern Gold Limited 295 10/1/2007 1/9/2009 69,500
Southern NSW 3114 Binda Southern Gold Limited 82.35 14/5/2007 34,500
Southern NSW 3115 Goulburn Southern Gold Limited 64.93 14/5/2007 31,500
Southern NSW 3116 Lake Bathurst Southern Gold Limited 70.35 14/5/2007 32,500
Southern NSW 3117 Cooma Southern Gold Limited 69.23 14/5/2007 32,500
Southern NSW 3118 Murrumbateman Southern Gold Limited 281.4 14/5/2007 70,000
Southern NSW 3119 Sutton Southern Gold Limited 137.6 14/5/2007 44,000
Southern NSW 3120 Bungendore Southern Gold Limited 224.6 14/5/2007 60,000
Mid-western NSW 3122 Temora Southern Gold Limited 195.2 14/5/2007 54,500
Mid-western NSW 3123 Gundagai Southern Gold Limited 135.1 14/5/2007 44,000
CAMBODIA
O’Kthung EEL, O’Kthung Southern Gold Ltd (100%) 271.5 14/08/2007 14/08/2009 72,000
South Okvau East
Prek Khlong EEL, Prek Khlong Southern Gold Ltd (100%) 274 7/09/2007 7/09/09 42,000
South Okvau West
Phnum Khtong, EEL Phnum Khtong Southern Gold Ltd (100%) 234 14/08/2007 14/08/2009 72,000
Phnum Romdul JV Phnum Romdul Southern Gold Ltd (80%) Greystoke 180 24/06/2007 42,000
Ltd (20%)
Snuol JV Snuol Southern Gold Ltd (80%) Greystoke 198 24/06/2007 72,000
Ltd (20%)
Srae Pok JV Srae Pok Southern Gold Ltd (80%) Greystoke 258 2/12/2007 28,000
Ltd (20%)
Phnum Khnach JV Phnum Khnach Southern Gold Ltd (80%) Greystoke 225 29/04/2007 28,000
Ltd (20%)
Puchar Leu Puchar Leu Southern Gold Ltd (100%) 204 29/04/2007 28,000
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SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 17

Corporate Governance Statement

In March 2003 the Australian Stock Exchange Corporate Governance Council (“ASXCGC”) released its best practice recommendations based on ten core principles for corporate governance. These recommendations were not intended to be prescriptions to be followed by all ASX listed companies, but rather guidelines designed to produce an efficiency, quality or integrity outcome. The Corporate Governance Council has recognised that a “one size fits all” approach to Corporate Governance is not required. Instead, it states aspirations of best practice for optimising corporate performance and accountability in the interests of shareholders and the broader economy. A company may consider that a recommendation is not appropriate to its particular circumstances and has flexibility to not adopt it and explain why.

Southern Gold Limited to date has not adopted the ASXCGC best practice recommendations other than those specifically identified and disclosed below because the Board believes that it cannot justify the necessary cost given the size and early stage of its life as a listed exploration company. However the Board is committed to ensuring that appropriate Corporate Governance practices are in place for the proper direction and management of the Company.

This statement outlines the main Corporate Governance practices of the Company disclosed under the principles outlined in the ASXCGC including those that comply with best practice that, unless otherwise disclosed, were in place during the whole of the financial year ended 30 June 2007.

Principle 1: Lay solid foundations for management and oversight

Role of the Board

The Board is governed by the Corporations Act 2001, ASX listing rules and a formal constitution.

The Board’s primary role is the protection and enhancement of shareholder value.

The Board takes responsibility for the overall Corporate Governance of the Company including its strategic direction, management goal setting and monitoring, internal risk control, risk management and financial reporting.

Board processes and management

The Board has an established framework for the management of the company including a system of internal control, a business risk management process and appropriate ethical standards. To assist in the execution of its responsibilities, the Board has an Audit Committee to deal with internal control, ethical standards and financial reporting.

The Board appoints a Managing Director with responsibility for the day to day management of the Company including management of financial, physical, and human resources, development and implementation of risk management, internal control and regulatory compliance policies and procedures, recommending strategic direction and planning for the operations of the business and the provision of relevant information to the Board.

Principle 2: Structure the Board to add value

Composition of the Board

The names of the directors of the Company and terms in office at the date of this Statement together with their experience and expertise are set out in the Directors’ Report section of this report. The directors’ terms in office are considered appropriate in view of the fact that the company listed in April 2005.

The composition of the Board consists of five directors of whom four, including the Chairman, are non-executives. Mr Horn’s role as Chairman of the Board is separate from that of the managing Director, Mr Biggins who is responsible for the day to day management of the Company and is in compliance with the ASXCGC best practice recommendation that these roles not be exercised by the same individual.

The Company’s constitution stipulated that the number of directors must be at least three and no more than ten. The Board may at any time appoint a director to fill a casual vacancy. Directors appointed by the Board are subject to election by shareholders at the following annual general meeting and thereafter directors (other than the Managing Director) are subject to re-election at least every three years. The tenure for executive directors is linked to their holding of executive office.

Formal deeds have been entered into by the Company with directors whereby all directors are entitled to take such legal advice as they require at any time, and from time to time, on any matter concerning or in relation to their rights, duties, and obligations as directors in relation to the affairs of the Company.

Principle 3: Promote ethical and responsible decision making

Ethical standards

The Company aims for a high standard of corporate governance and ethical standard by directors and employees.

All directors are required to provide the Company with details of all securities registered in the director’s name or an entity in which the director has a relevant interest within the meaning of section 9 of the Corporations Act 2001 and details of all contracts, other than contracts to which the Company is a party to which the director is a party or under which the director is entitled to a benefit, and that confer a right to call for or deliver shares in the Company and the nature of the director’s interest under the contract.

18 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Directors are required to disclose to the Board any material contract in which they may have an interest. In accordance with section 195 of the Corporations Act 2001, a director having a material personal interest in any matter to be dealt with by the Board, will not be present when that matter is considered by the Board and will not vote on that matter.

Trading in the Company’s Securities

Directors, officers and employees are not permitted to trade in securities of the Company at any time whilst in possession of price sensitive information not readily available to the market. Section 1043A of the Corporations Act 2001 also prohibits the acquisition and disposal of securities where a person possesses information that is not readily available and which may reasonably be expected to have a material effect on the price of the securities if the information was generally available.

Principle 4: Safeguard integrity in financial reporting

Audit Committee

Southern Gold Limited was not a Company required by ASX Listing Rule 12.7 to have an Audit Committee during the year, although it is a best practice recommendation of the ASXCGC. Notwithstanding the Listing Rule requirement, Southern Gold has an Audit Committee to oversee the Company’s internal controls, ethical standards, financial reporting, and external accounting and compliance procedures. The committee currently consists of three non-executive Board directors, Messrs Horn, Anderson, and McDonald, and is chaired by Mr Horn.

The main responsibilities of the audit committee are:

Monitor the integrity of the financial statements of the Company and review significant financial reporting changes.
Review the Company’s internal financial control system and, unless expressly addressed by a separate risk committee or by the Board itself, risk management systems.
Make recommendations to the Board in relation to the appointment of the external auditor and to approve the remuneration and terms of engagement of the external auditor.
Monitor and review the external auditor’s independence, objectivity and effectiveness, taking into consideration relevant professional and regulatory requirements.

Develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm.

The Committee is to meet at least twice a year, with further meetings on an as required basis. The Committee has authority to investigate any activity within its terms of reference or any matter specifically requested by the Board. The Committee has unrestricted access to all records and staff of the Company including full access to the external auditors. The Committee is authorised by the Board to obtain outside legal or other independent professional advice as necessary to assist the Committee.

Principle 5: Make timely and balanced disclosure

Continuous Disclosure

The Company operates under the continuous disclosure requirements of the ASX Listing Rules and ensures that all information, apart from information which is confidential, and ASX has not formed the view that the information has ceased to be confidential, which may be expected to affect the value of the Company’s securities or influence investment decisions is released to the market in order that all investors have equal and timely access to material information concerning the Company. This information is made publicly available on the Company’s website following release to the ASX.

Principle 6: Respect the rights of shareholders

Communication with shareholders

The Board aims to ensure that shareholders are informed of all major developments affecting the Company’s state of affairs. In accordance with the ASXCGC best practice recommendations, information is communicated to shareholders as follows:

The annual financial report which includes relevant information about the operations of the Company during the year, changes in the state of affairs of the entity and details of future developments, in addition to other disclosures required by the Corporations Act 2001;
The half yearly financial report lodged with the Australian Stock Exchange and Australian Securities and Investments Commission and sent to all shareholders who request it;

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 19

Notifications relating to any proposed major changes in the Company which may impact on share ownership rights that are submitted to a vote of shareholders;
Notices of all meetings of shareholders;
Publicly released documents including the full text of notices of meetings and explanatory material made available on the Company’s internet web-site at www.southerngold.com.au; and
Disclosure of the Company’s Corporate Governance practices and communications strategy on the internet web-site.

The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategy and goals. Important issues are presented to the shareholders as single resolutions. The external auditor of the Company is also invited to the Annual General Meeting of shareholders and is available to answer any questions concerning the conduct, preparation and content of the auditor’s report. Pursuant to Section 249K of the Corporations Act 2001 the external auditor is provided with a copy of the notice of meeting and related communications received by shareholders.

Principle 7: Recognise and manage risk

Risk Assessment and Management

The Board recognises that there are inherent risks associated with the Company’s operations including mineral exploration, environmental, title, native title, legal, and other operational risks. The Board endeavours to mitigate such risks by continually reviewing the activities of the Company in order to identify key business and operational risks and ensuring that they are appropriately assessed and managed.

Principle 8: Encourage enhanced performance

Performance Evaluation

The Board evaluates the performance of the Managing Director on a regular basis and encourages continuing professional development.

Principle 9: Remunerate fairly and responsibly

Remuneration Policy

The Company’s Constitution specifies that the total amount of remuneration of non-executive directors shall be fixed from time to time by a general meeting. The current maximum aggregate remuneration of non-executive directors is set at $200,000 per annum. Directors may apportion any amount up to this maximum amount amongst the nonexecutive directors as they determine. Directors are also entitled to be paid reasonable travelling, accommodation and other expenses incurred in performing their duties as directors.

Principle 10: Recognise the legitimate interests of stakeholders

Code of Conduct

The Company requires all its directors and employees to abide by the highest standards of behaviour, business ethics, and in accordance with the law. In discharging their duties, Directors of the Company are required to:

Act in good faith and in the best interests of the Company;
Exercise care and diligence that a reasonable person in that role would exercise;
Exercise their powers in good faith for a proper purpose and in the best interests of the Company;
Not improperly use their position or information obtained through their position top gain a personal advantage or for the advantage of another person to the detriment of the Company;
Disclose material personal interests and avoid actual or potential conflicts of interests;
Keep themselves informed of relevant Company matters;
Keep confidential the business of all directors meetings; and
Observe and support the Board’s Corporate Governance practices and procedures.

The remuneration of the Managing Director is determined by the Board as part of the terms and conditions of his employment which are subject to review from time to time. The remuneration of employees is determined by the Managing Director subject to the approval of the Board

Further details of directors’ and executives/officers’ remuneration, superannuation and retirement payments are set out in the Directors’ Report.

20 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Directors Report

The directors present this annual financial report of Southern Gold Limited for the financial year ended 30 June 2007. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

Principal Activities

The principal continuing activity of the economic entity is the exploration for gold, copper, uranium, nickel, and other economic mineral deposits.

Financial Results

The net result of operations for the year was a loss after income tax of $1,511,170 (2006: $694,883)

Dividends

No dividends were paid or declared since the start of the financial year, and the directors do not recommend the payment of dividends in respect of the financial year.

Review of Operations

During the year the economic entity carried out exploration on its tenements and applied for or acquired additional tenements with the objective of identifying gold, copper, nickel, uranium and other economic mineral deposits.

Changes in State of Affairs

During the financial year the economic entity offered shares in its subsidiary Southern Uranium Limited in an Initial Public Offer. Southern Uranium Limited subsequently listed on the exchange of ASX Limited with the economic entity retaining a 39% interest.

Other than as stated above, or elsewhere referred to in the financial statements or notes thereto there were no changes in the state of affairs of the economic entity.

Subsequent Events

Other than as stated elsewhere in this report, there has not been any matter or circumstance, other than that referred to in the financial statements or notes thereto, that has arisen since the end of the financial year that has significantly affected, or may significantly affect, the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity in future financial years.

Environmental Developments

The economic entity carries out exploration activities on its properties in Australia. No mining activity has been conducted by the economic entity on its properties.

The economic entity’s exploration operations are subject to environmental regulations under the various laws of state governments and the Commonwealth. While its exploration activities to date have had a low level of environmental impact, the economic entity has adopted a best practice approach in satisfaction of the regulations of relevant government authorities.

Future Developments

Disclosure of information regarding likely developments in the operations of the economic entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the economic entity. Accordingly, this information has not been disclosed in this report.

Options

At the date of this report, the unissued ordinary shares of Southern Gold Limited under option are as follows:

Options At the date of this report, the unissued ordinary shares of under option are as follows:	Southern Gold Limited
Grant Date Date of Expiry Exercise Price	Number under Option
2.1.2004 31.12.2007 0.20 20.1.2004 31.12.2007 0.20 30.1.2004 31.12.2007 0.20 10.2.2004 31.12.2007 0.20 2.3.2004 31.12.2007 0.20 10.3.2004 31.12.2007 0.20 10.11.2004 31.12.2007 0.20 31.3.2005 31.3.2008 0.20 1.6.2005 1.6.2008 0.20 15.5.2006 30.6.2010 0.35 8.12.2006 7.12.2011 0.315 19.2.2007 27.11.2011 0.50 19.2.2007 7.2.2012 0.50 7.5.2007 7.2.2012 0.50 27.3.2007 27.3.2012 0.49	2,500,000 125,000 125,000 50,000 150,000 250,000 1,263,900 50,000 75,000 1,720,000 250,000 1,000,000 500,000 500,000 400,000
	8,958,900

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 21

Directors

The names and details of the directors of the company during or since the end of the financial year are:

Ric Horn (Chairman) - Director since 2004

Formerly managing director of Magnesium International (formerly Pima Mining), Ric’s foresight generated the Magnesium International project.

Ric joined as MD of Pima Mining in 1996 after successfully leading South Australian Exploration Initiative (SAEI) as director of Mineral Resources for Mines and Energy SA (MESA). Ric joined the South Australian Mines Department after a successful period with Emperor Mines in Fiji and a number of gold and other mining projects in the Oceania Region. Ric has been a key figure in the South Australian Exploration Mining industry for many years and has the reputation for innovative ventures and delivering success for stakeholders. Ric is a Fellow of the AusIMM and a Certified Practising Geologist.

Stephen Biggins (Managing Director) - Director since 2004

Stephen is a founding Managing Director of Southern Gold and has been running the Company since its inception in early 2004. Previous to this, Stephen accumulated broad experience as a geologist in mineral exploration, development and mining throughout Australia over the past 15 years. He has also applied his MBA to the management of exploration, resource definition and feasibility studies.

Stephen’s experience in small company, large corporate and government context within the mining industry provides insight for decision making and strategy.

Stephen is also a Non-Executive Director of Southern Uranium Limited.

John Anderson (Non-Executive Director) - Director since 2004

John is a Brisbane-based geologist and exploration manager of 26 years experience with Aberfoyle and MIM, most recently as General Manager – Exploration Australia for MIM Exploration Pty Ltd.

John has explored in all Australian jurisdictions and for most commodities with an emphasis on the major base metal/gold mining centres of the Proterozoic including Broken Hill, Mount Isa/Ernest Henry and the Gawler Craton. He has considerable experience with generative and brownfields exploration for both large and small resources using a variety of conceptual, empirical and high technology targeting techniques.

John led teams in the discoveries of the Angas zinc resource, the major portion of the Menninnie Dam zinc deposit, the White Dam gold copper deposit and several mineral sands deposits in the Murray Basin. He is former President of the South Australian Chamber of Mines and Energy.

John is also Managing Director of Southern Uranium Limited.

Mike McDonald (Non-Executive Director) - Director since 2004

Mike is a lawyer and partner in specialist resources law firm McDonald Steed. Mike has over 25 years experience working within the resources sector, having been in-house counsel for the Bell Group and Delhi Petroleum prior to founding McDonald Steed in 1988.

Mike has specialised in providing start up and operation services to mining and infrastructure projects in South Australia and elsewhere and has extensive experience in native title matters. He has negotiated various exploration and production agreements including recently for the Beverley Uranium Mine, the Magnesium International magnesium project and the Dominion Challenger Mine. Mike was nominated by the Australian Legal Businesses’ Legal “Who’s Who” in 2003 as one of Australia’s leading practitioners in energy and resources.

Mick Billing (Non-Executive Director / Company Secretary) - Director since 2004

Mick is an accountant with in excess of 30 years of mining industry experience in company secretarial, senior commercial, and chief financial officer roles including lengthy periods with Bougainville Copper Ltd and WMC Resources Ltd. He has had experience with corporate governance issues, debt and equity raising, and project evaluation and feasibility studies in Australia and overseas, and consults to a number of companies in these fields.

He is a director of Australasia Gold Limited, and chairman of Western Desert Resources Limited. During the year he was also an alternative director of Flinders Diamonds Limited, which position terminated on 14th August 2007

22 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Remuneration Report (audited)

This report describes the remuneration arrangements in place for directors and executives of Southern Gold Limited

The names of the directors of the company during or since the end of the financial year are: C M Horn, S R Biggins, J A Anderson, M M McDonald, and M R Billing.

Directors’ Shareholdings (audited)

The following table sets out each director’s relevant interest in shares in the economic entity as at the date of this report.

Directors	Shares Options
	Direct Indirect Direct Indirect
C M Horn S R Biggins J A Anderson M W McDonald M R Billing	1,775,000 310,000 575,000 50,000 1,500,000 1,937,727 1,500,000 350,000 2,522,727 81,000 700,000 46,500 1,714,320 157,500 607,160 - 1,500,000 297,045 500,000 65,000

The above table includes shares held by “director-related entities” which include immediate relatives of directors.

The movement in directors fully paid ordinary shares issued by Southern Gold Limited is as follows:

Directors	Balance 1/7/06	Net Changes	Balance 30/6/07
C M Horn	2,072,727	12,273	2,085,000
S R Biggins	3,322,727	115,000	3,437,727
J A Anderson	2,684,727	(81,000)	2,603,727
M W McDonald	1,952,047	(80,227)	1,871,820
M R Billing	1,783,181	14,364	1,797,545
Directors	Balance 1/7/05	Net Changes	Balance 30/6/06
C M Horn	2,070,500	2,227	2,072,727
S R Biggins	3,345,000	(22,273)	3,322,727
J A Anderson	2,662,000	22,727	2,684,727
M W McDonald	1,954,320	(2,273)	1,952,047
M R Billing	1,815,000	(31,819)	1,783,181

Options to acquire fully paid ordinary shares issued by Southern Gold Limited.

Directors	Balance	Net Change	Balance	Balance held	Vested and
	1/7/06		30/6/07	Nominally	exercisable
C M Horn	705,000	(80,000)	625,000	625,000	625,000
S R Biggins	1,025,000	800,000	1,850,000	1,850,000	1,850,000
J A Anderson	781,000	(34,500)	746,500	746,500	746,500
M W McDonald	714,660	(107,500)	607,160	607,160	607,160
M R Billing	657,500	(92,500)	565,000	565,000	565,000
Directors	Balance	Net Change	Balance	Balance held	Vested and
	1/7/05		30/6/06	Nominally	exercisable
C M Horn	705,000	-	705,000	705,000	705,000
S R Biggins	1,047,500	(22,500)	1,025,000	1,025,000	1,025,000
J A Anderson	781,000	-	781,000	781,000	781,000
M W McDonald	727,160	(12,500)	714,660	714,660	714,660
M R Billing	657,500	-	657,500	657,500	657,500

The above table includes shares held by “director-related entities”.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 23

Remuneration Policy (audited)

The remuneration policy is designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration package to non executive directors and time based remuneration to executive directors. The board of Southern Gold believes the policy to be appropriate and effective in attracting and retaining the best directors and executives to manage and direct the economic entity.

All remuneration paid to directors and executives is valued at the cost to the economic entity and expensed. Directors have not received share options as part of remuneration packages. Any options acquired have been purchased on market or as part of the acquisition of shares.

The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The board determines payments to the non-executive directors and reviews their remuneration annually, based upon market practice, duties, and, accountability. Independent external advice is sought when required. Fees for non-executive directors are not linked to the performance of the economic entity.

Performance Based Remuneration (audited)

The economic entity currently has no performance based remuneration component built into director and executive remuneration packages.

The economic entity has one executive director, and four non-executive directors. The managing director is paid a salary, while non-executive directors are paid directors’ fees. The directors do not currently participate in any incentive scheme. Directors’ option holdings are disclosed under Directors’ Shareholdings above.

The following table discloses the remuneration of its directors of the economic entity.

2007	Primary	Post Employment	Share based	Total
	Salary & Fees	Superannuation	remuneration
	$	$	$	$
C M Horn	125,991	4,127		130,118
S R Biggins	190,150	20,400	239,139	449,689
J A Anderson	176,115	2,477		178,592
M W McDonald	222,964	27,500		250,464
M R Billing	117,070	3,000		120,070
2007 Total	832,290	57,504	239,139	1,128,933
2006	Primary	Post Employment	Share based	Total
	Salary & Fees	Superannuation	remuneration
	$	$	$	$
C M Horn	75,830	4,128	-	79,958
S R Biggins	146,667	13,200	-	159,867
J A Anderson	189,523	2,477	-	192,000
M W McDonald	63,904	23,904	-	87,808
M R Billing	77,700	3,000	-	80,700
2006 Total	553,624	46,709	-	600,333

Remuneration Objectives – Executive Officers and Senior Management (audited)

To achieve its objectives of discovery of economic resources in a cost effective manner, Southern Gold aims to attract and retain a skilled senior management team focussed upon contributing to that objective. To do this the Board has established a principle of offering competitive remuneration packages.

Service Agreement – Managing Director (audited)

Remuneration and other items of employment for the Managing Director, Mr Stephen Biggins, are formalised in a service agreement formalised by the Board. The major provisions are as follows:

Mr Biggins agrees to provide his services for 2 years expiring on 21st April 2009.
Remuneration of $220,000 per annum plus 15% superannuation contributions, pursuant to an amended agreement effective from April 2007.
Termination without notice in the event that Mr Biggins:
- is guilty of serious or wilful misconduct
fails to remedy a breach of the Agreement within 14 days of receipt of notice to do so.
Termination without cause by either party with the provision of 3 calendar months notice.

Remuneration packages contain the following key elements

a) Primary benefits – salary/fees;
b) Post employment benefits – superannuation.

24 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Service Agreement – Non executive directors (audited)

The Company entered into service agreements with entities associated with each non-executive director from 24 April 2005, with a term covering their term as directors, according to the constitution of the Company. Details of the current service agreements are set out below:

agreements are	set out below:
Director	Associated Entity	Terms
C M Horn	Hornet Resource Assessment Services Pty Ltd	Daily rate of $900
J A Anderson	Austrike Resources Pty Ltd	Daily rate of $900
M R Billing	MBB Trading Pty Ltd	Daily rate of $900
M W McDonald	McDonald Steed McGrath Lawyers	Commercial Rates

Meetings of Directors

The number of meetings of the Company’s Board of Directors attended by each Director during the year ended 30 June 2007 was:

	Number of Board	Number of Board
	Meetings Held	Meetings Attended
C M Horn	13	12
S R Biggins	13	13
J A Anderson	13	13
M W McDonald	13	13
M R Billing	13	13

Non-audit services

The board of directors is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non audit services as set out below, did not compromise the audit independence requirement of the Corporations Act 2001 for the following reasons.

All non-audit services have been reviewed by the Board to ensure they do not impact the impartiality and objectivity of the auditor.

the nature of the services provided do not compromise the general principle relating to auditor independence as set out in the APES 110 Code of Ethics for Professional Accountants.

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001for leave to bring proceedings on behalf of the Company or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. There were no such proceedings brought or interventions on behalf of the Company with leave from the Court under section 237 of the Corporations Act 2001.

Auditor of the Company

The auditor of the Company for the financial year was Grant Thornton.

Auditor’s Independence Declaration

The auditor’s independence declaration as required by section 307C of the Corporations Act 2001for the year ended 30 June 2007 is set out immediately following the end of the directors report.

Signed at Adelaide this 27th day of September 2007 in accordance with a resolution of the directors.

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Mick Billing DIRECTOR

The following fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2007:

during the year ended 30 June 2007:
	$
Preparation of Income Tax returns	4,400
Assistance with ATO GST audit	1,375

Indemnification of Officers and Auditors

During the year the company arranged insurance cover and paid a premium for directors in respect of indemnity against third party liability.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 25

Auditors Independence Declaration

==> picture [477 x 674] intentionally omitted <==

26 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Consolidated income statement for the financial year ended 30 June 2007

Note	Economic Entity Parent Entity
	2007 $ 2006 $ 2007 $ 2006 $
Revenue from ordinary activities 3 Exploration expense written off Salaries and wages Directors fees Audit fees Legal expenses Insurance expenses Shareholder relations Other consulting expenses Other administrative expenses Depreciation Share based payments Share of subsidiary loss	207,692 150,806 207,692 150,806 (68,935) (16,628) (68,935) (16,628) (152,442) (139,439) (152,442) (139,439) (140,000) (140,000) (140,000) (140,000) (28,000) (17,900) (28,000) (17,900) (63,890) (38,634) (63,890) (38,634) (21,536) (17,624) (21,536) (17,624) (210,580) (87,545) (210,580) (87,545) (155,422) (222,674) (155,422) (222,674) (226,665) (149,110) (226,665) (149,110) (22,959) (16,085) (22,959) (16,085) (481,588) - (481,588) - (146,845) - - -
Loss from ordinary activities before income tax expense 3 Income tax expense relating to ordinary activities 4	(1,511,170) (694,883) (1,364,325) (694,883) - - - -
Net loss for the year	(1,511,170) (694,883) (1,364,325) (694,883)
Earnings Per Share Basic (cents per share) – Loss 22 Diluted (cents per share) – Loss 22	(2.56) (1.58) (2.56) (1.58)

The above income statement should be read in conjunction with the accompanying notes.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 27

as at 30 June 2007

Consolidated balance sheet

Note	Economic Entity Parent Entity
	2007 $ 2006 $ 2007 $ 2006 $
CURRENT ASSETS Cash and cash equivalents 5 Trade receivables 6 Other financial assets 7	3,540,889 1,991,053 3,540,889 1,991,053 165,275 77,025 165,275 77,025 89,937 14,478 89,937 14,478
TOTAL CURRENT ASSETS	3,796,101 2,082,556 3,796,101 2,082,556
NON-CURRENT ASSETS Exploration and evaluation expenditure 8 Plant and equipment 9 Receivables from related parties 10 Investments 13	4,671,811 1,822,352 2,272,766 1,181,213 93,921 53,432 93,921 53,432 - - 2,399,045 581,139 1,129,240 1,252,685
TOTAL NON-CURRENT ASSETS	5,894,972 1,875,784 6,018,417 1,815,784
TOTAL ASSETS	9,691,073 3,958,340 9,814,518 3,898,340
CURRENT LIABILITIES Trade and other payables 11 Unearned interest Provision for employee entitlements 12	380,770 233,863 380,770 233,863 - 1,641 - 1,641 44,063 21,650 44,063 21,650
TOTAL CURRENT LIABILITIES	424,833 257,154 424,833 257,154
NON-CURRENT LIABILITIES Provision for employee entitlements 12 Deferred income	4,385 9,317 4,385 9,317 16,385 73,885 16,385 13,885
TOTAL NON-CURRENT LIABILITIES	20,770 83,202 20,770 23,202
TOTAL LIABILITIES	445,603 340,356 445,603 280,356
NET ASSETS	9,245,470 3,617,984 9,368,915 3,617,984
EQUITY Contributed equity 14 Reserve Accumulated losses	11,208,031 4,923,206 11,208,031 4,923,206 822,054 798,654 (2,784,615) (1,305,222) (2,637,770) (1,305,222)
TOTAL EQUITY	9,245,470 3,617,984 9,368,915 3,617,984

The above balance sheet should be read in conjunction with the accompanying notes.

28 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Statement of change in equity

for the year ended 30 June 2007

	Consolidated Entity	Parent Entity
	Share Capital Accumulated Losses Reserve Total $ $ $ $	Share Capital Accumulated Losses Reserve Total $ $ $ $
Balance at 1 July 2005 Profit/(loss) attributable to members of the parent entity Issue of Share Capital	3,985,824 (610,339) - 3,375,485 - (694,883) - (694,883) 937,382 - - 937,382	3,985,824 (610,339) - 3,375,485 - (694,883) - (694,883) 937,382 - - 937,382
Balance at 30 June 2006	4,923,206 (1,305,222) - 3,617,984	4,923,206 (1,305,222) - 3,617,984

	Consolidated Entity	Parent Entity
	Share Capital Accumulated Losses Reserve Total $ $ $ $	Share Capital Accumulated Losses Reserve Total $ $ $ $
Balance at 1 July 2006 Profit/(loss) attributable to members of the parent entity Movement in reserves Issue of Share Capital	4,923,206 (1,305,222) - 3,617,984 - (1,511,170) - (1,511,170) - 31,777 822,054 853,831 6,284,825 - - 6,284,825	4,923,206 (1,305,222) - 3,617,984 - (1,364,325) - (1,364,325) - 31,777 798,654 830,431 6,284,825 - - 6,284,825
Balance at 30 June 2007	11,208,031 (2,784,615) 822,054 9,245,470	11,208,031 (2,637,770) 798,654 9,368,915

The above statement of changes in equity should be read in conjunction with the accompanying notes.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 29

Consolidated cash flow statement

for the year ended 30 June 2007

Note	Inflows/(Outflows)
	Economic Entity Parent Entity
	2007 $ 2006 $ 2007 $ 2006 $
Cash flows relating to operating activities Interest received 3 Payments to suppliers and employees	177,818 137,902 177,818 137,902 (1,158,414) (675,937) (1,158,414) (615,937)
Net operating cash flows (Note (a))	(980,597) (536,862) (980,597) (536,862)
Cash flows relating to investing activities Government grants received Payments for mining tenements, exploration and evaluation expenditure 8 Reimbursed from co-venturers 8 Payments for plant and equipment 9	- 73,885 - 13,885 (3,644,903) (1,312,747) (3,644,903) (1,252,747) 46,041 34,612 46,041 34,612 (63,448) (57,172) (63,448) (57,172)
Net investing cash flows	(3,754,392) (1,261,422) (3,754,392) (1,261,422)
Cash flows relating to financing activities Proceeds from share issues 14 Payments for share issue costs 14	6,385,796 937,482 6,385,796 937,482 (100,971) (100) (100,971) (100)
Net financing cash flows	6,284,825 937,382 6,284,825 937,382
Net increase/(decrease) in cash Cash at beginning of financial year 5	1,549,836 (860,902) 1,549,836 (860,902) 1,991,053 2,851,955 1,991,053 2,851,955
Cash at end of financial year 5	3,540,889 1,991,053 3,540,889 1,991,053
Note (a): Reconciliation of net loss from ordinary activities to net cash flow from ordinary activities. Loss from ordinary activities after related income tax Share of subsidiary Loss Share based remuneration Unearned Income Depreciation Exploration written off (Increase) decrease in receivables (Increase) decrease in prepayments Increase/(decrease) in payables Increase/(decrease) in provisions	(1,511,170) (694,883) (1,364,325) (694,883) 146,845 - - - 584,988 584,988 (59,141) 1,641 (59,141) 1,641 22,959 16,084 22,959 16,084 68,935 16,628 68,935 16,628 (42,209) 105,021 (42,209) 105,021 (75,459) 10,200 (75,459) 10,200 93,019 (19,813) 93,019 (19,813) 17,481 28,260 17,481 28,260
Net operating cash flows	(980,597) (536,862) (980,597) (536,862)

The above cash flow statement should be read in conjunction with the accompanying notes.

30 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Notes to the Financial Statements

for the Financial Year Ended 30 June 2007

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board1 and the Corporations Act 2001.

The financial report covers the consolidated group of Southern Gold Limited and controlled entities, and Southern Gold Limited as an individual parent entity. Southern Gold Limited is a listed public company, incorporated and domiciled in Australia.

The financial report of Southern Gold Limited and controlled entities, and Southern Gold Limited as an individual parent entity comply with all International Financial Reporting Standards (IFRS) in their entirety.

The following is a summary of the material accounting policies adopted by the consolidated group in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Basis of Preparation

Compliance with IFRS

Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial statements and notes of Southern Gold Limited comply with International Financial Reporting Standards (IFRS). The Parent entity financial statements and notes also comply with IFRS except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial instruments: Disclosure and presentation.

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit and loss, certain classes of property, lant and equipment, and investment property.

The accounting policies set out below have been consistently applied to all years presented.

Reporting Basis and Conventions

The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial

assets and financial liabilities for which the fair value basis of accounting has been applied.

a. Principles of Consolidation

A controlled entity is any entity Southern Gold Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities. A list of controlled entities is contained in Note 24 to the financial statements. All controlled entities have a June financial year-end.

Subsidiaries are all those entities (including special purpose entities) over which the group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The purchase method of accounting is used to account for the acquisition of subsidiaries.

All inter-company balances and transactions between entities in the consolidated group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the consolidated group during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased.

Minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

b. Income Tax

The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Southern Gold Limited and its whollyowned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity. The group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 1 July 2006. The tax consolidated group has entered a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group.

c. Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.

Plant and equipment

Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 31

The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the asset’s original cost is transferred from the revaluation reserve to retained earnings.

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over their useful lives to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Plant and equipment 5–33% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

d. Exploration and Development Expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs

are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site.

e. Financial Instruments

Recognition

Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Financial assets at fair value through profit and loss

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period in which they arise.

Loans and receivables

Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

Held-to-maturity investments

These investments have fixed maturities, and it is the group’s intention to hold these investments to maturity. Any held-to-maturity investments held by the group are stated at amortised cost using the effective interest rate method.

Available-for-sale financial assets

Available-for-sale financial assets include any financial assets not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity.

Financial liabilities

Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.

Derivative instruments

Derivative instruments are measured at fair value. Gains and losses arising from changes in fair value are taken to the income statement unless they are designated as hedges.

Southern Gold Limited and Controlled Entities designate certain derivatives as either:

i. hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
ii. hedges of highly probably forecast transactions (cash flow hedges).

At the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions is documented.

Assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be effective in offsetting changes in fair values or cash flows of hedged items, are also documented.

Impairment

At each reporting date, the group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement.

32 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

f. Impairment of Assets

At each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cashgenerating unit to which the asset belongs.

g. Leases

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

h. Investments in Associates

Investments in associate companies are recognised in the financial statements by applying the equity method of accounting. The equity method of accounting recognised the group’s share of post-acquisition reserves of its associates.

Where there has been a change recognised directly in an associate’s equity, the group recognises its share of any changes and discloses this in the statement of recognised income and expense. The reporting dates of the associates and the group are identical and the associates accounting policies conform to those used by the group for like transactions and events in similar circumstances.

i. Interests in Joint Ventures

The consolidated group’s share of the assets, liabilities, revenue and expenses of joint venture operations are included in the appropriate items of the consolidated financial statements. Details of the consolidated group’s interests are shown at Note 18.

The consolidated group’s interests in joint venture entities are brought to account using the equity method of accounting in the consolidated financial statements. The parent entity’s interests in joint venture entities are brought to account using the cost method.

j. Employee Benefits

Provision is made for the company’s liability for employee benefits arising from services rendered by employees

to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

Share based payments

The Company has an Employee Share Option Plan where employees may be provided with options to acquire shares in the Company. He bonus element over the exercise price of the employee services rendered in exchange for the grant of shares is recognised as an expense in the income statement. The total amount to be expensed over the vesting period is determined to the fair value of shares granted.

k. Provisions

Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

l. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

m. Revenue

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from investment properties is recognised on an accruals basis or straight-line basis in accordance with leases agreements. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers.

All revenue is stated net of the amount of goods and services tax (GST).

n. Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the Australian Taxation Office is included as a current asset or liability in the financial position.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

o. Government Grants

Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight-line basis.

p. Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

q. Critical Accounting Estimates and Judgments

The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

Key Estimates — Impairment

The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined.

r. Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares during the year.

s. New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2007 reporting periods. The Group’s and parent entity’s assessment of the impact of these new standards and interpretations is considered to be not material.

The financial report was authorised for issue on 27 September 2007 by the board of directors.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 33

3. LOSS FROM ORDINARY ACTIVITIES Loss from ordinary activities included the following items of revenue and expense: a) Operating Revenue Interest received/receivable Other Income b) Expenses Depreciation of plant and equipment Exploration write-offs 4. INCOME TAX a) The prima facie income tax expense on pre-tax accounting loss reconciles to the income tax attributable to operating loss as follows: Loss from ordinary activities Income tax benefit calculated at 30% of operating loss Tax effect of capital raising costs Income tax adjusted for temporary differences Timing differences and tax losses not brought to account Income tax attributable to loss from ordinary activities	Economic Entity Parent Entity
	2007 $ 2006 $ 2007 $ 2006 $
	179,459 136,260 179,459 136,260 28,233 14,546 28,233 14,546
	207,692 150,806 207,692 150,806
	22,959 16,084 22,959 16,084 68,935 16,628 68,935 16,628
	1,511,170 694,883 1,364,325 694,883
	453,351 208,463 409,298 208,463 30,291 20 30,291 20
	483,642 208,483 439,589 208,483
	(483,642) (208,483) (439,589) (208,483)
	- - - -

b) Future income tax benefits not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1(e) occur Timing differences Operating Losses
	30,291 20 30,291 20
	453,351 208,463 409,298 208,463
	483,642 208,483 439,589 208,483

The taxation benefits of tax losses and timing differences not brought to account will only be obtained if:

i.) assessable income is derived of a nature and of amount sufficient to enable the benefit from the deductions to be realised; ii) conditions for deductibility imposed by the law are complied with; and iii) no changes in tax legislation adversely affect the realisation of the benefit from the deductions.

5. CASH ASSETS Westpac Banking Corporation Cheque Account Westpac Banking Corporation Deposit Account – Interest rate of 5.0% (2006: 5.47%) Westpac Banking Corporation Bank Bills – Interest rate of 5.73% (2006: 5.47%) 6. TRADE AND OTHER RECEIVABLES Trade Accounts Receivable 7. OTHER FINANCIAL ASSETS Prepayments Exploration tenement bond Other financial assets 8. MINING TENEMENTS, EXPLORATION AND EVALUATION EXPENDITURE Costs brought forward Less: value of tenements transferred to subsidiaries Less: value of tenements sold to Southern Uranium Limited Expenditure incurred during the year Less: Expenditure recovered from co-venturer & via government grants Expenditure written off	Economic Entity Parent Entity
	2007 $ 2006 $ 2007 $ 2006 $
	110,875 407,276 110,875 407,276 630,014 83,777 630,014 83,777 2,800,000 1,500,000 2,800,000 1,500,000
	3,540,889 1,991,053 3,540,889 1,991,053
	165,275 77,025 165,275 77,025
	165,275 77,025 165,275 77,025
	49,937 2,234 49,937 2,234 40,000 10,000 40,000 10,000 - 2,244 - 2,244
	89,937 14,478 89,937 14,478
	1,822,352 586,658 1,181,213 245,187 - (35,766) (578,499) - (317,135) - 3,727,255 1,356,424 1,527,274 952,654 (230,362) (104,102) (13,885) - (68,935) (16,628) (68,935) (16,628)
	4,671,811 1,822,352 2,272,766 1,181,213

Recoverability of the carrying amount of exploration assets is dependent upon successful exploration, development, and operational activities.

34 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

		Economic Entity	Economic Entity	Parent	Entity
		2007	2006	2007	2006
		$	$	$	$
9.	PLANT AND EQUIPMENT
	Plant and equipment at cost	134,101	70,653	134,101	70,653
	Less: Accumulated depreciation	(40,180)	(17,221)	(40,180)	(17,221)
		93,921	53,432	93,921	53,432
	Movement schedule for plant and equipment
	Opening written down value	53,432	12,344	53,432	12,344
	Additions	63,448	57,172	63,448	57,172
	Disposals	-	-	-	-
	Depreciation	(22,959)	(16,084)	(22,959)	(16,084)
	Closing written down value	93,921	53,432	93,921	53,432
10.	NON-CURRENT RECEIVABLES
	Amount due from controlled entity
	- Challenger West Holdings Pty Limited	-	-	289,579	281,121
	- CMH Resources Pty Limited	-	-	72,395	69,112
	- Gawler Arc Holdings Pty Limited	-	-	75,714	230,906
	- Southern Mining Pty Limited	-	-	125,538	-
	- New Southern Mining Pty Limited	-	-	27,572	-
	- Southern Gold Asia Pty Limited	-	-	1,808,247	-
				2,399,045	581,139
Amounts due from controlled entities accrue no interest and are not subject to repayment schedules
11.	CURRENT LIABILITIES – PAYABLES
	Trade payables and accruals	380,770	233,863	380,770	233,863
12.	EMPLOYEE ENTITLEMENTS
	The aggregate employee entitlement liability recognised in and included in the
	financial statements is as follows
	Provision for employee entitlements
	Current	44,063	21,650	44,063	21,650
	Non-Current	4,385	9,317	4,385	9,317
		48,448	30,967	48,448	30,967
	Movement schedule for employee provisions
	Opening balance	30,967	2,707	30,967	2,707
	Additional provision	36,154	31,491	36,154	31,491
	Entitlement utilised	(18,673)	(3,231)	(18,673)	(3,231)
	Closing balance	48,448	30,967	48,448	30,967
	The current provision portion relates to annual leave, while the non-current portion
	relates to long service leave.
		No.	No.	No.	No.
	Number of employees at end of year	9	8	9	8

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 35

INVESTMENTS IN ASSOCIATES Investments in associates Southern Uranium Limited i) Principle Activity Southern Uranium – Mineral Exploration There were no impairment losses relating to the investment in associate and no capital commitments or other commitments relating to the associate Reconciliation of movement in carrying amount of investment in associates: - First time recognition of investment in associates at cost - Share of combined net profit/(loss) and movement in reserves after income tax Market value of investments in associates - Aggregate market value of investments in associates CONTRIBUTED EQUITY a) Ordinary Shares Issued share capital: 74,285,074 fully paid ordinary shares (2006: 45,904,221) Movement in issued shares for the year: Balance at beginning of financial year Issued at 20 cents Issued at 22 cents Issued at 25 cents Issued at 31.5 cents Issued at 35 cents Issued as consideration to unrelated parties for project acquisition Issued as consideration to unrelated party for corporate advice Costs associated with the issue of shares Balance at end of financial year Fully paid shares carry one vote per share and carry the right to dividends	$ $	$ $
	1,129,240 - Balance Date 30 June 2007 $ $	- - Ownership interest held by consolidated entity 2007 % 2006 %
		39% - 1,252,685 - (123,445)
		1,129,240 -
		11,475,000 - $ $
	10,957,281 4,923,206 2007	2006
	No. $	No. $
	45,904,221 4,923,206 14,075,853 2,815,171 4,500,000 990,000 8,900,000 2,225,000 125,000 39,375 180,000 63,000 600,000 253,250 - -	41,181,805 3,985,824 947,500 189,500 3,399,916 747,982 - - - - - - 300,000 - 75,000 -
	- -	- (100)
	74,285,074 11,208,031	45,904,221 4,923,206

13. INVESTMENTS IN ASSOCIATES

14. CONTRIBUTED EQUITY

b) Options on Issue

21,245,903 options to acquire ordinary shares @ $0.20/share (2006: 20,293,403)

Unissued ordinary shares of Southern Gold Limited under option as at 30 June 2007 are as follows

Grant Date Date of Expiry Exercise Price	Number under Option
2.1.2004 31.12.2007 0.20 20.1.2004 31.12.2007 0.20 30.1.2004 31.12.2007 0.20 10.2.2004 31.12.2007 0.20 2.3.2004 31.12.2007 0.20 10.3.2004 31.12.2007 0.20 10.11.2004 31.12.2007 0.20 31.3.2005 31.3.2008 0.20 1.6.2005 1.6.2008 0.20 15.5.2006 30.6.2010 0.35 8.12.2006 7.12.2011 0.315 19.2.2007 27.11.2011 0.50 19.2.2007 7.2.2012 0.50 7.5.2007 7.2.2012 0.50 27.3.2007 27.3.2012 0.49	2,500,000 125,000 125,000 50,000 150,000 250,000 1,263,900 50,000 75,000 1,720,000 250,000 1,000,000 500,000 500,000 400,000
	8,958,900

36 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

15. DIRECTORS AND EXECUTIVES REMUNERATION

Remuneration disclosures are provided in the Remuneration Report of the Director’s Report and designated as “Audited”

16. REMUNERATION OF AUDITORS

REMUNERATION OF AUDITORS
Auditing the financial report Other services	Economic Entity Parent Entity
	2007 $ 2006 $ 2007 $ 2006 $
	20,500 17,900 20,500 17,900 5,775 2,770 5,775 2,770
	26,275 20,670 26,275 20,670

17, RELATED PARTY DISCLOSURES

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

a) Equity Interests in related parties

Equity Interests in controlled entities

Details of the percentage of ordinary shares held in controlled entities are disclosed in Note 22 to the financial statements.

Equity Interests in joint ventures

Details of interests in joint ventures are disclosed in Note 17 to the financial statements.

b) Transactions within wholly owned group

The wholly owned group includes:

– The ultimate parent entity in the wholly-owned group and;

– The wholly-owned controlled entities.

The ultimate parent entity in the wholly-owned group is Southern Gold Limited.

Amounts receivable from the controlled entities are disclosed in Note 10 to the financial statements.

During the financial year Southern Gold Limited provided accounting and administrative services at no cost to the controlled entities and the advancement of interest free loans.

c) Transactions with directors

The following comprises payments made to entities in which directors have an interest.

Directors C M Horn (Hornet Resources Assessments Services Pty Ltd) S R Biggins (Genex Resources Pty Ltd) J A Anderson (Austrike Resources Pty Ltd) M W McDonald (McDonald Steed McGrath) M R Billing (MBB Trading Pty Ltd)	Economic Entity Parent Entity
	2007 $ 2006 $ 2007 $ 2006 $
	80,119 29,958 80,119 29,958 150 - 150 - 148,592 162,000 148,592 120,200 220,464 57,808 220,464 55,675 90,070 50,700 90,070 50,700

18. JOINT VENTURES

The economic entity had interests in unincorporated joint ventures at 30 June 2007 as follows:

a) Challenger West Joint Venture b) Tallaringa Joint Venture – Paleochannel uranium exploration c) Southern Gawler Arc Joint Venture – Iron Oxide Copper Gold Uranium exploration d) Yarlbrinda Joint Venture – Iron Oxide Copper Gold Uranium exploration e) Yarlbrinda South Joint Venture – Iron Oxide Copper Gold Uranium exploration f) Torrens South Joint Venture – Iron Oxide Copper Gold Uranium exploration	Percentage Interest 2007 Percentage Interest 2006
	NIL 100% NIL 100% NIL 100% NIL 100% NIL 30% 100% N/A

a) Challenger West Joint Venture
b) Tallaringa Joint Venture – Paleochannel uranium exploration
c) Southern Gawler Arc Joint Venture – Iron Oxide Copper Gold Uranium exploration
d) Yarlbrinda Joint Venture – Iron Oxide Copper Gold Uranium exploration
e) Yarlbrinda South Joint Venture – Iron Oxide Copper Gold Uranium exploration
f) Torrens South Joint Venture – Iron Oxide Copper Gold Uranium exploration

Percentage
Interest 2007
Percentage
Interest 2006

NIL
100%
NIL
100%
NIL
100%
NIL
100%
NIL
30%
100%
N/A

Notes:

a) Under the terms of an agreement between Challenger West Holdings Pty Ltd, CMH Resources Pty Ltd and Hindmarsh Resources Limited (HMR), HMR may earn a 51% interest in paleochannel uranium resources in tenements EL3080, EL3097, and EL3308 by funding $250,000 in exploration activities in each tenement, a total of $750,000. Subsequently HMR may earn a further 29% interest by funding an additional $250,000 in exploration activities in each tenement. At 30 June 2006 HMR had spent a total of $327,464. Equity in this joint venture was passed to Southern Uranium Limited during the year ended 30 June 2007.

b) Under the terms of an agreement between the economic entity and Hindmarsh Resources Limited (HMR), the economic entity may earn a 30% interest in paleochannel uranium resources in tenement applications ELA95/05, and ELA199/05 by funding $400,000 in exploration activities. At 30 June 2006 the economic entity had spent a total of $72,639. Equity in this joint venture was passed to Southern Uranium Limited during the year ended 30 June 2007.

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 37

c) Under the terms of an agreement between Gawler Arc Holdings Pty Ltd and Hindmarsh Resources Limited (HMR), HMR may earn a 25% interest in tenement EL3158 by funding $250,000 in exploration activities. Subsequently HMR may earn a further 10% interest by funding an additional $250,000 in exploration activities. At 30 June 2006 HMR had spent a total of $84,284. Equity in this joint venture was passed to Southern Uranium Limited during the year ended 30 June 2007.
d) Under the terms of an agreement between the economic entity and Hindmarsh Resources Limited (HMR), HMR may earn a 25% interest in tenement EL3284 by funding $250,000 in exploration activities. Subsequently HMR may earn a further 10% interest by funding an additional $250,000 in exploration activities. At 30 June 2006 HMR had spent a total of $18,785. Equity in this joint venture was passed to Southern Uranium Limited during the year ended 30 June 2007.
e) Under the terms of an agreement between the economic entity and Mr Ian Garsed, the economic entity has acquired a 35% interest in tenement EL6130. The Economic entity may increase this interest to 70% by funding $300,000 in exploration activities, over a three year period. At 30 June 2006 the economic entity had spent a total of $132,420. Equity in this joint venture was passed to Southern Uranium Limited during the year ended 30 June 2007.
f) Under the terms of an agreement between the economic entity and Uranium West Pty Ltd, Uranium West Pty Ltd may earn a 25% interest in tenements EL6130 with the expenditure of $1million. Subsequently HMR may earn a further 25% interest by funding an additional $3 million in exploration activities. At 30 June 2007 Uranium West Pty Ltd had spent a total of $238,124.

19. COMMITMENTS FOR EXPENDITURE AND CONTINGENT LIABILITIES

a) Exploration Expenditure Commitments

The economic entity has certain obligations to perform exploration work and expend minimum amounts of money on such works on mineral exploration tenements.

These obligations will vary from time to time, subject to statutory approval. The terms of current and future joint ventures, the grant or relinquishment of licences and changes to licence areas at renewal or expiry, will alter the expenditure commitments of the economic entity.

Total expenditure commitments at balance date in respect of minimum expenditure requirements not provided for in the financial statements are approximately:

statements are approximately:
	2007	2006
	$	$
Not later than one year:	858,000	1,434,000
Later than one year but not later than two years:	426,000	362,000
Later than two years but not later than five years:	129,800	-

b) Service Agreements

Service agreements between the economic entity and non-executive directors are disclosed in the Remuneration Report of the Directors Report.

c) Native Title

Native Title claims have been made with respect to tenements in South Australia in which Southern Gold Limited has interests. The economic entity is unable to determine the prospects for success or otherwise of the claims and, in any event, whether or not and to what extent the claims may significantly affect the economic entity or its projects.

d) Office Rental

The economic entity has entered into a rental agreement to occupy its principle office at a cost of $28,000 per annum, expiring on 19th June 2007.

20. FINANCIAL INSTRUMENTS

a. Financial Risk Management

The economic entity’s financial instruments consist mainly of deposits with banks, short-term investments, accounts receivable, accounts payable and loans to related parties.

The main purpose of non-derivative financial instruments is to raise finance for economic entity operations.

i. Treasury Risk Management

The board of the economic entity meets on a regular basis to analyse currency and interest rate exposure and to evaluate treasury management strategies in the context of the most recent economic conditions and forecasts.

ii. Financial Risks

The main risks the economic entity is exposed to through its financial instruments are liquidity risk and credit risk.

Liquidity risk

The economic entity manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained.

Credit risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements.

The economic entity does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the economic entity.

38 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

b. Financial Instruments

i. Interest Rate Risk

The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates The following table details the exposure to interest rate risk at the reporting date. All other financial assets and liabilities are non-interest bearing.

2006	Floating interest rate Non-interest Bearing Total Floating interest rate
Financial assets Cash and deposits Receivables Less: Payables Net financial assets 2007	1,991,053 - 1,991,053 5.40% - 77,025 77,025 - (233,863) (233,863) -
	1,991,053 (156,838) 1,834,215
	Floating interest rate Non-interest Bearing Total Floating interest rate
Financial assets Cash and deposits Receivables Less: Payables Net financial assets	3,540,889 - 3,540,889 6.10% - 165,275 165,275 - (380,770) (380,770) -
	3,540,889 (215,495) 3,325,394

ii. Net Fair Values

The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements.

21. SHARE OPTION PLAN

The consolidated entity has an ownership-based compensation plan for employees. In accordance with the provisions of the Employee Share Option Plan, as approved by shareholders at an Annual General Meeting, directors may issue options to purchase shares in the company to employees at an issue price determined by the market price of ordinary shares at the time the option is granted. No directors participate in the Employee Share Option Plan.

In accordance with the terms of the Employee Share Option Plan, options vest at grant date and may be exercised at any time from the date of their issue to the date of their expiry.

Share options are not listed, carry no rights to dividends and no voting rights.

The following share based payment arrangements were in existence during the period:

Options – Series	No.	Grant Date	Expiry Date	Exercise Price	Fair value at
					grant date
Employee Share Option Plan
November 2006	1,000,000	28/11/2006	27/11/2011	$0.50	$0.2391
December 2006	375,000	8/12/2006	7/12/2006	$0.315	$0.254
March 2007	400,000	27/3/2007	26/3/2012	$0.49	$0.368

Options were valued using the Black-Scholes model using the following inputs:

	Calculated volatility	Risk free interest rate
November 2006	113%	5.6%
December 2006	113%	5.6%
March 2007	104%	5.6%

The following reconciles the outstanding share options granted under the Plan at the beginning and end of the financial year:

Share Option Plan	2007 2006
	Number of options Weighted average exercise price $ Number of options Weighted average exercise price $
Balance at beginning of financial year Granted during the financial year Exercised during the financial year (i) Lapsed during the financial year Balance at end of the financial year (ii)	- - - - 1,775,000 $0.45 - - (125,000) $0.315 - - - - - -
	1,650,000 $0.463 - -

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 39

i) Options exercised

The following share options granted under the scheme were exercised during the financial year:

	No.	Grant Date	Exercise	Exercise Price	Share price at
			Date		exercise date
February 2007	125,000	8/12/2006	12/2/2007	$0.315	$0.59
No share options granted under the scheme were	exercised during	the previous financial year:
Options outstanding at end of the financial year
Options – Series		No.	Grant Date	Expiry Date	Exercise Price
November 2006		1,000,000	28/11/2006	27/11/2011	$0.50
December 2006		250,000	8/12/2006	7/12/2006	$0.315
March 2007		400,000	27/3/2007	26/3/2012	$0.49

ii) Options outstanding at end of the financial year

22. SEGMENT INFORMATION

The economic entity operates in the mineral exploration industry in Australia, and Cambodia.

23. EARNINGS PER SHARE

EARNINGS PER SHARE
	Consolidated
	2007 Cents per share 2006 Cents per share
Basic earnings per share – loss Diluted earnings per share – loss Basic and Dilutive Earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows: Earnings Earnings used in the calculation of basic and diluted earnings per share agree directly to net loss in the statement of financial performance. Weighted average number of ordinary shares	(2.56) (1.58) (2.56) (1.58) $ $
	(1,511,170) (694,883) No. No.
	58,964,077 43,969,300

The number of ordinary shares used in the calculation of diluted earnings per share is the same as the number used in the calculation of basic earnings per share, as options are not considered dilutive.

24. CONTROLLED ENTITY

Name of Entity	Country of Incorporation Ownership Interest
	2007 % 2006 %
Parent Entity Southern Gold Limited Controlled Entities Challenger West Holdings Pty Limited CMH Resources Pty Limited Gawler Arc Holdings Pty Limited Southern Uranium Limited Southern Mining Pty Ltd Sunthe UraniumPty Ltd (i) Inferus Resources Pty Ltd (ii) Southern Gold Asia Pty Ltd New Southern Gold Pty Ltd	Australia Australia 100% 100% Australia 100% 100% Australia 100% 100% Australia N/A 100% Australia 100% 100% Australia N/A 100% Australia 100% 100% Australia 100% N/A Australia 100% N/A

i) All shares in Inferus Resources Pty Ltd are held by Southern Mining Pty Ltd

25. DISPOSAL OF A PREVIOUSLY CONTROLLED ENTITY

During the period Southern Uranium Limited exited the group pursuant to an initial public offer (IPO). Refer prospectus dated 19 February 2007.

26. REGISTERED OFFICE AND PRINCIPLE OFFICE

The registered and principle office of the Company and its controlled entities is:

58 North Terrace, KENT TOWN SA 5067

40 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Directors’ Declaration

In the directors opinion

The financial statements and notes set out on pages 7 to 27 are in accordance with the Corporations Act 2001 , including:
a) Complying with Accounting Standards, the Corporations Act 2001 and other mandatory professional reporting requirements, and
b) Giving a true and fair view of the company and consolidated entity’s financial position as at 30 june 2007 and of their performance for the financial year ended on that date; and
There are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and
The audited remuneration disclosures on pages 3 to 6 of the directors’ report comply with Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001 .

The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001 .

This declaration is made in accordance with a resolution of the Board of Directors

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Mick Billing DIRECTOR Adelaide, South Australia 27 September 2007

SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 41

Independent audit report to the members

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42 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

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SOUTHERN GOLD LIMITED ANNUAL REPORT 2007 43

Shareholder information

The shareholder information set out below was applicable as at 31 August 2007.

1. Substantial Equity Holders

			Fully Paid Shares	Fully Paid Shares
		Name	Number	Percentage
Talbot Group	Holdings Pty Ltd (Talbot		5,373,000	7.23
equities a/c)
CITIC Australia		Pty Ltd	5,223,000	7.02
2. Number of Shareholders
Number of Shareholders			Class of Shares	Voting Rights
		2,142	ORD	Full
3. Distribution of Equity Securities
Distribution of holdings:			Number of	Ordinary Shares
			Holders
1	-	1,000	324	201,470
1,001	-	5,000	561	1,710,909
5,001	-	10,000	335	2,919,137
10,001	-	100,000	851	29,019,137
100,001	-	and over	71	40,508,878
Holding less	than a marketable parcel		434	351,718

Holding less than a marketable parcel 434

4. Twenty Largest Shareholders

The names of the twenty largest holders of fully paid ordinary shares comprise:

comprise:
Name	Number	Percentage
	Held	of Issued
		Shares
Talbot Group Holdings Pty Ltd (Talbot	5,373,000	7.23
equities a/c)
CITIC Australia Pty Ltd	5,223,000	7.02
Dr Leon Eugene Pretorius	2,600,000	4.20
John Alexander Anderson	2,522,727	3.39
Genex Resources Pty Ltd	1,915,000	2.57
Cedric Murray Horn	1,775,000	2.39
Michael Walsh McDonald	1,714,320	2.31
Stephen Richard Biggins	1,500,000	2.02
Michael Robert Billing	1,500,000	2.02
Thompson Drilling Company Pty Ltd	1,250,000	1.68
Tayscrip Nominees Pty Ltd	761,000	1.02
ANZ Nominees Limited (Cash income	753,567	1.01
account)
Mr David Cliffe	685,576	0.92
Miss Yu Chuan Chen	627,388	0.84
Mr Denis Wood + Mrs Anne Wood	600,000	0.81
(The Wood investment a/c)
Mr Ronald Richard Bentley (Bentley	518,000	0.70
Super Fund A/c)
Mrs Evelina Pagliaro	425,000	0.57
Hindmarsh Resources Ltd	400,000	0.54
Mr Peter Beck + Mrs Ann Beck (PW	375,000	0.50
Beck Super Fund)
Anthony John Hosking – Hosking	300,000	0.50
Family Account
	30,818,578	42.24

44 SOUTHERN GOLD LIMITED ANNUAL REPORT 2007

Web site www .southerngold .com .au

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AI assistant

IONDRIVE LIMITED — Annual Report 2007

65132_rns_2007-10-28_698ef902-ac3a-4ab4-8359-79420ad6d085.pdf

Contents

Corporate Directory

Registered and Principal Address

Share Registry

Auditor

Highlights

3 October 2007

Dear Shareholder

Chairman’s Letter

Managing Director’s Report

Gold

Challenger Area Gold Project, S.A.

Challenger Area Gold Project, S.A.

Typhoon and Monsoon Prospects : Aircore (AC) Drilling

Table 1. Drilling results, Monsoon and Typhoon Prospects

Typhoon Prospect

Gold Cambodia

CAMBODIA

Background

Geology

Projects

Gold

Cambodia

Planned Exploration

Gold

Grenfell Goldfield Project, N.S.W

Grenfell Goldfield Project, N.S.W

Gold and base metal Torrens South IOCGU Project, S.A.

Torrens South IOCGU Project, S.A.

Eurow Gold/Copper Project, N.S.W.

Eurow Gold/Copper Project, N.S.W.

Table 2. Assay results for the best mineralised intervals from the recent drilling by Southern Gold Ltd.

RC and Diamond Core Drilling Program, April 2007

Follow-up Work Program

Nickel sulphide Bulong South Nickel Sulphide Project, W.A.

Bulong South Nickel Sulphide Project, W.A.

Table 1. BSRC004. (-60° to grid East, total drill depth 100 m).

Strong EM conductors

Southern Gold expands footprint

Nickel sulphide Bulong South Nickel Sulphide Project, W.A.

Harris Greenstone Project, S.A

Tenement schedule

Corporate Governance Statement

Role of the Board

Board processes and management

Principle 2: Structure the Board to add value

Composition of the Board

Principle 3: Promote ethical and responsible decision making

Ethical standards

Trading in the Company’s Securities

Principle 4: Safeguard integrity in financial reporting

Audit Committee

Principle 5: Make timely and balanced disclosure

Continuous Disclosure

Principle 6: Respect the rights of shareholders

Communication with shareholders

Principle 7: Recognise and manage risk

Risk Assessment and Management

Principle 8: Encourage enhanced performance

Performance Evaluation

Principle 9: Remunerate fairly and responsibly

Remuneration Policy

Principle 10: Recognise the legitimate interests of stakeholders

Code of Conduct

Directors Report

Principal Activities

Financial Results

Dividends

Review of Operations

Changes in State of Affairs

Subsequent Events

Environmental Developments

Future Developments

Options

Directors

Remuneration Report (audited)

Directors’ Shareholdings (audited)

IONDRIVE LIMITED Annual Report 2007