IONDRIVE LIMITED — Capital/Financing Update 2015

Jan 18, 2015

ASX Release 19 January 2015

50% increase to the Cannon Project’s Forecast Free Surplus Cash Flow as Grade Control and Sterilisation drilling commences

HIGHLIGHTS

ASX Code: SAU Issued Shares: 422.6M Market Capitalisation: $4M ABN: 30 107 424 519

Directors

Greg Boulton AM Nanette Anderson Michael Billing David Turvey

Finance

• Cannon Project’s PFS free cash flow forecast value reaches A$18.5m as A$Gold price hits A$1500/oz (current gold price A$1550/oz);

• The improved economics results in a 50% increase in free cash flow to the PFS base case scenario;

• Mine finance in place through Mine Finance and Profit Share agreement with Metals X Limited (MLX).

Operations

• Grade Control and Sterilisation drilling commences at Cannon;

• On schedule for commencement of mining March/April;

• Metals X to manage all services required for mining, haulage and treatment (Operating Activities) of ore from the Cannon deposit.

Top Shareholders

Silver Lake Resources Ltd 10.24% G B Branch 5.56% JP Morgan Nominees 4.32% G Boulton Pty Ltd 2.58%

• Operating Activities will be charged on an at-cost, open-book basis for the duration of open pit mining and/or underground mining.

Southern Gold Ltd (ASX: SAU – “Southern” or “the Company) is pleased to provide and update on the mine development and permitting pathway for its high grade Cannon Gold Project, located 30km from Kalgoorlie in WA.

Head Office 229 Greenhill Road

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

Buoyed by the recent upturn in the A$ gold price the value of the Cannon Gold Project has increased by 50% from the base case of the Cannon Gold PreFeasibility Study (PFS) scenario, calculated at A$1400/oz. Under the forecast A$1500/oz PFS scenario, the Cannon Gold project’s free surplus cash flow is estimated at $18.5m (Table 1).

The forecast free surplus cash flow estimates in the following table are calculated at a nominal gold price, after infrastructure and operating costs, but do not include any potential cost benefits that may be achieved under the terms of the Metals X Mine Finance and Profit Share Agreement.

Table 1. Cannon Gold Project – PFS Forecast Free Cash Flow

Item	Units	Revised Costs Scenario 1 A$1,350/oz Au	Revised Costs Base Case A$1,400/oz Au	Revised Costs Scenario 2 A$1,500/oz Au
Mine Life (Phase 1 & 2)	Months	36	36	36
Mined Ounces1	oz Au	68,200	68,200	68,200
Recovery (ave)	%	92	92	92
Operating Cost (C1)	A$/oz	964	964	964
WA State Royalty2	%	2.5	2.5	2.5
Free surplus cash flow3	A$M	9.3	12.4	18.5

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. Note 3: See ASX Announcement 13 February 2013 for details

DEVELOPMENT TIMETABLE

Work completed in the last quarter of 2014 has underpinned the significant progress of permitting the Cannon Project in readiness for commencement of mining in 2015. Two key approvals have been granted to date, allowing Southern to submit the Mining Proposal, Closure Plan and Vegetation Clearing Permit. Table 2 shows the estimated approval timeline, in line with the WA Department of Minerals and Energy (DMP) standard timeline guidelines.

Table 2. Pre-Development/Permitting Timetable

ACTIVITY	FINALISED	DEC	JAN	FEB	MAR	MAR	APR	MAY
Project Funding	�
Permitting
- Project Management Plan	�
- Miscellaneous Licence (A)	�
- Mining Proposal		Submitted
- Environmental Management Plan		Submitted
- Closure Plan		Submitted
- Vegetation Clearing Permit			Submitted
- Miscellaneous Licence (B)			Submitted
Pre-Development
- Grade Control Drilling			Commenced
- Sterilisation Drilling			Commenced
- PFS and Mine Design optimised
- Pre-strip/Miningcommence
- Haul Road construction
- Railway crossing construction

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Receipt of DMP approval for the Project Management Plan, Mining Proposal and associated licence and permit applications will enable Southern gold to commence initial development works, including infrastructure set up, haulage road construction and other initial site works by the end of March and commencement of pre-strip and mining by early April 2015.

The PFS forecast free surplus cash flow estimates are calculated at a nominal gold price, after infrastructure and operating costs. Under the terms of the Metals X Mine Finance and Profit Share Agreement there are a number of cost benefits. The feasibility study is currently being optimised incorporating these cost benefits and improved market conditions. This could see a lower cut-off grade applied to the mine model and therefore potential for additional ounces to be added to the mining inventory.

Based on the positive progress to date of the permitting schedule, the Company looks to capitalise on this opportunity, setting the foundation for longer term growth and shareholder value.

BACKGROUND

Southern Gold completed a positive Pre-Feasibility Study (PFS) on the Cannon Gold resource which was optimised in February 2014 (ASX, 13/02/2014), confirming the viability of an open pit and underground development strategy and toll-treatment scenario. The resource is located within the Company’s Bulong Project area, situated 30km south-east of Kalgoorlie, within economic haulage distance of a number of third party gold processing facilities (Figure 1).

The company secured finance for the project in November 2014 through an agreement with Metals X Limited, who will finance and manage all services required for mining, haulage and treatment of ore from the Cannon deposit, for a 50:50 profit share.

Under the arrangement, the parties will aim to complete the Phase 1 development of the open pit within 12 months of commencement, with an option at that point for the parties to agree to proceed with the Phase 2 underground development. It is anticipated that positive cash flows from the Phase 1 open pit development will underpin the Company’s growth and establish a foundation for the Phase 2 underground development. The current feasibility study estimates that approximately 20,000 ounces of gold will be produced in Phase 1 from the total mining inventory of 68,000 ounces (ASX, 29/08/2013).

The arrangement with Metals X provides Southern with the opportunity to reduce project risk by working with an experienced and well-funded mining company to develop the Cannon Gold Project.

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Figure 1. Southern Gold’s tenement holding. The Bulong Project is located 30km east of Kalgoorlie, WA. The map shows the proximity of Southern Gold’s tenements to neighbouring tenements held by companies with market capitalisations greater than $70m. It also shows the proximity to Metals X’s Jubilee Mill.

CONTACT

For further information contact:

Nanette Anderson Ph: 08 8368 8888 Managing Director Fx: 08 8431 5619 www.southerngold.com.au

Competent Person’s Statement

The information in this report that relates to Mineral Resources is based on information compiled by Mr Ian Blucher (MAusIMM). Mr. Blucher is a full time employee of Southern Gold Limited and has sufficient experience that is relevant to the style of mineralisation, type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (JORC, 2012). Mr Blucher consents to the inclusion in this report of the matters based on the information in the form and context in which it appears.

Pre-Feasibility Study Results

The Optimisation announcement dated 13 February 2014 had no material changes to the methodology and assumptions used to determine the production target as detailed in the PFS announcement of 28 August 2013, all key parameters continue to apply. There are no material changes to the methodology used to calculate operating costs as outlined in the PFS announcement.

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