IONDRIVE LIMITED — Interim / Quarterly Report 2012

Jul 31, 2012

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ASX Code – SAU
June Quarter 2012
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QUARTERLY ACTIVITIES REPORT JUNE 2012

HIGHLIGHTS

Technical

Cannon Gold Resource[1] (Bulong Gold Project, WA)

• Stand‐out results continue from diamond core and RC drilling at Cannon Gold resource. Highest grades achieved to date from intersection of late stage quartz vein with visible gold.

• BSRCD192 4.1m @ 52.98 g/t Au (from 81.9m), including 1.1m @ 192.31 g/t Au (from 92m)

• 5.7m @ 10.60 g/t Au (from 120.7m)

• Resource drilling gives increased confidence of continuity of high grade gold zones, further validating modelled resource envelopes. Stand‐out high grade, or broad gold zones intersected in this programme include:

BSRCD194 15.5m @ 5.19 g/t Au (from 86.5m) and BSRCD195 18.0m @ 3.37 g/t Au (from 96.1m) BSRCD197 4.0m @ 13.54 g/t Au (from 49m) BSRCD199 13.9m @ 6.6 g/t Au (from 81.7m) 8.25m @ 8.58 g/t Au (from 100.1m) BSRCD200 11.1m @ 14.31 g/t Au (from 130.7m) 4.5m @ 33.82 g/t Au (from 131.5m) BSRC211 6.0m @ 12.16 g/t Au (from 20m) BSRC212 11.0m @ 7.85 g/t Au (from 20m)

• Full details of significant assay results below. Assay results for five of the 35 holes drilled are pending.

• Results show mineralisation remains open down dip and along strike.

• Independent metallurgical, geotechnical and environmental consultants completed relevant preliminary test work required to undertake conceptual development studies for the Cannon Gold Resource[1] .

• Finalising key independent consultant studies at this time reduces permitting lead times required for any future development operations that may be decided upon by the Company once evaluation work is completed.

Regional Exploration (Bulong Gold Project, WA)

• First pass air core drill testing of four gold‐in‐soil geochemical anomalies was undertaken with 61 air core (“AC”) holes completed, the results of which are pending. Localised stock‐work quartz was observed with a number of small nuggets recovered along one drill traverse.

1 [ For ‘Resource Statement and Parameters’ and other details of the Cannon Gold Resource as estimated by Runge Limited, see Southern Gold’s ASX Announcement dated 23 June 2011 ]

Quarterly Report for the period ending 30 June 2012

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ASX Code – SAU
June Quarter 2012
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Corporate Highlight

• Agreement reached with Mekong Minerals Ltd whereby Mekong can earn an interest in Southern Gold’s subsidiary Southern Gold Asia by spending up to US$5.7 million over a period of 3 years. Minimum commitment of US$1m in first year. [2]

INTRODUCTION

The June quarter has been one of consolidation, focusing on Southern Gold Ltd’s (“ Southern Gold” or the “Company ”) flagship Bulong Gold project (Kalgoorlie, WA). Following a successful $3.3m capital raising in April 2012, through a non‐renounceable rights issue, and supported by cornerstone investor and Kalgoorlie neighbour (Figure 1) Integra Mining Limited (“Integra”), Southern Gold has made several important steps toward progressing the economic evaluation of the Cannon Gold resource.

At a corporate level , Southern Gold has finalised an agreement with Mekong Minerals Ltd (“Mekong”) which allows the Company to realise value from its Cambodian assets, which were receiving little or no attributable market value within the Company’s portfolio. In the short term, 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 buy‐out option .

Due to the level of success at the Bulong Gold project, Southern Gold has sought to expand the WA project’s footprint through tenement applications and via two farm‐in, joint venture agreements with Heron Resources Ltd (Figure 1). Having met its Stage 1 commitments[3] on both joint venture areas, Southern Gold has recently elected to earn up to 80% over the Heron Bulong East tenement package firmly cementing its position over an area which in the past six months has generated up to 30 prospective new target areas. To date, three of these targets have been tested and require follow up work, and in the June quarter four more of the regional high priority targets were also drill tested.

Substantial work has been undertaken “ on the ground” during the quarter in addition to the drill testing of regional auger gold in soil anomalies. This work was directed toward progressing the evaluation of various development scenarios relating to possible open pit mining and/or underground mining options for the Cannon Gold resource. Reports were received from independent consultants employed over the past 6 months to undertake technical assessment of relevant aspects relating to mining, milling and permitting. The results of these studies are considered to be sufficiently encouraging to warrant a more detailed evaluation of the project.

2[For details of the Mekong Agreement, see Southern Gold’s ASX Announcement dated 05/July/2012] 3 [For details of the Heron Resources JV, see Southern Gold’s ASX Announcement dated 13 April 2012]

Quarterly Report for the period ending 30 June 2012

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ASX Code – SAU
June Quarter 2012
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Figure 1 . Bulong Gold project: showing Heron JV packages and the proximity to neighbouring Integra’s tenement package and nearby gold processing facilities.

TECHNICAL

Cannon Gold Resource Evaluation

With increased focus on Cannon Gold resource[4] (currently estimated to contain 896,000 tonnes at 3.3g/t Au for 94,500 oz Au) at and assessment of the resource’s economic potential, Southern Gold completed 1,035m of diamond core and 2,589m of Reverse Cycle (“RC”) drilling targeting specific areas of the resource. This programme was designed to test the broad high grade zones of the resource to provide a greater level of detail of the nature of the geological host rock and controlling structures. RC holes drilled in the southern zones of the resource targeted potential additional near surface mineralisation.

Southern Gold is encouraged by the similarity of mineralised widths and the grades encountered (Table 1) in relation to holes previously drilled and the current resource model. It is particularly pleasing to note the presence of coarse grained, free gold up to 3mm in size within a massive quartz vein which is reflected in high grades returned from drill hole BSRCD192 of 4.1m @ 52.98g/t from 89m, which included 1.1m at 192.31 g/t (from 92m).

4 [For ‘Resource Statement and Parameters’ and other details of the Cannon Gold Resource as estimated by Runge Limited, see Southern Gold’s ASX Announcement dated 23 June 2011]

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ASX Code – SAU
June Quarter 2012
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Results from holes drilled in the southern portion of the resource (Figure 2) has confirmed the presence of several near surface zones of medium to low grade mineralisation with intersections from as shallow as 9m, with significant results including (see Table 1 full detail of results below):

BSRC209 8m @ 2.75g/t (from 27m depth) BSRC211 6m @ 12.16g/t (from 20m depth) BSRC213 9m @ 3.84g/t (from 9m depth) BSRC215 5m @ 4.13g/t (from 33m depth) BSRC222 3m @ 3.42g/t (from 17m depth)

The diamond drill core obtained provides a much greater level of detail with respect to the controlling lithological features and allows a clearer definition of the extent and nature of the associated alteration. Using this information it is possible to interpret and project possible extensions to the resource and/or structural repetitions that may host Cannon Gold style mineralisation along strike to the south and the north‐east or adjacent to the resource. All of this builds a level of confidence that will assist with any decision to mine by the Board.

To date logging of diamond core and RC samples confirms the nature of the Cannon stratigraphy as variably deformed mafic and ultramafic lithologies which are locally crosscut by mafic and felsic dykes, sub parallel to stratigraphy. Mineralised intervals interpreted from previous RC drilling are confirmed by the core drilling to be intensely quartz veined, altered mafic lithologies associated with variable proportions of fine grained pyrite. With assay results only recently received and with pending results from five of the 35 holes, work in the upcoming quarter will focus ongoing geological and structural interpretation.

The intersection in hole BSRCD200 and the visual identification of alteration over 7.5m from 183m down hole in hole BSRCD204 suggests that the mineralisation is still open to the west on these sections. In addition, the intersections in holes BSRCD194 and BSRCD195 confirm the strength of mineralisation on the north easterly “Cannon trend” (Figure 2).

Conceptual Economic Evaluation Studies

Preliminary evaluation work on the Cannon Gold Resource, commenced at the beginning of the previous quarter, was completed this quarter with geotechnical; metallurgical and conceptual mine planning activities undertaken by independent consultants.

Geotechnical Analysis

Analysis of the three diamond cored holes drilled in the previous quarter confirmed that conditions likely to be encountered in any open pit developed on the Cannon Resource could be managed through prudent mine design parameters and mining practices such as employed elsewhere in the Kalgoorlie district. This study was preliminary in nature and will be further refined as evaluation studies progress.

Preliminary metallurgical testwork

A first pass programme of metallurgical test work on 100kg composite samples of transitional and fresh mineralisation was completed and an assessment report prepared. The samples tested were derived from existing reverse circulation drilling samples, composited together to give approximate

Quarterly Report for the period ending 30 June 2012

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ASX Code – SAU
June Quarter 2012
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head grades that could be expected during mining and processing. Core samples were also tested to determine work indices

The study concluded that the transitional ore is relatively soft with respect to grindability and has approximately 10‐15% gold that could be recovered by means of gravity concentration. However, if gravity recovery is followed by standard means of cyanidation, i.e. CIP or CIL, the overall recovery should be greater than 93%. This recovery estimate appears to be independent of grind size over the range tested (75‐150µm P80).

The transitional ore sample also leaches rapidly post gravity recovery and has very low cyanide consumption. The low cyanide consumption indicates that the leach liquor is likely to be low in copper species or other cyanicide species.

The fresh ore sample tested is only moderately hard with respect to grindability and has approximately 30‐35% gold that could be recovered by means of gravity concentration. However, if gravity recovery is followed by standard means of cyanidation (CIP/CIL), the overall recovery is estimated to be greater than 85%, a value that appears to be partly dependent of grind size. In addition, this ore type leaches rapidly post gravity recovery and has both low cyanide and lime consumptions. Again, the low cyanide consumption shows the leach liquor is likely to be low in copper species or other cyanicide species.

Conceptual Mine Panning

Mine development scenarios were evaluated using current mining and toll treating milling costs and the preliminary metallurgical performance data discussed above. These scenarios, whilst conceptual in nature, indicate that further detailed modelling is warranted.

Permitting Studies

Flora, fauna, hydrological and waste characterisation studies were also completed. These studies were undertaken in parallel with the conceptual technical studies to ensure that the permitting time line could be reduced as far as practical should detailed economic analysis of the Cannon Resource result in a decision to mine. All of the permitting‐related studies have confirmed that there should be no major environmental hurdles to development options for the Cannon Resource

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Quarterly Report for the period ending 30 June 2012

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ASX Code – SAU
June Quarter 2012
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Table 1. Significant Assay Results from Reverse Circulation and Diamond Core Drilling ‐ June Quarter.

Drillhole ID	From (m)	Interval (m)	Grade (g/t Au)
BSRCD190	44.5	1.3	4.43
BSRCD191	22	2	4.75
BSRCD192	71.2	0.9	30.26
BSRCD192	89	4.1	52.98
including	92	1.1	192.31
BSRCD192	107	8.5	4.54
BSRCD192	120.7	5.7	10.60
BSRCD193	31	6	2.36
BSRCD193	64	7	1.95
BSRCD193	88.4	4.7	5.52
BSRCD194	50	2	3.09
BSRCD194	57	2	2.57
BSRCD194	65.8	9.4	1.63
BSRCD194	86.5	15.5	5.19
BSRCD195	63	3.7	4.78
BSRCD195	96.1	18	3.37
BSRCD196	202.5	3.1	3.34
BSRCD197	49	4	13.54
BSRCD198	80	5	3.99
BSRCD198		RC Assays pending
BSRCD199	81.7	13.9	6.61
BSRCD199	100.1	8.25	8.58
BSRCD200	130.7	7.6	21.46
including	131.5	4.5	33.82
BSRCD200	140.6	1.2	10.83
BSRCD201		Assays pending
BSRCD203	118	2	3.42
BSRCD204		Assays pending
BSRC206	55	8	1.35
BSRC209	27	8	2.75
BSRC211	20	6	12.16
BSRC211	38	11	7.85
BSRC213	9	9	3.84
BSRC215	33	5	4.13
BSRC215	51	2	5.65
BSRC218		Assays pending
BSRC219		Assays pending
BSRC220		Assays pending

Analysis by fire assay, 25g charge with detection by Atomic Absorption (Genalysis, Perth: FA25/AA). 1.0g/t cut‐off, 2m maximum width for dilution. No top grade cut off. The down hole intersections comprise length weighted average and may not be ‘true thicknesses’. QA/QC comprised external standards and blanks routinely inserted

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Quarterly Report for the period ending 30 June 2012

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ASX Code – SAU
June Quarter 2012
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Figure 2. Plan view of the Cannon Gold resource Outline (projected to surface) (Bulong Project, WA) Hole Collar locations : red = stand‐out and significant results) blue = low grade or no gold intersections or assays results pending.

REGIONAL EXPLORATION

The regional auger gold anomalies identified in the previous quarter (“A” to “L”, Figure 3) were further refined by analysing anomalous gold samples for a suite of trace elements that characterise the Cannon mineralisation. This “fingerprinting” of the anomalies has highlighted a number of areas not previously considered to be anomalous (Snaresbrook and Brondesbury) and reinforced and enlarged the footprint of other anomalies such as Amersham.

These four anomalies which are located along strike from the Turnpike target, which returned significant gold intersections earlier this year, were tested by air core (“AC”) drilling during the quarter (Figure 3). A total of 61 holes were completed for 2,545m, with results pending. The presence of a localised stock‐work quartz was observed from which a number of small nuggets were recovered was noted on one drill traverse.

The results from this AC programme will be assessed during the next quarter and follow‐up work, where warranted, will be planned.

Assessment of the remaining anomalies, aided by comparison to the Cannon trace element “fingerprint” is ongoing and drill testing will continue once permitting requirements are met.

Quarterly Report for the period ending 30 June 2012

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ASX Code – SAU
June Quarter 2012
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Figure 3. Location of AC drilling on four auger‐gold anomalies – Amersham, Brondesbury, Imperial and Snaresbrook. [Background map: GSWA 1:500000 scale Regional Geological Map].

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ASX Code – SAU
June Quarter 2012
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CORPORATE

Mekong Minerals and Southern Gold Asia

On the 5[th] July Southern Gold announced that it had finalised an earn‐in and shareholders’ agreement (“Agreement”) with Mekong Minerals Limited (“Mekong”) whereby, subject to the satisfaction or waiver of the conditions precedent, 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.

Entering into this Agreement is consistent with Southern Gold’s intention to focus on exploration, evaluation and development at the Bulong Gold project, Western Australia. On finalisation of the Agreement Southern Gold is able to release value by reducing operating costs, while maintaining exposure to future upside in Cambodia.

Bulong East JV (SAU 60%, Heron 40%. Heron retains 100% of nickel laterite rights)

Following successful exploration programmes on the Bulong East tenement package (“Bulong East”), Southern Gold met its Stage 1 Expenditure Commitment of $500,000. On meeting this commitment under the Heads of Agreement for Farm‐In and Joint Venture Agreement entered into on 29 March 2011 with Heron, Southern Gold earns 60% of the Bulong East tenements (ASX announcement, 13 March, 2012).

During this quarter Heron elected not to exercise its option to participate at this level in the joint venture. This triggered Southern Gold’s right, which it has duly exercised, to earn up to 80% of the Bulong East tenements by spending a further $500k. Southern Gold regards this as a logical step in the development of its project portfolio and the growth of its gold business in this region. Formal joint venture agreements will be finalised in the upcoming quarter.

Gaining a greater understanding of both the geochemical “fingerprint” in near surface material of Cannon and the structural context, Southern Gold has set about expanding its tenement position, both through joint ventures and tenement applications contiguous with this area.

The knowledge gained from work at Cannon is being applied to the growing tenement package with the aim of not just identifying gold anomalies, but identifying gold and trace element anomalies that reflect mesothermal lode gold mineralisation that can potentially be large gold systems and structurally controlled. This method also assists in ranking the gold anomalies for follow up drilling.

Work completed in the June quarter has strengthened the foundation of Southern Gold both in a corporate and technical capacity.

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ASX Code – SAU
June Quarter 2012
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CONTACT

For further information contact:

Nanette Anderson

Managing Director

PO Box 255 Ph: 08 8368 8888 Kent Town 5071 Fx: 08 8431 5619 South Australia www.southerngold.com.au

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.

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BULONG GOLD PROJECT
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Location Map : Southern Gold’s Bulong Gold project is located 30 km east of the major gold mining district of Kalgoorlie, Western Australia.

Quarterly Report for the period ending 30 June 2012

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