IONDRIVE LIMITED — Annual Report 2012

Sep 26, 2012

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Southern Gold Limited Consolidated Entity

Annual Financial Report 30 June 2012

Southern Gold Limited – Consolidated Entity

Directors’ Report

The directors present their report of Southern Gold Limited (the Company) and its controlled entities (consolidated group or group) for the financial year ended 30 June 2012.

Principal Activities

The principal continuing activity of the group in the year was the exploration for gold, copper, nickel, and other economic mineral deposits.

Financial Results

The net result of operations for the group for the year was a loss after income tax of $3,234,649 (2011: $1,855,318).

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

Southern Gold Limited (“Southern Gold” or the “Company”) is a gold-focused, exploration company working within the framework of the company’s core values, to deliver capital growth to shareholders through the discovery and development of high value mineral deposits.

During the financial year ending 30 June 2012, Southern Gold successfully achieved its goal to release value from non-core assets within the project portfolio and progress the development opportunity and exploration of the Company’s flagship Bulong Gold project (Kalgoorlie WA).

Throughout the 12 month period Southern Gold has maintained a tight fiscal policy as global and domestic financial markets remained volatile. Cash administration overheads for the year were significantly lower than for the previous year with a consequential increase of exploration and evaluation expenditure as a proportion of cash outflows for 2011/12.

As the gold sector also faced volatility in 2012, the gold price tapered off from the 2011 record highs of US$1900/oz. While gold price fluctuations caused some instability during the year, overall the average gold price of $1650/oz continued to underpin the value of gold exploration and mining companies.

In January 2012, Integra Mining Limited (“Integra”) took a placement in Southern Gold at a premium to the then share price and participated in the subsequent rights issue to hold a 12.5% stake in Southern Gold. Under the placement agreement Southern Gold agreed to grant Integra a pre-emptive right to match or better any third party offer to purchase, treat or sell ore or dore derived from the company’s Cannon Gold resource.

This business partnership was a natural fit between the two Kalgoorlie neighbours, as Integra owned and operated mining and processing facilities close to Southern Gold’s project area. In August 2012 neighbouring Silverlake Resources Limited (“Silverlake”) and Integra announced that Silverlake would acquire Integra through a scheme of arrangement. On completion of this transaction Silverlake will hold the 12.5% stake in Southern Gold and be operating 2 gold processing facilities within 30 km of the Bulong Gold project.

Bulong Gold Project – Western Australia

The Bulong Gold project is located 30km east of Kalgoorlie, WA. Since the discovery and delineation of the Cannon Gold resource in 2010/11, preliminary economic evaluation studies have been completed to assess various development scenarios.

Following the success at Bulong South, Southern Gold has expanded its tenement holding to 154 km[2] , through tenement applications and via two joint venture agreements with Heron Resources Ltd. This area has been the focus of the Company’s regional exploration programmes.

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Southern Gold Limited – Consolidated Entity

(i) Cannon Gold Resource Evaluation

The Cannon Gold resource is currently estimated at 94,500oz gold (“Au”) (from 896,000 tonnes at an average 3.3g/t Au). Located close to several gold processing facilities and with mineralisation intersected close to surface, assessment of the resource’s economic potential was a key component of the 2011/12 work programme.

The preliminary evaluation work completed to date includes geotechnical, metallurgical, environmental and conceptual mine planning studies, all undertaken by independent consultants. The work was directed toward assessing various development scenarios relating to possible open pit mining and/or underground mining options of the resource. The results of these studies are considered to be sufficiently encouraging to warrant a more detailed economic evaluation for development to commence (see SAU’s March and June 2012 quarterly reports for detailed results).

(ii) Bulong Regional Exploration

Southern Gold’s recognition of the gold potential of the greater Bulong region lead to the Company completing a first pass regional auger soil sampling programme over the newly expanded tenement package, with a view to identifying gold anomalism similar to that which defines the Cannon trend.

As much of this ground was previously held by companies that had a greater focus on nickel exploration, Southern Gold was keen to replicate its success of discovery at Cannon, as part of its strategy to build on the current gold resource.

Work programmes in 2011/12 were successful in identifying significant gold anomalism throughout the tenement package. Drilling to date has identified zones of low grade gold mineralisation, and in particular drilling at one target (Turnpike) has intersected gold mineralisation over an area 600m x 100m wide. Given the success of the regional programme in 2012 further work will be conducted on the remaining untested anomalies.

Exploration work will continue at the Bulong Gold project and include geochemical and geophysical surveys followed up with aircore and reverse circulation (RC) drilling of near resource and regional targets, with the aim of growing the Company’s current resource base.

The work to be completed on the Cannon Gold resource is seen as the opportunity for “near term” value growth for Southern Gold, however much of this work will be conducted in conjunction with the exploration and generation of regional gold targets. The definition of the Cannon Trend prospects and the recent gold-auger anomalies identified in the Bulong east area highlights the potential of the “longer term” growth story that the Bulong Gold project holds.

Competent Persons Statement: The information in this report concerning Australian exploration has been compiled by Mr I Blucher (MSc) as an employee of Southern Gold and who is a member of the AusIMM and is bound by and follows the Institute’s codes and recommended practices. As a Competent Person, as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserve.’- he has a minimum of 5 years relevant experience in the style of mineralisation and types of activities being reported and has given written consent to the above report in the form and context in which it appears.

Corporate

During the reporting period Southern Gold completed a successful $3.3m capital raising through a fully underwritten, non-renounceable rights issue, supported by cornerstone investor Integra. Focused on directing capital toward the economic development of the Bulong Gold project, Southern Gold undertook two transactions to unlock value from its second tier assets.

Changes in State of Affairs

During the financial year there was no significant change in the state of affairs of the Group other than that referred to in the financial statements or notes thereto.

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Southern Gold Limited – Consolidated Entity

Events Subsequent to Balance Date

Cambodia

On 5 July 2012 Southern Gold finalised an agreement with Mekong Minerals Ltd (“Mekong”) whereby Mekong has the exclusive right to earn an interest in Southern Gold subsidiary, Southern Gold (Asia) Pty Ltd (“SG Asia”) and to manage the activities of SG Asia and its wholly owned subsidiary, Southern Gold Cambodia Ltd (“SG Cambodia”).

The agreement regulates Southern Gold’s and Mekong’s obligations as shareholders of SG Asia. Under the agreement, Mekong has the exclusive right to earn up to a 70% interest in SG Asia by sole funding US$5.7 million on expenditure of SG Asia and SG Cambodia.

On earning a 70% interest in SG Asia, Mekong will have the option to purchase Southern Gold’s remaining 30% interest in SG Asia (“Option”). The grant of the Option is conditional on compliance with ASX Listing Rule 11.4, including Southern Gold obtaining shareholder approval for the grant, if required.

Finalising this transaction has allowed Southern Gold funds, that were allocated for the Cambodian assets, to be redirected to the Bulong Gold project. In the longer term, future value may be created through Mekong’s investment and exploration success in Cambodia and/or through exercising their buyout option.

Challenger – South Australia

Pursuant to a Sale Agreement signed in September 2012, Trafford Resources Limited (“Trafford”) has purchased Southern Gold’s 51% interest in the Western Gawler Craton JV with Dominion Gold Operations (a 100% owned subsidiary of Kingsgate Consolidated Limited) and the Company’s 100% owned Challenger West tenement (“Challenger Project”).

Under the sale terms Trafford purchased the Challenger Project for A$500,000 cash and 3,000,000 Trafford shares (subject to a 12 month voluntary escrow period). On a decision to conduct a feasibility study on a JORC resource of over 500,000oz gold, Trafford will issue a further A$1 million worth of Trafford shares to Southern Gold or its nominee.

Other than the above, there has not arisen in the interval any matters or circumstances, since the end of the financial year which significantly affected or could affect the operations of the Company, the results of those operations, or the state of the Company in future years.

Likely Developments

Further information about likely developments in the operations of the Company and the expected results of those operations in future years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Company.

Environmental Regulation and Performance Statement

The Company’s operations are subject to significant environmental regulations under Commonwealth, South Australian, Western Australian and NSW legislation in relation to discharge of hazardous waste and materials arsing from any mining activities and development conducted by the Company on any of its tenements. The Company is also in compliance with all Cambodian environmental regulations. To date the Company has only carried out exploration activities and there have been no known breaches of any environmental obligations.

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Southern Gold Limited – Consolidated Entity

Options

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

Grant Date Date of Expiry Fair Value at Grant Date ($) Exercise Price ($)				Number under Option
22.10.2007 21.10.2012 0.310 0.35 26.02.2008 28.11.2012 0.132 0.75 26.08.2008 25.05.2013 0.109 0.20 30.09.2008 30.09.2013 0.096 0.15 30.09.2008 30.09.2013 0.093 0.15 30.06.2009 30.06.2014 0.098 0.30 30.10.2009 30.10.2013 0.082 0.15 1.12.2010 1.12.2014 0.040 0.105 1.12.2010 1.12.2015 0.044 0.105				50,000 500,000 100,000 150,000 150,000 150,000 500,000 500,000 1,000,000
				3,100,000

Option holders do not have any rights to participate in any issues of shares or other interests in the Company or any other entity.

There have been no unissued shares or interests under option of any controlled entity within the Group during or since reporting date.

For details of options issued to Directors and Executives as remuneration, refer to the Remuneration Report.

During the year ended 30 June 2012, no ordinary shares of Southern Gold Limited were issued on the exercise of options granted. No further shares have been issued since year end.

Directors

The Directors of the Company at any time during the financial year are as set out below. Details of Directors’ qualifications, experience and special responsibilities are as follows:

Greg Boulton AM

B.A (Accounting), FCA, FCPA, FAICD (Non-Executive Chairman) (Member of Audit Committee)

Greg has extensive commercial experience spanning over 25 years as CEO and Non-Executive Director for many Private and Public companies. He has broad experience in capital raisings, acquisitions and commercial negotiations and is a Fellow of the Institute of Chartered Accountants, CPA Australia and the Australian Institute of Company Directors.

Greg is currently Chairman of Paragon Equity Limited, an Adelaide based private equity firm and Deputy Chairman of ASX listed K&S Corporation Limited. He is also on the board of the Statewide Superannuation Trust.

Greg currently has 2,212,185 shares and 500,000 options to acquire further shares in Southern Gold Limited.

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Southern Gold Limited – Consolidated Entity

Nanette Anderson

B Sc(Hons) Geol , MAusIMM (Managing Director)

Nanette has over 15 years experience in the exploration and mining industry. As a geologist she has experience exploring and developing gold, diamond and base metal projects throughout Australia and South East Asia.

Moving into the corporate side of business, Nanette has successfully undertaken capital raisings, project acquisitions and joint venture negotiations. She is a member of the Australian Institute of Company Directors, the Australian Institute of Mining and Metallurgy and the Geological Society of Australia. She previously was a director of ASX listed Jaguar Minerals Limited.

Nanette currently has 701,429 shares and 1,000,000 options to acquire further shares in Southern Gold Limited.

Mick Billing

B Bus, CPA, MAICD (Non-Executive Director) (Member of Audit Committee)

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.

Mick is also Executive Chairman of AIM listed Thor Mining PLC. He previously has acted as Chairman of ASX listed Western Desert Resources Limited and as a Non-Executive Director of Australasia Gold Limited.

Mick currently has 2,798,550 shares and 500,000 options to acquire further shares in Southern Gold Limited.

David Turvey

B Sc(Hons) Geol, MAusIMM (Non-Executive Director)

David is a geologist with over 27 years experience in the Australian and Asian mining industries where he has driven business development and corporate M&A activities in precious metals, bulk commodities and industrial minerals. His experiences include holding key management roles and consulting assignments in minerals exploration, technical marketing, project development and commercial evaluation of mineral asset investments.

David is currently a Non-Executive Director of ASX listed Lawson Gold Limited and is a former Managing Director of FerrAus Limited.

David currently has 941,899 shares and 500,000 options to acquire further shares in Southern Gold Limited.

Company Secretary

The following person held the position of Company Secretary at the end of the financial year:

Nick Harding

B.A (Acc),Grad Dip (Acc), Grad Dip (Applied Finance), Grad Dip (Corp Governance), FCPA, F Fin, ACIS (Company Secretary)

Nick is an accountant with over 25 years experience in the resources industry. He has held senior financial roles at various times with WMC Resources Limited, Normandy Mining Limited and Newmont Australia Limited and currently consults to a number of exploration companies in providing financial and company secretarial services.

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Southern Gold Limited – Consolidated Entity

Remuneration Report (audited)

Remuneration Policy (audited)

The remuneration policy is designed to align Key Management Personnel 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 Group, as well as create goal congruence between Directors, Executives and shareholders.

The Company’s policy for determining the nature and amounts of emoluments of board members and other Key Management Personnel of the Company is as follows:

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 has been set at $300,000 per annum. Directors may apportion any amount up to this maximum amount amongst the Non-executive Directors as they determine. Directors are also entitled to be paid reasonable travelling, accommodation and other expenses incurred in performing their duties as Directors. The remuneration of the Managing Director is determined by the Non-executive Directors and approved by the Board as part of the terms and conditions of her employment which are subject to review from time to time. The remuneration of other executive officers and employees is determined by the Managing Director subject to the approval of the Board.

Non-executive Director remuneration is by way of fees and statutory superannuation contributions. Nonexecutive Directors do not participate in schemes designed for remuneration of executives and are not provided with retirement benefits other than salary sacrifice and statutory superannuation.

The Company’s remuneration structure is based on a number of factors including the particular experience and performance of the individual in meeting key objectives of the Company. The Board is responsible for assessing relevant employment market conditions and achieving the overall, long term objective of maximising shareholder benefits, through the retention of high quality personnel.

The Company has a performance bonus scheme in place for the Managing Director which provides for the payment of a cash bonus to her on the achievement of agreed milestones during the year as determined by the Board.

The Company also has an Employee Share Option Plan approved by shareholders that enables the Board to offer eligible employees options to acquire ordinary fully paid shares in the Company. Under the terms of the Plan, options to acquire ordinary fully paid shares may be offered to the Company’s eligible employees at no cost unless otherwise determined by the Board in accordance with the terms and conditions of the Plan. The objective of the Plan is to align the interests of employees and shareholders by providing employees of the Company with the opportunity to participate in the equity of the Company as an incentive to achieve greater success and profitability for the Company and to maximise the long term performance of the Company.

The employment conditions of the Managing Director are formalised in a contract of employment. The base salary as set out in the employment contract is reviewed annually. The Managing Director’s contract may be terminated at any time by mutual agreement. The Company may terminate the contract without notice in instances of serious misconduct.

Mr Harding is not employed by the Company. His services are provided in his capacity as a consultant to act as Chief Financial Officer and Company Secretary of Southern Gold.

During the financial year there were no remuneration consultants engaged by the Company.

Performance-based Remuneration (audited)

The Group currently has no performance based remuneration component built into Non-executive Director packages. The Managing Director has included in her remuneration package an incentive payment based on a percentage of fixed remuneration, conditional upon the achievement of certain performance criteria being met. The maximum percentage of fixed remuneration for the current financial year is 25%. The performance conditions, or Key Performance Indicators (KPI’s) are set by the Board, and may vary from year to year, but reflect the financial and operating goals of Southern Gold Limited. The Board has set KPI measures, which must be achieved in any individual KPI before an entitlement to any payment for that KPI. Current KPI’s are in the form of share price performance, cost savings, successful capital raisings and resource definition.

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Southern Gold Limited – Consolidated Entity

The Group has one Executive Director, and three Non-executive Directors. The Managing Director is paid a salary, while Non-executive Directors are paid directors’ fees. The Non-executive Directors do not currently participate in any incentive scheme.

Remuneration packages contain the following key elements:

Primary Benefits – salary/fees;

Post Employment Benefits – superannuation

Shares issued on exercise of remuneration options (audited)

No shares were issued to Directors or other Key Management Personnel as a result of the exercise of remuneration options during the financial year.

Directors’ and other Key Management Personnel interests in shares and options (audited)

Directors’ and other Key Management Personnel relevant interests in shares and options of the Company are disclosed above and in Note 4 of the Financial Report.

Options granted as remuneration (audited)

No options were granted as remuneration to Directors and other Key Management Personnel during the year.

All options granted have vested and no options were exercised in the financial year.

Remuneration of Directors and Key Management Personnel (audited)

This report details the nature and amount of remuneration for each Key Management Person of Southern Gold Limited.

(a) Directors and Key Management Personnel

The names and positions held by Directors and Key Management Personnel of the Group during or since the end of the financial year are:

Directors	Position
G C Boulton AM	Chairman – Non-executive
N M Anderson	Managing Director - Executive
M R Billing	Director – Non-executive
D J Turvey	Director – Non-executive

Key Management Personnel	Position
N J Harding	Chief Financial Officer / Company Secretary
P W Hill1	Exploration Manager
G Thomas2	General Manager - Cambodia
I D Blucher3	Project Development Manager
P A O’Sullivan4	Exploration Manager

1 P W Hill resigned 9 September 2011

2 G Thomas resigned 15 November 2011

3 I D Blucher commenced 16 November 2011

• 4 P O’Sullivan commenced 6 September 2012

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Southern Gold Limited – Consolidated Entity

(b) Directors’ remuneration

2012 Primary Benefits G C Boulton AM N M Anderson M R Billing D J Turvey 2011 Primary Benefits G C Boulton AM N M Anderson M R Billing D J Turvey S R Biggins	Directors’ Fees $ Salary and Leave $ Cash Bonus $ Performance Incentive Payments $ Super Contribution $ Options $ Total $
	80,000 - - - - - 80,000 - 272,411 4,000 - 21,774 - 298,185 40,000 - - - - - 40,000 36,648 - - - 3,352 - 40,000
	156,648 272,411 4,000 - 25,126 - 458,185
	Directors’ Fees $ Salary and Leave $ Cash Bonus $ Performance Incentive Payments $ Super Contribution $ Options1 $ Total $
	80,000 - - - - - 80,000 - 179,251 14,000 - 15,874 44,439 253,564 38,800 - - - 1,227 - 40,027 36,387 - - - 3,613 19,859 59,859 - 4,408 - - - - 4,408
	155,187 183,659 14,000 - 20,714 64,298 437,858

1 N Anderson was issued 1,000,000 options and D Turvey 500,000 options at an exercise price of 10.5 cents in December 2010, expiring on 1 December 2014 and 1 December 2015 respectively.

A cash performance bonus was paid to Ms Anderson during the 2012 financial year for achievement of certain milestones as agreed by the Board under her remuneration package.

(c) Other Key Management Personnel Remuneration

2012 Primary Benefits N J Harding1 P W Hill G Thomas I D Blucher 2011 Primary Benefits N J Harding1 P W Hill G Thomas	Salary and Leave $ Cash Bonus $ Super Contribution $ Options $ Total $
	- - - - - 44,584 - 6,688 - 51,272 95,529 - 8,598 - 104,127 131,385 - 13,138 - 144,523
	271,498 - 28,424 - 299,922
	Salary and Leave $ Cash Bonus $ Super Contribution $ Options2 $ Total $
	- - - - - 174,748 - 26,212 - 200,960 223,464 - 20,112 - 243,576
	398,212 - 46,324 - 444,536

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Southern Gold Limited – Consolidated Entity

1 Mr Harding was appointed Chief Financial Officer on 7 April 2008 and Company Secretary from 19 February 2009. Mr Harding is not employed by the Company. His services are provided in his capacity as a consultant to act as Chief Financial Officer and Company Secretary of Southern Gold Limited. Mr Harding was paid $87,870 (2011: $95,200).

(d) Service agreements

Remuneration and other items of employment for the Managing Director, Ms Nanette Anderson, are formalised in a service agreement agreed to by the Board. The major provisions are as follows:

• Ms Anderson agreed to provide her services for a period of 3 years with an option to extend at the expiration date.

• Remuneration of $230,000 per annum plus 9% superannuation contributions, subject to annual salary review increases for the term of the service agreement, and the value of the provision of a fully serviced motor vehicle.

• Termination without notice in the event that Ms Anderson

• 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 three calendar months’ notice.

The Company entered into a service agreement with an entity associated with Mr Boulton on 19 February 2008 to provide services over and above his duties as Chairman on an as needs basis at a daily rate of $1,000 covering his term as a Non-executive Director of the Company.

The Company entered into a service agreement with an entity associated with Mr Billing on 24 April 2005 to provide services over and above his duties as a Non-executive Director on an as needs basis at a daily rate of $1,000 covering his term as a Non-executive Director of the Company.

The Company entered into a service agreement with an entity associated with Mr Turvey on 20 September 2011 to provide services over and above his duties as a Non-executive Director on an as needs basis at a daily rate of $1,000 covering his term as a Non-executive Director of the Company.

(e) Director related entities

During the year to 30 June 2012 the Company paid consulting fees totalling $11,438 (2011: $15,373) to a Director related entity of Mr Turvey and $Nil (2011: $17,750) to a Director related entity of Mr Billing for services provided beyond their duties as Non-executive Directors.

Information of amounts paid to director related entities is set out in note 14 to the financial statements.

• (f) Post employment/retirement and termination benefits

There were no post employment retirement and termination benefits paid or payable to Directors or Key Management Personnel.

• (g) Voting at 2011 AGM

Southern Gold Limited received more than 80% of ‘yes’ votes on its remuneration report for the 2011 financial year. The Company did not receive any specific feedback at the AGM on its remuneration report.

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Southern Gold Limited – Consolidated Entity

Meetings of Directors

The Company held 12 meetings of Directors (including committees of Directors) during the financial year. Attendances by each Director during the year were as follows:

G C Boulton AM N M Anderson M R Billing D J Turvey	Director Meetings	Director Meetings	Audit Committee Meetings	Audit Committee Meetings
	Number of Board Meetings Eligible to Attend	Number of Board Meetings Attended	Number of Board Meetings Eligible to Attend	Number of Board Meetings Attended
	12 12 2 2 12 12 2 2 12 12 2 2 12 10 - -

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 adversely affect the integrity 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 set by the Accounting Professional and Ethical Standards Board.

The following fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2012:

Provision of taxation services	$
	14,600

Indemnification and insurance of officers

Indemnification

The Company is required to indemnify the Directors and other officers of the Group against any liabilities incurred by the Directors and officers that may arise from their position as Directors and officers of the Group. No costs were incurred during the year pursuant to this indemnity.

The Group has entered into deeds of indemnity with each Director whereby, to the extent permitted by the Corporations Act 2001, the Group agreed to indemnify each Director against loss and liability as an officer of the Group, including all liability in defending any relevant proceedings.

Insurance Premiums

Since the end of the previous year the Group has paid insurance premiums in respect of Directors’ and Officers’ liability and legal expenses’ insurance contracts.

The terms of the policies prohibit disclosure of details of the amount of insurance cover, the nature thereof and the premium paid.

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Southern Gold Limited – Consolidated Entity

Proceedings on behalf of the Company

No person has applied to the Court for leave to bring proceedings on behalf of the Group 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. The Group was not a party to any such proceedings during the year.

Auditor of the Company

The auditor of the Group for the financial year was Grant Thornton South Australian Partnership.

Auditor’s Independence Declaration

The auditor’s independence declaration as required by section 307C of the Corporations Act 2001 for the year ended 30 June 2012 is set out immediately following the end of the Directors’ report.

Dated at Adelaide, this 27[th] day of September 2012

The report of Directors, incorporating the Remuneration Report is signed in accordance with a resolution of the Board of Directors:

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N M Anderson

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G C Boulton A M

Managing Director

Chairman

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Level 1, 67 Greenhill Rd Wayville SA 5034 GPO Box 1270 Adelaide SA 5001 T 61 8 8372 6666 F 61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au

AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF SOUTHERN GOLD LIMITED

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Southern Gold Limited for the year ended 30 June 2012, I declare that, to the best of my knowledge and belief, there have been:

• a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• b no contraventions of any applicable code of professional conduct in relation to the audit.

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GRANT THORNTON SOUTH AUSTRALIAN PARTNERSHIP Chartered Accountants

J L Humphrey Partner

Adelaide, 27 September 2012

Grant Thornton South Australian Partnership ABN 27 244 906 724 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia.

Liability limited by a scheme approved under Professional Standards Legislation

Southern Gold Limited – Consolidated Entity

Statement of Comprehensive Income for the

Year ended 30 June 2012

Revenue from ordinary activities Exploration expenditure written off Salaries and wages Directors fees Shareholder relations Other consulting expenses Other administrative expenses Depreciation Share based payments Loss before income tax expense Income tax expense Loss for the year Other comprehensive income Exchange differences on translation of foreign controlled entity Total comprehensive income for the year Earnings Per Share Basic (cents per share) – Loss Diluted (cents per share) – Loss		Consolidated
	Note	2012 $ 2011 $
	2 2 3 20 20	132,320 339,944 (1,542,659) (621,338) (478,555) (469,211) (160,000) (155,049) (90,647) (97,599) (144,000) (343,712) (809,576) (581,994) (53,100) (53,955) (16,000) (64,298)
		(3,162,217) (2,047,212) (72,432) 191,894
		(3,234,649) (1,855,318)
		176,154 (890,621)
		(3,058,495) (2,745,939)
		(1.20) (0.86) (1.20) (0.86)

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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Southern Gold Limited – Consolidated Entity

Statement of Financial Position as at 30 June 2012

CURRENT ASSETS Cash and cash equivalents Trade and other receivables Assets held for sale Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other assets Exploration and evaluation expenditure Plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Provision for employee benefits TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for employee benefits TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained losses TOTAL EQUITY		Consolidated
	Note	2012 $ 2011 $
	5 6 8 7 7 8 9 10 11 11 12	3,673,094 2,934,003 119,804 705,110 980,000 - 41,288 71,786
		4,814,186 3,710,899
		68,905 110,232 15,113.454 14,296,175 97,205 93,991
		15,279,564 14,500,398
		20,093,750 18,211,297
		835,495 413,074 58,505 32,009
		894,000 445,083
		7,384 23,894
		7,384 23,894
		901,384 468,977
		19,192,366 17,742,320
		33,507,897 28,999,356 1,420,615 1,244,461 (15,736,146) (12,501,497)
		19,192,366 17,742,320

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

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Southern Gold Limited – Consolidated Entity

Statement of Changes in Equity for the Year ended 30 June 2012

Balance at 1 July 2010 Total comprehensive income Fair value of options issued to employees Issue of share capital Costs associated with the issue of shares Balance at 30 June 2011 Total comprehensive income Issue of share capital Costs associated with the issue of shares Balance at 30 June 2012	Issued Capital Retained Losses Share-Based Payment Reserve Foreign Currency Translation Reserve Total
	$ $ $ $ $
	25,020,634 (10,646,179) 1,834,588 236,196 16,445,239 - (1,855,318) - (890,621) (2,745,939) - - 64,298 - 64,298 4,194,600 - - - 4,194,600 (215,878) - - - (215,878)
	28,999,356 (12,501,497) 1,898,886 (654,425) 17,742,320
	- (3,234,649) - 176,154 (3,058,495) 4,677,550 - - - 4,677,550 (169,009) - - - (169,009)
	33,507,897 (15,736,146) 1,898,886 (478,271) 19,192,366

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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Southern Gold Limited – Consolidated Entity

Statement of Cash Flows for the year ended 30 June 2012

Note Cash flows relating to operating activities Interest received Payments to suppliers and employees Net operating cash outflows (Note (a)) Cash flows relating to investing activities Payments for mining tenements, exploration and evaluation expenditure Reimbursed from co-venturers Proceeds from sale of fixed assets Payments for plant and equipment Net investing cash outflows Cash flows relating to financing activities Proceeds from share issues Payments for share issue costs Net financing cash inflows Net (decrease)/increase in cash Cash at beginning of financial year 5 Cash at end of financial year 5 Note (a): Reconciliation of net loss from ordinary activities to net cash flow from ordinary activities. Loss from ordinary activities after related income tax Non-cash flows in profit Share based remuneration Profit on sale of fixed assets Depreciation Unrealised foreign exchange Tax effect of capital raising expenses Exploration written off Changes in assets and liabilities (Increase) decrease in receivables (Increase) decrease in other financial assets Increase/(decrease) in payables Increase/(decrease) in provisions Net operating cash flows	Consolidated
	2012 $ 2011 $
	121,321 175,467 (989,500) (1,779,513)
	(868,179) (1,604,046)
	(3,063,345) (3,645,723) 300,911 1,197,624 3,000 - (53,405) (26,891)
	(2,812,839) (2,474,990)
	4,661,549 4,194,601 (241,440) (313,349)
	4,420,109 3,881,252
	739,091 (197,784) 2,934,003 3,131,787
	3,673,094 2,934,003
	(3,234,649) (1,855,318) 16,000 64,298 (3,000) - 53,100 53,955 (18,515) (243,385) 72,432 97,470 1,542,659 621,338 399,990 (295,513) 71,824 81,801 221,994 (141,244) 9,986 12,552
	(868,179) (1,604,046)

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Page 17

Southern Gold Limited – Consolidated Entity

Notes to the Financial Statements for the

Financial Year Ended 30 June 2012

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

This financial report includes the consolidated financial statements and notes of Southern Gold Limited and controlled entities (‘Consolidated Group’ or ‘Group’).

Basis of Preparation

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

The financial report covers the consolidated group of Southern Gold Limited, a listed public company incorporated and domiciled in Australia.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures compliance with International Financial Reporting Standards.

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.

These financial statements have been prepared on an accruals basis and are based on the historical cost convention where applicable, by the measurement at fair value of selected non current assets, financial assets and financial liabilities.

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

Third statement of financial position

• Two comparative periods are presented for the statement of financial position when the Group:

• i. Applies an accounting policy retrospectively,

• ii. Makes a retrospective restatement of items in its financial statements, or

• iii. Reclassifies items in the financial statements

The Group has determined that only one comparative period for the statement of financial position was required for the current reporting period as the application of the new accounting standards have had no material impact on the previously presented primary financial statements that were presented in the prior year financial statements.

New and revised accounting standards

The Group has adopted the following revisions and amendments to AASB’s issued by the Australian Accounting Standards Board and IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Group’s financial statements for the annual period beginning 1 July 2011.

The adoption of new and revised Accounting Standards effective for the financial statements for the annual period beginning 1 July 2011 did not have a material impact on the Group’s financial statements.

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 21 to the financial statements. All controlled entities have a 30 June financial year-end.

Subsidiaries are all those entities (including special purpose entities) over which the Group has

Page 18

Southern Gold Limited – Consolidated Entity

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.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

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.

Accounting policies of subsidiaries are consistent with those adopted by the Parent Entity.

b. Income Tax

The income tax expense / (benefit) for the year comprises current income tax expense/(income) and deferred income tax / (income).

Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted at reporting date.

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses.

Current and deferred income tax (expense)/benefit is charged or credited directly to equity instead of the profit and loss when the tax relates to items that are credited or charged directly to equity.

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 statement of comprehensive income 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 wholly-owned 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.

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Southern Gold Limited – Consolidated Entity

• c. Plant and Equipment

Each class of 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 a 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.

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 reporting 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 statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

d. Exploration and Evaluation Expenditure

Exploration and evaluation and 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.

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.

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

Initial recognition and measurement

Financial assets and liabilities are recognised when the entity becomes a party to the provisions to the instrument. For financial assets this is equivalent to the date that the Company commits itself to either the purchase or sale of the asset.

Financial instruments are initially measured at fair value plus transaction costs, except where the

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Southern Gold Limited – Consolidated Entity

• e. Financial Instruments (Continued)

instrument is classified ‘at fair value through the profit or loss’, in which case the costs are expensed to the profit and loss immediately.

Classification and subsequent measurement

Financial instruments are subsequently measured at either of fair value, amortised cost using the interest rate method or cost. Fair value represents the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties. Where available, quoted prices, in an active market are used to determine fair value.

The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments,

i. Loans and receivables

Loans and receivables are non-derivative 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.

ii. Financial liabilities

Non-derivative financial liabilities are subsequently measured at amortised cost.

Impairment

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired.

f. Impairment of Non Financial 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 statement of comprehensive income.

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. Non-current Assets held for sale

Non-current assets are classified as held for sale if their carrying value amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and the fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset is recognised at the date of derecognition.

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Southern Gold Limited – Consolidated Entity

i. 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 recognises 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.

j. 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 15.

k. 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. The cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows.

In determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy vesting requirements. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows.

Share based payments

The Company has an Employee Share Option Plan where employees may be provided with options to acquire shares in the Company. The fair value of the options are measured at grant date and recognised as an expense over the vesting period with a corresponding increase in equity. The fair value of options is ascertained using the Black-Scholes pricing model which incorporates all market vesting conditions.

• l. 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.

m.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other shortterm highly liquid investments with original maturities of three months or less, and bank overdrafts.

• n. Revenue

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. 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).

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Southern Gold Limited – Consolidated Entity

• o. 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 statement of financial position 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 statement of financial position.

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

p. 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.

q. Trade and other payables

Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the group during the period which remains unpaid. The balance is recognised as a current liability with the amount being normally paid within 30 days of recognition of the liability.

r. Comparative Figures

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

s. 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 Judgments — Impairment of Exploration and Evaluation Assets

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

The Group capitalises expenditure relating to exploration and evaluation where it is considered likely to be recoverable or where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. While there are certain areas of interest from which no reserves have been extracted, the Directors are of the continued belief that such expenditure should not be written off since feasibility studies in such areas have not yet concluded.

t. 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.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per

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Southern Gold Limited – Consolidated Entity

share to take into account the after income tax effect and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

u. Accounting standards not yet effective

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group.

Management anticipates that all of the relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below.

Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

AASB 9 Financial Instruments (effective from 1 January 2013)

The AASB aims to replace AASB 139 Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (AASB 9) is being issued in phases. To date, the chapters dealing with recognition, classification, measurement and derecognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning 1 January 2013. Further chapters dealing with impairment methodology and hedge accounting are still being developed.

Management have yet to assess the impact that this amendment is likely to have on the financial statements of the Group. However, they do not expect to implement the amendments until all chapters of AASB 9 have been published and they can comprehensively assess the impact of all changes.

Consolidation Standards

A package of consolidation standards are effective for annual periods beginning or after 1 January 2013. Information on these new standards is presented below. The Group’s management have yet to assess the impact of these new and revised standards on the Group’s consolidated financial statements.

AASB 10 Consolidated Financial Statements (AASB 10)

AASB 10 supersedes the consolidation requirements in AASB 127 Consolidated and Separate Financial Statements (AASB 127) and Interpretation 112 Consolidation – Special Purpose Entities. It revised the definition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.

AASB 11 Joint Arrangements (AASB 11)

AASB 11 supersedes AASB 131 Interests in Joint Ventures (AASB 131). It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. It introduces two accounting categories (joint operations and joint ventures) whose applicability is determined based on the substance of the joint arrangement. In addition, AASB 131’s option of using proportionate consolidation for joint ventures has been eliminated. AASB 11 now requires the use of the equity accounting method for joint ventures, which is currently used for investments in associates.

AASB 12 Disclosure of Interests in Other Entities (AASB 12)

AASB 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.

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Southern Gold Limited – Consolidated Entity

• u. Accounting standards not yet effective (Continued)

Consequential amendments to AASB 127 Separate Financial Statements (AASB 127) and AASB 128 Investments in Associates and Joint Ventures (AASB 128)

AASB 127 Consolidated and Separate Financial Statements was amended to AASB 127 Separate Financial Statements which now deals only with separate financial statements. AASB 128 brings investments in joint ventures into its scope. However, AASB 128’s equity accounting methodology remains unchanged.

AASB 13 Fair Value Measurement (AASB 13)

AASB 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annual periods beginning on or after 1 January 2013. The Group’s management have yet to assess the impact of this new standard.

AASB 2011-9 Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income (AASB 101 Amendments)

The AASB 101 Amendments require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. It is applicable for annual periods beginning on or after 1 July 2012. The Group’s management expects this will change the current presentation of items in other comprehensive income; however, it will not affect the measurement or recognition of such items.

AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (AASB 124 Amendments)

AASB 2011-4 makes amendments to AASB 124 Related Party Disclosures to remove individual key management personnel disclosure requirements, to achieve consistency with the international equivalent (which includes requirements to disclose aggregate (rather than individual) amounts of KMP compensation), and remove duplication with the Corporations Act 2011. The amendments are applicable for annual periods beginning on or after 1 July 2013. The Group’s management have yet to assess the impact of these amendments.

AASB Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine

Clarifies that costs of removing mine waste materials (overburden) to gain access to mineral ore deposits during the production phase of a mine must be capitalised as inventories under AASB 112 Inventories if the benefits from stripping activity is realised in the form of inventory produced. Otherwise, if stripping activity provides improved access to the ore, stripping costs must be capitalised as a non-current, stripping activity asset if certain recognition criteria are met (as an addition to, or enhancement of, an existing asset). The interpretation is applicable for annual periods beginning on or after 1 January 2013. The interpretation will have no impact on the Group as it has no mining activities.

We do not expect these accounting standards to materially impact our financial results upon adoption.

v. Parent Entity

The financial information of the parent entity, Southern Gold Limited, disclosed at note 22, has been prepared on the same basis, using the same accounting policies as the consolidated financial statements.

The financial report was authorised for issue on 27[th] September 2012 by the Board of Directors.

Page 25

Southern Gold Limited – Consolidated Entity

2. 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.) Other Administrative Expenses Office rent 3. INCOME TAX EXPENSE 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 Share-based payments expensed during the year Research and development tax concession Timing differences and tax losses not brought to account Income tax attributable to loss from ordinary activities b) Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1(b) occur Operating Losses c) Income tax losses Total deferred tax asset arising from carried forward tax losses not recognised as meeting probable criteria Tax Losses at 30%	2012 $ 2011 $
	111,714 134,074 20,606 205,870
	132,320 339,944
	124,973 152,651
	(3,162,217) (2,047,212)
	(948,665) (614,164) 72,432 97,470 4,800 19,289 - (202,488) 943,865 507,999
	72,432 (191,894)
	943,865 507,999
	5,883,271 4,419,893

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 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.

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Southern Gold Limited – Consolidated Entity

4. INTERESTS OF KEY MANAGEMENT PERSONNEL

Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the group’s key management personnel for the year ended 30 June 2012. The totals of remuneration paid to key management personnel during the year are as follows:

Short term employee benefits Post employment benefits Share-based payments	2012 $ 2011 $
	704,557 751,855 53,550 66,241 - 64,298
	758,107 882,394

Mr Harding is not employed by the company and provides his services as a consultant. Mr Harding was paid $87,870 (2011: $95,200). Mr Turvey was also paid consulting fees of $11,438 (2011: $15,373).

• (a) The names and positions held of the group’s key management personnel in office at any time during the financial year are:

Directors	Position
G C Boulton AM	Chairman – Non-executive
N M Anderson	Managing Director - Executive
M R Billing	Director – Non-executive
D J Turvey	Director – Non-executive
KeyManagement Personnel	Position
N J Harding	Chief Financial Officer / Company Secretary
P W Hill1	Exploration Manager
G Thomas2	General Manager Cambodia
I D Blucher3	Project Development Manager

• 1 P W Hill resigned 9 September 2011

• 2 G Thomas resigned 15 November 2011

• 3 I D Blucher commenced 16 November 2011

• (b) The number of ordinary shares held by Key Management Personnel in Southern Gold Limited during the financial year is as follows:

30 June 2012 G C Boulton AM N M Anderson M R Billing D J Turvey N J Harding P W Hill G Thomas I D Blucher	Balance at beginning of year Granted as remuneration during the year Issued on exercise of options during year Other changes during the year4 Balance at end of year
	1,520,588 - - 691,597 2,212,185 180,000 - - 521,429 701,429 2,176,649 - - 621,901 2,798,550 732,588 - - 209,311 941,899 111,529 - - 46,511 158,040 - - - - - - - - - - - - - 128,572 128,572
	4,721,354 - - 2,219,321 6,940,675

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Southern Gold Limited – Consolidated Entity

30 June 2011 G C Boulton AM N M Andreson1 M R Billing D J Turvey S R Biggins2 N J Harding P W Hill G Thomas	Balance at beginning of year Granted as remuneration during the year Issued on exercise of options during year Other changes during the year3 Balance at end of year
	900,000 - - 620,588 1,520,588 - - - 180,000 180,000 1,856,061 - - 320,588 2,176,649 - - - 732,588 732,588 3,757,727 - - - 3,757,727 - - - 111,529 111,529 - - - - - - - - - -
	6,513,788 - - 1,965,293 8,479,081

1 N M Anderson commenced 23 September 2010

2 S R Biggins resigned 2 July 2010

3 Purchases of shares on market or through take up of shares by Directors under the December 2010 share purchase plan

4 Purchases of shares on market or through take up of shares by Directors under the April 2012 rights issue

• (c) The number of options over ordinary shares held by Key Management Personnel in Southern Gold Limited during the year is as follows:

30 June 2012 G C Boulton AM N M Anderson M R Billing D J Turvey N J Harding P W Hill G Thomas I D Blucher	Balance at beginning of year Granted as remuneration during the year Exercised during the year Other changes during the year1 Balance at end of year Vested during the year Vested and exercisable
	500,000 - - - 500,000 - 500,000 1,000,000 - - - 1,000,000 - 1,000,000 500,000 - - - 500,000 - 500,000 500,000 - - - 500,000 - 500,000 350,000 - - - 350,000 - 350,000 550,000 - - (550,000) - - - 250,000 - - (250,000) - - - - - - - - - -
	3,650,000 - - (800,000) 2,850,000 - 2,850,000

30 June 2011 G C Boulton AM N M Anderson S R Biggins M R Billing D J Turvey N J Harding P W Hill G Thomas	Balance at beginning of year Granted as remuneration during the year Exercised during the year Other changes during the year Balance at end of year Vested during the year Vested and exercisable
	500,000 - - - 500,000 - 500,000 - 1,000,000 - - 1,000,000 1,000,000 1,000,000 2,500,000 - - (2,500,000) - - - 500,000 - - - 500,000 - 500,000 - 500,000 - - 500,000 500,000 500,000 350,000 - - - 350,000 - 350,000 550,000 - - - 550,000 - 550,000 250,000 - - - 250,000 - 250,000
	4,650,000 1,500,000 - (2,500,000) 3,650,000 1,500,000 3,650,000

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Southern Gold Limited – Consolidated Entity

(d) Other Key Management Personnel Transactions

There have been no other transactions involving equity instruments other than those described in the tables above. For details of other transactions with key management personnel, refer to Note 14 Related Parties. For details of payables to Key Management Personnel, refer to Note 10 Trade and Other Payables.

5. 6. 7. 8.	CASH AND CASH EQUIVALENTS Cash at bank and in hand Term deposits TRADE AND OTHER RECEIVABLES Trade and other receivables Interest receivable Research and development tax concession receivable Trade and other receivables are not considered past due and/or impaired OTHER ASSETS Current Prepayments Exploration tenement performance bonds Other assets Non-Current Exploration tenement performance bonds EXPLORATION AND EVALUATION EXPENDITURE Costs carried forward in respect of areas of interest: Exploration and evaluation phase The ultimate recoupment of costs carried forward for exploration and evaluation phase is dependent on the successful development and commercial exploitation or sale of respective areas. (i) Reconciliation A reconciliation of the carrying amount of exploration and evaluation phase expenditure is set out below: Costs brought forward Expenditure incurred during the year Less: Expenditure recovered from co-venturer Net foreign exchange differences - Cambodia Transferred to held-for-sale Expenditure written off / impairment	2012 $ 2011 $
		658,344 434,003 3,014,750 2,500,000
		3,673,094 2,934,003
		98,147 422,202 21,657 31,264 - 251,644
		119,804 705,110
		(2011: nil) 20,523 27,103 20,000 20,000 765 24,683
		41,288 71,786
		68,905 110,232
		15,113,454 14,296,175
		14,296,175 12,960,332 3,286,193 3,662,184 (137,776) (1,078,539) 191,521 (626,464) (980,000) - (1,542,659) (621,338)
		15,113,454 14,296,175

Page 29

Southern Gold Limited – Consolidated Entity

Southern Gold Limited – Consolidated Entity
9. PLANT AND EQUIPMENT Plant and equipment at cost Less: Accumulated depreciation Opening written down value Additions Disposals and write offs Net foreign currency exchange differences Depreciation Closing written down value 10. TRADE AND OTHER PAYABLES Trade creditors Sundry payables and accruals Amount payable to Directors and Key Management Personnel related entities1	2012 $ 2011 $
	339,044 298,987 (241,839) (204,996)
	97,205 93,991
	93,991 141,827 56,649 26,962 (3,244) (71) 2,909 (20,772) (53,100) (53,955)
	97,205 93,991
	400,506 238,214 391,729 153,130 43,260 21,730
	835,495 413,074

1 Payable amount to N A Anderson of $23,000

Payable amount to Greg Boulton and Associates Pty Ltd (an entity associated with G C Boulton AM) of $9,175 Payable amount to Equant Resources Pty Ltd (an entity associated with D J Turvey) of $2,967

Payable amount to Twentyfour Carat Pty Ltd (an entity associated with N J Harding) of $8,118

11. PROVISION FOR EMPLOYEE BENEFITS

The aggregate employee benefit liability recognised in and included in the financial statements is as follows:

Provision for employee benefits Current Non-Current Movement schedule for employee benefits Opening balance Additional provision Benefits utilised or surrendered Closing balance	58,505 32,009 7,384 23,894
	65,889 55,903
	55,903 43,351 68,231 81,063 (58,245) (68,511)
	65,889 55,903

The current provision portion relates to annual leave, while the non-current portion relates to long service leave.

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Southern Gold Limited – Consolidated Entity

Provision for long service leave

A provision for long service leave has been recognised for employee benefits. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been included in Note 1 to this report.

UED CAPITAL Ordinary Shares Issued share capital: 346,726,851 fully paid ordinary shares (2011: 242,375,463)	2012 $ 2011 $
	33,507,897 28,999,356

12. ISSUED CAPITAL

(a) Ordinary Shares

Movement in issued shares for the year: Balance at beginning of financial year Share placement at 6.8 cents Share purchase plan at 6.8 cents Share placement at 5.0 cents Rights issue at 4.3 cents Shares issued for services received Net costs associated with the issue of shares Balance at end of financial year	2012	2011
	No. $	No. $
	242,375,463 28,999,356	180,690,173 25,020,634
	- -	44,200,000 3,005,600
	- -	17,485,290 1,189,000
	26,967,644 1,348,382	- -
	77,050,411 3,313,168	- -
	333,333 16,000	- -
	- (169,009)	- (215,878)
	346,726,851 33,507,897	242,375,463 28,999,356

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings.

In the event of winding up of the Company ordinary shareholders rank after all creditors and are fully entitled to any proceeds of liquidation.

(b) Options on Issue

For information relating to share options issued to Key Management Personnel during the financial year, refer to Note 4.

At 30 June 2012, there were 3,100,000 (30 June 2011: 6,400,000) unissued shares for which the following options were outstanding:

Grant Date Date of Expiry Fair Value at Grant Date Exercise Price	Number under Option
22.10.2007 21.10.2012 0.310 0.35 26.2.2008 28.11.2012 0.132 0.75 26.8.2008 31.5.2013 0.109 0.20 30.9.2008 30.9.2013 0.096 0.15 30.9.2008 30.9.2013 0.093 0.15 30.6.2009 30.6.2014 0.098 0.30 30.10.2009 30.10.2013 0.082 0.15 1.12.2010 1.12.2014 0.040 0.105 1.12.2010 1.12.2015 0.044 0.105	50,000 500,000 100,000 150,000 150,000 150,000 500,000 500,000 1,000,000
	3,100,000

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Southern Gold Limited – Consolidated Entity

12. ISSUED CAPITAL (Continued)

(c) Capital Management

Management effectively manages the capital of the Group by assessing the financial risks and adjusting the capital structure in response to changes in these risks and in the market. The responses include the management of dividends to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital during the year.

13. REMUNERATION OF AUDITORS

The auditor of Southern Gold Limited is Grant Thornton.

Amounts received or due and receivable by Grant Thornton for: An audit or review of the financial report of the entity and any other entity of the group Taxation and other services Amounts received or due and receivable by overseas related practices of Grant Thornton for: External audit Taxation and other services	2012 $ 2011 $
	30,500 31,900 14,600 20,685 2,887 7,382 - -
	47,987 59,967

14. RELATED PARTY AND KEY MANAGEMENT DISCLOSURES

The terms and conditions of the 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 21 to the financial statements.

Equity Interests in joint ventures

Details of interests in joint ventures are disclosed in Note 15 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.

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 and Key Management Personnel

A rental agreement with T&E Investments, a party related to Ms Anderson, to rent additional office premises in Perth, Western Australia at a cost of $22,056 per annum plus GST, on a rolling 3 month basis with a 3 month notice period was negotiated in July 2012.

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

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Southern Gold Limited – Consolidated Entity

Director and Key Management Personnel	Related Party Transaction	2012 $	2011 $
M R Billing	Payments to a Director related entity for consulting services provided	-	17,750
D J Turvey	Payments to a Director related entity for consulting services provided	11,438	15,373
N J Harding	Payments to a member of Key Management for financial and company secretarial services provided	87,870	95,200

d) Related party balances

Amounts receivable from and payable to Directors and Key Management Personnel and their related entities at balance date arising from these transactions were as follows:

Current payables Amounts payable to Directors and Key Management Personnel related entities	2012 $ 2011 $
	43,260 21,730
	43,260 21,730

There were no amounts receivable from related parties.

15. JOINT VENTURES

The consolidated entity had interests in unincorporated joint ventures at 30 June 2012 as follows:

(a) Challenger Area Joint Venture - Gold (b) Kratie South Joint Venture – JOGMEC, Cambodia – All minerals (c) Heron Resources Joint Venture (d) Heron Resources KNP Joint Venture	Percentage Interest 2012 Percentage Interest 2011
	51% 51% 49.9% 49% 51% 0% 60% 0%

Notes

• (a) Under the terms of the agreement with Kingsgate Consolidated Ltd, Southern Gold completed $2m expenditure by October 2009 to earn a 51% JV interest in 7 ELs held by Kingsgate Consolidated Ltd surrounding (but excluding) the Challenger gold mine in northern South Australia. The Joint Venture relates only to gold. The JV interest has subsequently been sold (refer note 23 subsequent event to balance date).

• (b) Under the terms of the agreement with Japan Oil Gas Minerals National Corporation (JOGMEC), JOGMEC completed US$3.03 million expenditure over 3 years commencing April 2008 to earn a 51% interest in two adjoining tenements, Preak Khlong and O’Kthung (Kratie South Project) in north east Cambodia. From 1 November 2011, JOGMEC have elected not to contribute further expenditure for the current financial year and consequently their interest is being diluted.

• (c) Under the terms of the agreement with Heron Resources Limited, Southern Gold has earned a 51% interest in 3 tenements east of Kalgoorlie in Western Australia by spending a total of $120,000 over 2 years to September 2011. Southern Gold has elected to spend a further $120,000 to September 2012 in order to earn a further 29%.

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Southern Gold Limited – Consolidated Entity

15. JOINT VENTURES (Continued)

• (d) Under the terms of a Heads of Agreement with Heron Resources Limited, Southern Gold has the right to earn up to 80% of the gold interests associated with Heron’s Bulong project. Southern Gold has met an initial requirement to spend a minimum of $150,000 within 3 months from commencement and a further $350,000 over the following 9 months to earn a 60% interest. Heron have elected not to contribute their ongoing 40% share of expenditures and Southern Gold is now sole funding a further $500,000 within the next 12 months to acquire an additional 20% of the gold interests in the project area.

16. COMMITMENTS FOR EXPENDITURE AND CONTINGENT LIABILITIES

(a) Exploration Expenditure Commitments

The Group 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 Group.

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

Not later than one year: Later than one year but not later than two years: Later than two years but not later than five years:	2012 $ 2011 $
	997,940 858,820 997,940 858,820 2,993,820 2,576,460

(b) Service Agreements

Service agreements between the Group 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 Group 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 Group or its projects.

(d) Office Rental

The consolidated entity has entered into a rental agreement to occupy its principle office at a cost of $63,040 per annum plus GST, for a term of 3 years expiring on 31 October 2014. In July 2012 the consolidated entity entered into a rental agreement with T&E Investments, a party related to Ms Anderson, to rent additional office premises in Perth, Western Australia at a cost of $22,056 per annum plus GST, on a rolling 3 month basis with a 3 month notice period.

Not later than one year: Later than one year but not later than two years: Later than two years but not later than five years:	2012 $ 2011 $
	86,777 126,622 67,310 53,619 22,728 -

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Southern Gold Limited – Consolidated Entity

17. FINANCIAL INSTRUMENTS

(a) Financial Risk Management

The Group’s financial instruments consist mainly of deposits with banks, short-term investments, accounts receivable and accounts payable.

The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows:

Financial Assets Cash and cash equivalents Loans and receivables Financial Liabilities Trade and other payables	2012 $ 2011 $
	3,673,094 2,934,003 119,804 705,110
	3,792,898 3,639,113
	835,495 413,074
	835,495 413,074

(i) Treasury Risk Management

The Board of the Consolidated Group 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 Consolidated Group is exposed to through its financial instruments are liquidity risk, credit risk, and interest rate risk.

Liquidity risk

Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities.

The Consolidated Group manages liquidity risk by monitoring forecast cash flows.

Credit risk

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.

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 statement of financial position and notes to the financial statements.

No receivables are considered past due and/or impaired at balance date.

Sensitivity Analysis

The Company has not performed a sensitivity analysis relating to its exposure to price risk at balance date as a change in share price by 10% is not considered to have a material impact on profit and equity.

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Southern Gold Limited – Consolidated Entity

17. FINANCIAL INSTRUMENTS (Continued)

Interest Rate Risk

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

2012 Financial assets Cash and deposits Receivables Less: Payables Net financial assets 2011 Financial assets Cash and deposits Receivables Less: Payables Net financial assets	Interest Bearing Non-interest Bearing Total Floating interest rate
	3,615,992 57,102 3,673,094 5.14% - 119,804 119,804 - - (835,495) (835,495) -
	3,615,992 (658,589) 2,957,403
	Interest Bearing Non-interest Bearing Total Floating interest rate
	2,933,909 94 2,934,003 5.64% - 705,110 705,110 - - (413,074) (413,074) -
	2,933,909 292,130 3,226,039

Interest rate risk is managed with a mixture of fixed and floating rate cash deposits. At 30 June 2012, 82% (2011: 85%) of group deposits are fixed.

Sensitivity Analysis

The company has not performed a sensitivity analysis relating to its exposure to interest rate risk at balance date as a change in interest rates by 2% is not considered to have a material impact on profit and equity.

(iii)

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.

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Southern Gold Limited – Consolidated Entity

18. SHARE BASED PAYMENTS

Shares

No shares have been granted to Key Management Personnel as share-based payments during the financial year. 333,333 shares were issued to a consultant valued at $16,000 for part payment of services rendered.

Options

The Group 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 at 30 June 2012:

		Grant		Exercise	Fair value at
Options – Series	No.	Date	Expiry Date	Price	grant date
Employee Share Option Plan
October 20071	50,000	22.10.2007	21.10.2012	$0.35	$0.3095
August 20081	100,000	26.08.2008	25.05.2013	$0.20	$0.1091
September 20081	150,000	30.09.2008	30.09.2013	$0.15	$0.0962
September 20081	150,000	30.09.2008	30.09.2013	$0.15	$0.0934
June 20091	150,000	30.06.2009	30.06.2014	$0.30	$0.0975
Director Options
February 20082	500,000	26.02.2008	28.11.2012	$0.75	$0.1319
October 20093	500,000	30.10.2009	30.10.2013	$0.15	$0.0819
December 20104	500,000	1.12.2010	1.12.2014	$0.105	$0.0397
December 20105	1,000,000	1.12.2010	1.12.2015	$0.105	$0.0444

1. In accordance with the Employee Share Option Plan, share options have been granted to employees at various times at prices and terms as shown in the above table.

2. On 26 February 2008, 2,500,000 share options were granted to directors as approved by shareholders at an AGM to take up ordinary shares at an exercise price of $0.75 each. 2,000,000 of these options have subsequently lapsed, 500,000 of these during the current financial year. The options are exercisable on or before 28 November 2012.

3. On 30 October 2009, 500,000 share options were granted to Mr G Boulton AM as approved by shareholders at an AGM to take up ordinary shares at an exercise price of $0.15. The options are exercisable on or before 30 October 2013.

4. On 1 December 2010, 500,000 share options were granted to Mr D Turvey as approved by shareholders at an AGM to take up ordinary shares at an exercise price of $0.105. The options are exercisable on or before 1 December 2014.

5. On 1 December 2010, 1,000,000 share options were granted to Ms N Anderson as approved by shareholders at an AGM to take up ordinary shares at an exercise price of $0.105. The options are exercisable on or before 1 December 2015.

The options hold no voting or dividends rights and are unlisted.

Historical volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future movements.

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Southern Gold Limited – Consolidated Entity

1. SHARE BASED PAYMENTS (Continued)

The life of the options is based on the historical exercise patterns, which may not eventuate in the future.

There were no options granted to Key Management Personnel during the year.

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

Share Option Granted Balance at beginning of financial year Granted during the financial year Exercised during the financial year (i) Cancelled during the financial year Balance at end of the financial year (ii)	2012 2011
	Number of options Weighted average exercise price $ Number of options Weighted average exercise price $
	6,400,000 $0.253 7,850,000 $0.403 - - 1,500,000 $0.105 - - - - (3,300,000) ($0.269) (2,950,000) ($0.373)
	3,100,000 $0.237 6,400,000 $0.253

(i) Options exercised

No share options granted under the Plan were exercised during the financial year (2011: nil).

(ii) Options outstanding at end of the financial year

The share options outstanding at the end of the financial year had an average exercise price of $0.237 (2011: $0.253) and a weighted average remaining contractual life of 740 days (2011: 748 days).

Page 38

Southern Gold Limited – Consolidated Entity

19. OPERATING SEGMENTS

Segment Information

Identification of reportable segments

The consolidated entity has adopted AASB 8 Operating Segments with effect from 1 July 2009. AASB 8 requires operating segments to be identified on the basis of internal reports about components of the consolidated entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The consolidated entity has identified its operating segments to be Australia and Cambodia based on different geological regions and the similarity of assets within those regions. This is the basis on which internal reports are provided to the Board of Directors for assessing performance and determining the allocation of resources within the consolidated entity.

The consolidated entity operates primarily in one business, namely the exploration of minerals.

Basis of accounting for purposes of reporting by operating segment

Accounting policies adopted

Unless stated otherwise, all amounts reported to the Board of Directors, being the chief operating decision maker with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the group.

Details of the performance of each of these operating segments for the financial years ended 30 June 2012 and 30 June 2011 are set out below:

	2012 Revenue Interest Income Other Income Expenditure Loss from Ordinary Activities before Income Tax Income Tax Expense	Australia Cambodia Consolidated
		111,714 - 111,714 8,280 12,326 20,606
		119,994 12,326 132,320
		(2,349,014) (945,523) (3,294,537)
		(2,229,020) (933,197) (3,162,217) (72,432)
	Net Loss for Year	(3,234,649)

Page 39

Southern Gold Limited – Consolidated Entity

19. OPERATING SEGMENTS (Continued)

	2012 Assets and Liabilities Segment Assets Inter-Segment Assets	Australia Cambodia Total Inter-Segment Elimination Consolidated
		15,692,165 4,401,586 20,093,751 - 20,093,751 7,013,336 - 7,013,336 (7,013,336) -
	Total Assets Segment Liabilities Inter-Segment Liabilities	22,705,501 4,401,586 27,107,087 (7,013,336) 20,093,751 649,455 251,930 901,385 - 901,385 - 7,013,336 7,013,336 (7,013,336) -
	Total Liabilities	649,455 7,265,266 7,914,721 (7,013,336) 901,385
	Net Assets	22,056,046 (2,863,680) 19,192,366 - 19,192,366
	Segment asset increases for the period Plant & equipment Exploration expenditure	48,143 8,506 56,649 - 56,649 2,454,761 831,432 3,286,193 - 3,286,193

Page 40

Southern Gold Limited – Consolidated Entity

19. OPERATING SEGMENTS (Continued)

	2011 Revenue Interest Income Other Income Expenditure Loss from Ordinary Activities before Income Tax Income Tax Expense Net Loss for Year 2011 Australia Assets and Liabilities Segment Assets 14,007,918 Inter-Segment Assets 6,209,996	2011 Revenue Interest Income Other Income Expenditure Loss from Ordinary Activities before Income Tax Income Tax Expense	2011 Revenue Interest Income Other Income Expenditure Loss from Ordinary Activities before Income Tax Income Tax Expense	Australia Cambodia Consolidated 134,074 - 134,074 99,796 106,074 205,870 233,870 106,074 399,944 (1,961,726) (425,430) (2,387,156) (1,727,856) (319,356) (2,047,212) 191,894 (1,855,318)
		Net Loss for Year
			Australia	Cambodia Total Inter-Segment Elimination Consolidated
			14,007,918 6,209,996	4,203,379 18,211,297 - 18,211,297 - 6,209,996 (6,209,996) -
	Total Assets Segment Liabilities Inter-Segment Liabilities		20,217,914 368,957 -	4,203,379 24,421,293 (6,209,996) 18,211,297 100,020 468,977 - 468,977 6,209,996 6,209,996 (6,209,996) -
	Total Liabilities		368,957	6,310,016 6,678,973 (6,209,996) 468,977
	Net Assets		19,848,957	(2,106,637) 17,742,320 - 17,742,320
	Segment asset increases for the period Plant & equipment Exploration expenditure		3,597 1,502,168	23,365 26,962 - 26,962 2,160,016 3,662,184 - 3,662,184

Page 41

Southern Gold Limited – Consolidated Entity

20. EARNINGS PER SHARE

20. EARNINGS 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	2012 Cents per share 2011 Cents per share
	(1.20) (0.86) (1.20) (0.86) $ $ (3,234,649) (1,855,318) No. No. 268,851,883 215,497,928

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.

21. CONTROLLED ENTITIES CONSOLIDATED

		Ownership	Interest
Name of Entity	Country of Incorporation	2012 %	2011 %
Parent Entity
Southern Gold Limited	Australia
Controlled Entities
Challenger West Holdings Pty Ltd	Australia	100%	100%
CMH Resources Pty Ltd	Australia	100%	100%
Gawler Arc Holdings Pty Ltd	Australia	100%	100%
Southern Mining Pty Ltd	Australia	100%	100%
Inferus Resources Pty Ltd1	Australia	100%	100%
Southern Gold Asia Pty Ltd	Australia	100%	100%
New Southern Mining Pty Ltd	Australia	100%	100%
Southern Gold Cambodia Pty Ltd2	Cambodia	100%	100%

• 1 All shares in Inferus Resources Pty Ltd are held by Southern Mining Pty Ltd

2 All shares in Southern Gold Cambodia Pty Ltd are held by Southern Gold Asia Pty Ltd

Page 42

Southern Gold Limited – Consolidated Entity

22. SOUTHERN GOLD LIMITED COMPANY INFORMATION

Parent Entity Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Retained earnings Reserves Share-based payments reserve Total reserves Financial Performance Profit/(loss) for the year Other comprehensive income Total comprehensive income Guarantees in relation to the debts of subsidiaries Contingent liabilities Contractual commitments - exploration	2012 $	2011 $
	4,768,191 3,256,031 15,073,630 14,855,247
	19,841,821 18,111,278
	642,071 345,064 7,384 23,894
	649,455 368,958
	33,507,897 28,999,356 (16,214,417) (13,155,922)
	17,293,480 15,843,434
	1,898,886 1,898,886
	1,898,886 1,898,886
	(3,058,495) (2,745,940) - -
	(3,058,495) (2,745,940)
	- - - - 214,080 330,420

23. EVENTS SUBSEQUENT TO BALANCE DATE

Cambodia

On 5 July 2012 Southern Gold finalised an agreement with Mekong Minerals Ltd (“Mekong”) whereby Mekong has the exclusive right to earn an interest in Southern Gold subsidiary, Southern Gold (Asia) Pty Ltd (“SG Asia”) and to manage the activities of SG Asia and its wholly owned subsidiary, Southern Gold Cambodia Ltd (“SG Cambodia”).

The agreement regulates Southern Gold’s and Mekong’s obligations as shareholders of SG Asia. Under the agreement, Mekong has the exclusive right to earn up to a 70% interest in SG Asia by sole funding US$5.7 million on expenditure of SG Asia and SG Cambodia.

On earning a 70% interest in SG Asia, Mekong will have the option to purchase Southern Gold’s remaining 30% interest in SG Asia (“Option”). The grant of the Option is conditional on compliance with ASX Listing Rule 11.4, including Southern Gold obtaining shareholder approval for the grant, if required.

Finalising this transaction has allowed Southern Gold funds that were allocated for the Cambodian assets, to be redirected to the Bulong Gold project. In the longer term, future value may be created

Page 43

Southern Gold Limited – Consolidated Entity

23. EVENTS SUBSEQUENT TO BALANCE DATE (Continued)

through Mekong’s investment and exploration success in Cambodia and/or through exercising their buyout option.

Challenger – South Australia

Pursuant to a Sale Agreement signed in September 2012, Trafford Resources Limited (“Trafford”) has purchased Southern Gold’s 51% interest in the Western Gawler Craton JV with Dominion Gold Operations (a 100% owned subsidiary of Kingsgate Consolidated Limited) and the Company’s 100% owned Challenger West tenement (“Challenger Project”).

Under the sale terms Trafford purchased the Challenger Project for A$500,000 cash and 3,000,000 Trafford shares (subject to a 12 month voluntary escrow period). On a decision to conduct a feasibility study on a JORC resource of over 500,000oz gold, Trafford will issue a further A$1 million worth of Trafford shares to Southern Gold or its nominee.

Other than the above, there has not arisen in the interval any matters or circumstances, since the end of the financial year which significantly affected or could affect the operations of the Company, the results of those operations, or the state of the Company in future years.

24. RESERVES

Share options reserve – the share options reserve records items recognised as expenses on valuation of employee share options.

Foreign currency translation reserve – the foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary.

25. REGISTERED OFFICE AND PRINCIPLE OFFICE

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

229 Greenhill Road, DULWICH, SA, 5065

ABN 30 107 424 519

Page 44

Southern Gold Limited – Consolidated Entity

Directors’ Declaration

The Directors of Southern Gold Limited declare that:

• a) the financial statements and notes, as set out on pages 14 to 44 are in accordance with the Corporations Act 2001 , and:

• i.) give a true and fair view of the financial position as at 30 June 2012 and of the performance for the year ended on that date of the Consolidated Group; and

• ii.) comply with Accounting Standards; and

• iii.) Southern Gold Limited complies with International Financial Reporting Standards as described in Note 1; and

• b) the Chief Executive Officer and Chief Financial Officer have declared that:

• i) The financial records of the Company for the financial year have been properly maintained in accordance with s286 of the Corporations Act 2001;

• ii) The financial statements and notes for the financial year comply with the Accounting Standards; and

• iii) The financial statements and notes for the financial year give a true and fair view;

• c) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

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

Dated at Adelaide this 27[th] day of September 2012.

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N M Anderson Managing Director

G C Boulton AM Chairman

Page 45

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Level 1, 67 Greenhill Rd Wayville SA 5034 GPO Box 1270 Adelaide SA 5001 T 61 8 8372 6666 F 61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTHERN GOLD LIMITED

Report on the financial report

We have audited the accompanying financial report of Southern Gold Limited (the “Company”), which comprises the statement of financial position as at 30 June 2012, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the company the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors responsibility for the financial report

The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determines is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report.

Grant Thornton South Australian Partnership ABN 27 244 906 724 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389

Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia.

Liability limited by a scheme approved under Professional Standards Legislation

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The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report.

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

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion

In our opinion:

• a the financial report of Southern Gold Limited is in accordance with the Corporations Act 2001, including:

• i giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2012 and of their performance for the year ended on that date; and

• ii complying with Australian Accounting Standards and the Corporations Regulations 2001; and

• b the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements.

Report on the remuneration report

We have audited the remuneration report included in the directors’ report for the year ended 30 June 2012. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

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Auditor’s opinion on the remuneration report

In our opinion, the remuneration report of Southern Gold Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001.

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GRANT THORNTON SOUTH AUSTRALIAN PARTNERSHIP Chartered Accountants

J L Humphrey Partner

Adelaide, 27 September 2012