IONDRIVE LIMITED — Capital/Financing Update 2013

Aug 28, 2013

ASX Announcement 29 August 2013

POSITIVE PRE‐FEASIBILITY STUDY UNDERPINS DECISION TO DEVELOP CANNON GOLD RESOURCE, WA

Key Outcomes:

ASX Code: SAU Issued Shares: 359M ABN: 30 107 424 519

Directors Greg Boulton AM Nanette Anderson Michael Billing David Turvey

Top Shareholders Silverlake Resources Ltd 12.05% G B Branch 7.56% JP Morgan Nominees 4.08% National Nominees 3.37%

Head Office 229 Greenhill Road Dulwich SA 5065 Telephone: (08) 8368 8888 Facsimile: (08) 8431 5619 info@southerngold.com.au www.southerngold.com.au

• Board approval received to proceed with mine development of the Cannon Gold Resource, located 30km from Kalgoorlie in WA, subject to securing finance and regulatory approvals.

• Pre‐Feasibility Study (PFS) demonstrates that development of the Cannon Gold Resource as a toll treatment operation delivers positive economic returns with a low capital cost structure.

• The open pit and underground mine design supports the production of 484,000t at an average grade of 4.4g/t Au for 68,200oz of gold (Au).

• In line with industry peers, forecast C1 cash operating costs of A$1051/oz include mining, road haulage, processing and Southern Gold direct costs.

• Infrastructure costs include underground mine development of A$11.7M, road works of A$1.2M and costs relating to site facilities and sterilisation drilling of A$0.7M.

• Case sensitivities in the PFS show that, at a gold price of A$1500/oz, Cannon generates a free surplus cash‐flow of A$14.15M (after royalties). The current spot gold price is A$1,595/oz.

• The initial mine life based on the current resource is 3 years, with strong potential to grow the Cannon Resource which remains open and untested down‐dip to the west.

• Southern Gold is currently assessing options for financing the proposed mine development, which is aimed to commence in the first half of 2014.

Southern Gold Ltd (Southern Gold or the Company) is pleased to announce that it has confirmed a low capital, near‐term development pathway for its 100%‐owned Cannon Gold Resource, located 30km south‐east of Kalgoorlie in WA, after completing a positive Pre‐Feasibility Study (PFS).

The PFS outlines an open pit and underground development strategy that is technically feasible and delivers a positive economic outcome, demonstrating the potential for Southern Gold to commence its first gold mining operation and generate cash flow from a toll‐treatment development scenario.

On the strength of the positive PFS, Southern Gold’s Board has today resolved to proceed with a mine development strategy for the Cannon Gold Resource, subject to securing finance and regulatory approvals. Southern Gold has completed the relevant heritage and environmental surveys required which will expedite the final stages of permitting, ensuring that it is well placed to proceed.

Southern Gold Managing Director, Nanette Anderson, said the completion of the PFS on the Cannon Gold Resource was an important milestone for the Company, putting in place a strong foundation for the Board to assess various funding options and make strategic decisions on the potential to fast‐track development, subject to securing financing and regulatory approvals.

“Cannon has a number of significant competitive advantages in that the mineralisation starts close to surface, can be extracted through an efficient open pit/underground operation, and has an exceptional average forecast mined head grade of over 4g/t Au,” Ms Anderson said. “This combined with its location close to a number of existing milling facilities in the Kalgoorlie region gives us the ability to consider a low CAPEX, fast‐track development pathway based on a toll‐ treatment scenario.

“The PFS demonstrates that the project can generate robust cash flows, deliver a positive economic return for shareholders and create a pathway for future growth given that the resource remains open and that there are other exploration opportunities within our broader Bulong Gold Project.”

Key Project Parameters and Scenarios

The base case PFS assumed a gold price of A$1400 per ounce and forecast free surplus cash flow of $8.02 million. Other case sensitivities considered by the PFS included a gold price of A$1500 per ounce, A$1600 per ounce and A$1350 per ounce as shown in the Table 1 below:

Table 1. Key Project Parameters and Scenarios of the Cannon Gold Resource PFS.

Item	Units	Scenario 1 A$1350/oz Au	Base Case A$1400/oz Au	Current Case A$1500/oz Au	Scenario 2 A$1600/oz Au
Mine Life	Months	36	36	36	36
Mined Ounces1	oz Au	68,200	68,200	68,200	68,200
Mined Grade1	g/t Au	4.4	4.4	4.4	4.4
Recovery (ave)	%	92	92	92	92
Operating Cost	A$/oz	1028	1028	1028	1028
WA State Royalty2	%	2.5	2.5	2.5	2.5
Free surplus cashflow	A$M	4.95	8.02	14.15	20.28

Note 1: Mined ounces and grade calculated, based on cut‐off grade from $1400/oz base case scenario. Note 2: WA State Royalty of 2.5% is applied to all ounces produced after the first 2,500 oz produced in each financial year.

At a gold price of A$1500 (below the current spot price of A$1,595/oz), the forecast free surplus cash flow increases to $14.2 million.

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PFS Overview

Southern Gold recently completed a Pre‐Feasibility Study (PFS) for the proposed development of the Cannon Gold Resource. The Study’s base case was revised following the recent changes in market conditions, including a reduction in mining and processing costs.

Located within the company’s 100% owned Mining Lease (M25/333), 30km south east of Kalgoorlie in WA, the Project lies within economic haulage distance of several gold processing facilities (Figure 1). This has given Southern Gold a strategic advantage to consider a toll treatment operation and unlock value at an early stage in the Project’s development.

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Figure 1. Bulong Gold Project: located 30km east of Kalgoorlie, WA. Map shows the proximity to neighbouring companies with market capitalisation > $100m and nearby gold processing facilities.

Mining

The study demonstrates that the most effective way of extracting approximately 70% of the currently defined resource (812,000 t @ 3.9g/t for 100,400 oz Au) is through the development of an open pit/underground operation.

The mine design and scheduling aspects of the PFS was undertaken by Capital Mine Consulting (CMC). Peter O’Bryan and Associates were engaged to provide the geotechnical assessment in relation to the proposed open pit and underground designs. The interface between oxidised and transition zone weathered rocks and fresh rock occurs around 40m below surface. The open pit design extends a sufficient depth into the fresh rock in order to ensure that the underground portal is established in competent material (Figure 2).

Underground development is proposed to commence via a portal and decline at a 1 in 7 gradient from the footwall of the Cannon open pit, with a series of flat cross cuts developed to access the ore zones (Figure 2). Once each ore zone is

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intersected, strike drives will be established for standard Avoca‐style stoping. The proposed Avoca stoping method is fully mechanised and offers increased productivity and reduced mining costs compared to hand‐held methods.

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Figure 2 . Conceptual Open Pit and Underground Mine Design with Stoping Blocks (Looking North/East)

The base case underground mine schedule commences 12 months after the commencement of mining in the open pit and continues for 19 months. Including start up site works and closure rehabilitation, the total mine life based on the current study, is anticipated to be three years.

The open pit mining costs are based on market rates provided by a WA mining contractors and consulting cost engineer. Underground cost estimates were provided by Ripago Underground Mining Services, supported by industry standard benchmark rates.

Initial site works and infrastructure costs are estimated at A$1.7 million and the underground decline development cost is estimated at A$11.6 million. Decline expenses will be incurred during decline development which will commence in year two of the operation. Forecast C1 cash operating costs including mining, haulage, processing and Southern Gold direct costs are estimated at A$1,028/oz.

The PFS open pit and underground mine is designed to extract 484,000 t at a grade of 4.4g/t for 68,200 oz gold.

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Processing

The metallurgical characteristics of Cannon ore have been determined by testwork to be free milling, of moderate hardness and free of cyanicides. The estimated recovered ounces adopted are on average 92% of the mined ounces.

Processing costs and throughput rates adopted for the purposes of the PFS are based on those available from mills in the district offering toll treatment facilities. A processing plant will not be constructed which significantly reduces the amount of upfront capital required to commence operations.

Geology and Resources

The geology of the Bulong Gold Project is similar to a number of other mineralised areas in Kalgoorlie, comprising a suite of mafic and ultramafic units with minor black shale horizons. Within the southern part of M25/333 a monzogranite intrudes these lithologies.

The Cannon gold mineralisation is structurally controlled and strikes north‐easterly and dips to the west. High grade mineralised zones within the resource appear to be controlled by local scale dilational structures. Gold related alteration consists of biotite, calcite, chlorite, albite and pyrite.

The current Cannon Gold resource has been delineated by Reverse Circulation and diamond drilling to a vertical depth of 230m. RungePincockMinarco (RPM) compiled the Mineral Resource estimate used in the PFS (refer ASX Release: 29 January 2013), as shown in Table 2 below:

Table 2 ‐ Cannon Gold Mineral Resource Estimate (1.0g/t Au Cut‐off)

Ore Type		Indicated			Inferred			Total
	Tonnes (t)	Au g/t	Au oz	Tonnes (t)	Au **g/t **	Au oz	Tonnes (t)	Au **g/t **	Au oz
Oxide	8,000	3.0	800	1,500	2.4	100	9,500	2.9	900
Transitional	137,600	3.1	13,900	34,100	2.6	2,900	171,700	3.0	16,800
Fresh	573,500	4.3	78,500	57,500	2.3	4,200	631,000	4.1	82,800
Total:	719,100	4.0	93,200	93,000	2.4	7,200	812,200	3.9	100,400

Identified Risks

A number of key risks have been identified, which the company will continue to review and manage accordingly. The risk identified may impact (either positively or negatively) on the economics of the Cannon Gold development. These risks include, but not limited to:‐

• Gold price and foreign currency exchanges rates

• Capital and operating costs

• Processing optimisation and recoveries

• Project financing terms

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Value Enhancement Opportunities

It is noted that Inferred resource material within the pit design has not been included in the mining inventory nor have any underground inferred resource ounces been included in the PFS (Table 2). It is expected that with grade control drilling some of these ounces will be converted to Indicated category and included in the production material.

There are a number of value enhancement opportunities which may be achieved, as the resource remains open to the west. Exploration from underground development will be an integral part of the operation to test extensions to the west and south of the current defined resource.

Recently, Southern Gold successfully identified additional near‐surface gold mineralisation close to the Cannon Resource both at the Pinner and Monument prospects which, if continued, has the potential to build on the Company’s resource inventory. In addition to high grade near surface intersections at Pinner (approximately 100m south west of Cannon), exciting exploration results from nearby Arsenal (including 54m of Cannon‐like alteration intersected in a 450 x 100m gold in soil anomaly) and Cannon‐south are also considered priority targets to add value to the future development of a mining operation within the Bulong Gold project.

Project Timeline

The PFS was completed by a number of Independent Consultants (Table 3) following the completion of preliminary economic studies that demonstrated that there were several potentially economic development paths for the Cannon Gold resource based on a toll‐treatment scenario. Of these options, the most robust design was selected for the PFS.

Table 3 . The PFS was managed and compiled by Southern Gold, with input from a number of key Independent Consultants.

Independent Consultant	Field of expertise
Capital Mine Consulting (CMC)	Mining design
Peter O’Bryan & Associates	Geotechnical
Minlogix Pty Ltd, ALS AMMTEC	Metallurgical
RPS Aquaterra	Hydrology
Capital Mine Consulting, Ripago Underground Mining Services Pty Ltd	Project estimates and scheduling
JustHR Pty Ltd	Human Resources
de Gand Pty Ltd	Heritage
Strategen Environmental Consultants	Environment

Southern Gold is currently assessing options for financing the proposed mine development. The Board has approved the PFS and agreed to proceed with mine development subject to the outcome of discussions with potential financiers and government agencies regarding approvals for mine scheduling and permitting. Southern Gold has completed a number of requisite studies in parallel with the pre‐feasibility to reduce permitting timelines. Following the Board’s decision, Southern Gold looks toward the first half of 2014 to commence mining operations of its Cannon Gold Resource.

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Contact

For further information contact:

Greg Boulton Nanette Anderson Chairman Managing Director PO Box 255 Ph: 08 8368 8888 Kent Town 5071 Fx: 08 8431 5619 South Australia www.southerngold.com.au

Competent Person’s Statements

Exploration Results

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 five 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.

Resource Table

The information in this report that relates to Mineral Resources is based on information compiled by Mr Aaron Green. Mr Green who is a full time employees of Runge Limited and a Member of the of the Australian Institute of Geoscientists, has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity he has undertaken to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for the Reporting of Mineral Resources and Ore Reserves. Mr Green consented to the inclusion in the ASX announcement (dated 29 January 2013) of the matters based on his information in the form and context in which it appeared. The company confirms that it is not aware of any new information or data that materially affects the information included in this announcement and, in the case of estimates of Mineral Resources, that all material assumptions and technical parameters underpinning the estimates in the January announcement continue to apply and have not materially changed.

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