IONDRIVE LIMITED — Capital/Financing Update 2008

Dec 28, 2008

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29 December 2008

Dear Shareholder

On 24 December 2008, Southern Gold Limited ( SAU ) announced a fully underwritten one for three non‐renounceable pro rata rights issue at an issue price of $0.05 per new SAU share to raise $1,558,618 ( Rights Issue ).

SAU’s substantial shareholder, Talbot Group Holdings Pty Ltd has agreed to fully underwrite the Rights Issue (inclusive of its entitlements under the Rights Issue) for a fee equal to 3% of the total amount raised by the Rights Issue. As a result, the Rights Issue will raise a total of $1,558,618 (before costs and expenses of the Rights Issue).

The proceeds from the Rights Issue will allow SAU to continue to progress exploration across its gold and base metal projects:

• in Cambodia, where SAU intends to commence in 2009 its own exploration program complementary to its maiden reverse circulation drilling program fully funded by Japan Oil Gas and Metals National Corporation, which is spending a minimum of US$1 million as part of a US$4.5 million (~A$7 million) investment to earn a 51% interest in three of SAU’s seven Cambodian tenements;

• in South Australia, where SAU is in Joint Venture with Dominion Mining Limited on an area surrounding its 100,000oz pa Challenger Gold Mine, with 37 targets identified and high grade multiple gold shoots identified near the Challenger mine from recent drilling; and

• in Western Australia, where SAU controls a large tenement holding (100%) and has discovered a new ‘Kambalda Style’ nickel sulphide system in recent drilling.

Funds raised will also be applied to SAU’s general working capital requirements.

Full details of the Rights Issue, including details of the underwriting, are set out in the Offer Memorandum and Appendix 3B lodged with ASX on 24 December 2008. The Offer Memorandum is available to download from both the ASX website (at www.asx.com.au) and SAU’s website (at www.southerngold.com.au) and will be sent out to shareholders on 12 January 2009.

Under the Rights Issue, every person who is registered as the holder of SAU Shares at 5.00pm Adelaide time on 6 January 2009 ( Record Date ) will be entitled to participate in the Rights Issue in respect of the number of Shares that person is then registered as the holder of. Shareholders with registered addresses in countries outside of Australia and New Zealand will not be eligible to participate in the Rights Issue.

Please note that SAU shares will be quoted on an “ex” basis from 30 December 2008, and therefore any SAU shares bought or sold on market on and from this date will not carry entitlements under the Rights Issue.

The Rights Issue is open for acceptance by eligible shareholders from 12 January 2009 until 5.00pm Adelaide time on 27 January 2009 (subject to the Directors varying the closing date in accordance with the Listing Rules and the Underwriting Agreement with Talbot Group Holdings Pty Ltd).

The table below sets out the number of issued shares at the date of announcement of the Rights Issue and the maximum number of issued shares at completion of the Rights Issue:

Ordinary Shares	Number
Number on issue as at 23 December 2008	93,517,051
* Maximum number to be issued under Rights Issue	31,172,350
* Number on issue followingRights Issue	124,689,401

Southern Gold Limited 47 Tynte Street PO Box 1016 emailinfo@southerngold.com.au telephone 08 8368 8888 ABN 30 107 424 519 North Adelaide North Adelaide web southerngold.com.au facsimile 08 8368 8899 South Australia 5006 South Australia 5006

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* This is based on SAU’s undiluted share capital and assumes that all shareholders take up their full entitlements under the Rights Issue. These figures are approximate as individual entitlements under the Rights Issue will be rounded up to the nearest whole figure.

There are currently 9,020,000 options to subscribe for SAU shares on issue. Notice of the Rights Issue was sent to optionholders on 23 December 2008 in order to enable them to exercise their options prior to the Record Date and participate in the Rights Issue in respect of the shares underlying their options. If all or some of these options are exercised prior to the Record Date this will impact the maximum number of shares to be issued under the Rights Issue.

Shareholder approval is not required for the Rights Issue. Shares issued under the Rights Issue will be issued as fully paid and will rank equally with existing shares in SAU’s share capital.

The Rights Issue does not have a sponsoring broker. The Rights Issue will be conducted without a prospectus in accordance with the new streamlined offering provisions of the Corporations Act. The anticipated timetable for the Rights Issue is as follows:

EVENT	DATE
Announcement of rights issue– Announcement of rights issue, Offer Memorandum and ASX Appendix 3B lodged with ASX	Wednesday 24 December 2008
Ex date– The date on which Shares commence trading without the entitlement toparticipate in the Rights Issue	Tuesday 30 December 2008
Record date– the date for determining entitlements of Shareholders to participate in the Rights Issue	Tuesday 6 January 2009
Offer Memorandum sent to Shareholders– dispatch of Offer Memorandum and Entitlement and Acceptance Forms, and lodgment of cleansing notice – Rights Issue opens for acceptances	Monday 12 January 2009
Closing Date– The last day for receipt of acceptance forms (5.00pm Adelaide time)	Tuesday 27 January 2009
Securitiesquoted on a deferred settlement basis	Wednesday28 January2009
Shortfall notification date	No later than 30 January2009
Dispatch date– Allotment of New Shares. Deferred settlement trading ends.	No later than noon (AEST) on Wednesday4 February2009
Expected commencement of normal trading in New Shares on ASX	Thursday5 February2009
Despatch of holding statements to shareholders who accept the Offer	Monday9 February2009

SAU reserves the right to amend this timetable subject to the Listing Rules and the terms of the underwriting agreement with Talbot Group Holdings Pty Ltd.

You are encouraged to read the Offer Memorandum lodged with ASX on 24 December 2008 fully before making a decision in respect of the Rights Issue. If you have any queries in relation to the Rights Issue, you should consult your stockbroker or other professional adviser.

Yours sincerely

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Greg Boulton Chairman

Southern Gold Limited 47 Tynte Street PO Box 1016 emailinfo@southerngold.com.au telephone 08 8368 8888 ABN 30 107 424 519 North Adelaide North Adelaide web southerngold.com.au facsimile 08 8368 8899 South Australia 5006 South Australia 5006

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29 December 2008

Dear Overseas Shareholder

As you may be aware, on 24 December 2008 Southern Gold Limited ( SAU ) announced a fully underwritten one for three non‐renounceable pro rata rights issue of up to 31,172,350 new shares (based on SAU’s undiluted share capital, without taking into account the impact of rounding) to raise $1,558,618 ( Rights Issue ). SAU anticipates that the Rights Issue will close on 27 January 2009.

The Rights Issue is extended to existing shareholders in Australia and New Zealand on the basis of one new share for every three shares held on the record date, 6 January 2009, at an issue price of A$0.05 per share. SAU’s substantial shareholder, Talbot Group Holdings Pty Ltd, has agreed to fully underwrite the Rights Issue for a fee equal to 3 % of the total amount raised by the Rights Issue. As a result, the Rights Issue will raise gross proceeds of $1,558,618 (before costs and expenses of the Rights Issue).

SAU determined, pursuant to the Corporations Act and having regard to:

• a. the number of Shareholders registered outside of Australia and New Zealand;

• b. the number and value of the Shares to be offered to Shareholders registered outside of Australia and New Zealand; and

• c. the cost of complying with the legal requirements and requirements of regulatory authorities in the overseas jurisdictions,

that it would be unreasonable to make offers under the Rights Issue to all countries outside of Australia and New Zealand. Accordingly, in compliance with the Corporations Act, the Shares being offered by the Rights Issue are only being offered to Shareholders and potential investors resident in Australia or New Zealand.

SAU has appointed Bell Potter Securities Limited to act as nominee for the all foreign shareholders excluded from the Rights Issue. SAU will issue to the nominee the shares that would have otherwise been issued to such shareholders, had they been able to participate in the Offer. The nominee will sell those shares on or off market. SAU’s Share Registrar will then distribute to each of the excluded foreign shareholders the proceeds of the sale above $0.05 per share, net of expenses, prorated to their respective holdings of shares as at the record date.

The nominee will have the absolute and sole discretion to determine the timing and the price at which the shares may be sold and the manner of any such sale, provided they use reasonable endeavours to sell the shares within 30 days of the Closing Date. Neither SAU nor Bell Potter Securities Limited will be liable for any failure to sell the shares at a particular price.

The Offer Memorandum was lodged with ASX on 24 December 2008 and is available to download at www.asx.com.au using ASX code “SAU”. If you have any queries in relation to the Rights Issue, you should consult your stockbroker or other professional adviser.

Yours sincerely

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Greg Boulton Chairman

Southern Gold Limited 47 Tynte Street PO Box 1016 emailinfo@southerngold.com.au telephone 08 8368 8888 ABN 30 107 424 519 North Adelaide North Adelaide web southerngold.com.au facsimile 08 8368 8899 South Australia 5006 South Australia 5006