IONDRIVE LIMITED — Interim / Quarterly Report 2012

Apr 29, 2012

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ASX Code – SAU
March Quarter 2012
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QUARTERLY ACTIVITIES REPORT MARCH 2012

HIGHLIGHTS

Corporate

• $4.66 million raised via a A$1.35 million placement of shares (at 5 cents) per share to Integra Mining Ltd (Integra) and a fully underwritten non-renounceable rights issue for A$3.31 million (note closing date post the March quarter).

• Cornerstone investor Integra holds 12.48% after supporting the Rights Issue.

• Southern Gold earns 60% of Bulong East tenements under the Heads of Agreement for Farm-In and Joint Venture Agreement with Heron Resources Ltd (“Heron”).

Technical

Cannon Gold Resource (Bulong Project, WA)

• High grade gold zones validating modelled gold (“Au”) resource envelopes intersected in 3 diamond holes drilled for metallurgical, geotechnical and hydrogeological testwork.

• Best drill intersections include BSDD3 16m @ 12.93 g/t Au (from 107m), BSDD4 2m @ 14.2 g/t Au (from 89m), 1m @ 21.24g/t Au (from 110m) and BSDD2 6.1m @ 3.02g/t Au (from 35.45m) and 2m @ 6.04 g/t Au (from 36m).

• First pass metallurgical test work of the Cannon Gold Resource (“Cannon”) shows moderate gold recoveries from transitional and fresh rock and indicates that both ore types are relatively “soft” which is positive when considering milling time periods.

Near Resource and Regional Exploration (Bulong Project, WA)

• First pass drilling of Turnpike prospect returned positive gold intersections from all 10 drill holes over an area of 600m x 100m, with highest gold intersection of 7m @ 8.31g/t Au from 26m depth.

Upcoming Activity

• Further geotechnical and metallurgical drilling to establish conceptual pit design parameters and studies into the performance characteristics of Cannon Gold mineralisation.

• Development of structural models to aid evaluation of deeper targets.

• Heritage clearances and commencement of air-core follow-up drilling of auger-gold anomalies

Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March Quarter 2012
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INTRODUCTION

Work completed in the March quarter has strengthened the foundation of Southern Gold both in a corporate and technical capacity. Completing a placement of shares for $1.3m to Southern Gold’s Kalgoorlie neighbour (Figure 1) and ASX 200 company Integra Mining Ltd (“Integra”) and a fully underwritten rights issue to raise $3.3m[1] sees the company well funded for its upcoming key work programmes. These include the economic evaluation of development opportunities for Cannon[2] and the ranking and drill testing of newly generated regional targets.

After the initial resource model for Cannon was outlined in 2010 it was apparent to Southern Gold that this Bulong region, historically thought of more as a “nickel belt”, had greater potential for gold than previously considered.

Gaining a greater understanding of both the geochemical “signature” in near surface material of Cannon and the structural context, Southern Gold has set about expanding its tenement position, both through joint ventures (e.g. Heron Resources – Figure 1) and tenement applications contiguous with this area.

The knowledge gained from work at Cannon is applied to the growing tenement package. The aim is not just to identify gold anomalies, but to identify gold 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.

The success of the regional auger geochemical program to date is shown by the identification of over 10 new gold targets that have a similar geochemical signature to Cannon. First pass drilling of a gold anomaly (Turnpike) identified by the auger program has intersected gold mineralisation in all ten holes drilled into the anomaly, covering an area of 600m x 100m.

Funds invested through the recent capital raising will be directed to both the development of Cannon Gold resource and these regional gold anomalies. Details of the upcoming drill programs planned for the June quarter are presented below.

CORPORATE – Capital Raising

In January Southern Gold and Integra Mining executed a Share Subscription Agreement whereby Integra agreed to take a placement of Southern Gold shares equal to 10% of the expanded share capital at $0.05 per share to develop Southern Gold’s wholly owned Cannon Gold Resource.

1 [closing on the 5th April the funds from the rights issue were received post the 31 March 2012 and are therefore not reflected in the corresponding Appendix 5B]

2 [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 22 June 2011]

Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March Quarter 2012
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Under the Share Subscription Agreement Southern Gold has 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 Southern Gold’s Cannon Gold Resource or purchase the Cannon Gold Resource mining lease. The pre-emptive right will have a maximum term of 3 years from completion of the placement and will be conditional on Integra not disposing of any of the placement shares to a third party.

The business partnership is a natural fit between the two Kalgoorlie neighbours in Western Australia (Figure 1). In parallel with the Integra share placement, Southern Gold raised an additional $3.3 m fund through a non-renounceable pro rata rights issue, fully underwritten by BBY Ltd.

Pursuant to the Share Subscription Agreement Integra took up its full entitlement under the rights issue and elected to take up additional shortfall shares to increase its shareholding in Southern Gold to 12.48%, making Integra Southern Gold’s largest shareholder, an important cornerstone investor.

The funding premium paid by Integra Mining for the placement shares and having now increased its shareholding in Southern Gold through the rights issue to 12.48%, highlights the value placed by our industry peer on the high quality and potential of the Cannon Gold Resource and Bulong Gold project.

All Directors of Southern Gold took up their full entitlement under the rights issue.

CORPORATE – Bulong East JV (Completion of Stage 1: 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.

Securing 60% of the Bulong East tenements, which are contiguous with the Company’s Bulong South tenements, 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.

In recent times, the Bulong area has been the focus of nickel laterite exploration, and has therefore been underexplored for gold. The discovery of Southern Gold’s nearby Cannon gold resource and continued positive results from regional geochemical surveys and focused drill programmes highlights the significant gold potential of the project.

Heron continues to be encouraged by the progress being made by Southern Gold and believes there is good potential for making significant gold discoveries in the area.

Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March 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.

Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March Quarter 2012
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TECHNICAL – Cannon Gold Resource Evaluation

The preliminary economic evaluation work on the Cannon Gold Resource commenced at the beginning of the quarter and included drilling 3 diamond drill holes to collect samples for metallurgical and geotechnical test work. All 3 drill holes intersected gold mineralisation (Table 1). One hole orientated to intersect a resource envelop (BSDD3) intersected a similar wide high grade zone as previous drilling.

Table 1. Assay results from 3 diamond core drill holes, drilled for geotechnical and metallurgical test work.

Drillhole	Total Depth (m)	Drill Depth From (m)	Drill Depth From (m)	Interval (m)	Grade (g/t Au)
BSDD2	146		26.13	2.87	2.82
			35.45	6.16	3.06
		including	36	2	6.04
BSDD3	143		107	16	12.93
		including	115.95	5.71	32.28
BSDD4	125		89	2	14.21
			95.6	9.40	2.88
		including	97	2	5.93
			110	1	21.24

Analysis by fire assay, 25g charge with detection by Atomic Absorption (Genalysis, Perth: FA25/AA). 0.5g/t cutoff, 2m maximum width for dilution. No top grade cut off. The downhole intersections comprise length weighted average and may not be ‘true thicknesses’. QA/QC comprised external standards and blanks routinely inserted

Preliminary metallurgical testwork

A first pass programme of metallurgical test work on 100kg composite samples of transitional and fresh mineralisation has been completed and a final report is under preparation. The samples tested were derived from existing reverse circulation drilling samples, composited together to give approximate head grades that could be expected during mining and processing.

The transition 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).

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Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March Quarter 2012
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Figure 2. Plan view of Cannon Gold Resource outline

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.

Environmental Surveys and Permitting Activities

A gap analysis has been completed in relation to establishing the works required to ensure that a Mining Proposal and Mine Closure Plan can be prepared. This analysis indicates that, based on the current understanding, there are unlikely to be significant matters that will impede the permitting process. Consultants have been engaged to undertake flora, fauna, hydrology and waste characterisation studies which are required to support the permitting documentation. The seasonally constrained nature of flora studies means that for these studies regarding the permitting documentation may not be complete until late in the September quarter, 2012.

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Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March Quarter 2012
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June Quarter Activities

Test work continues to advance the economic evaluation of development options for the current Cannon Resource[3] outline, and will underpin the mine permitting process. A RC and diamond drilling programme is planned in and around the current resource to firm up boundaries and to test near surface locations and down dip gold mineralisation. Up to 3000m will be drilled, with approximately 30%being diamond core.

All other permitting works are proceeding in line with the current schedule.

TECHNICAL – REGIONAL EXPLORATION - BULONG GOLD PROJECT

Regional exploration during the quarter focused on refining the extent and tenor of the gold-auger anomalies identified in 2011. A recent follow-up RC drill programme of 22 drillholes for some 2,052m was completed. Four metre composite assays have been received and indicate the presence of a number of encouraging gold mineralised zones with better results including 4m @ 6.8g/t gold from 24m downhole and 4m @ 4.5g/t gold from 76m downhole (from the same drillhole). One metre splits will be assayed from the mineralised intervals and follow-up programmes planned.

Regional Auger Sampling

Infill auger sampling to close-up sampling spacing to approximately 100m x 50m over the areas of interest defined last quarter (Figure 3) was completed for a total of 1579 samples. The samples have been submitted for analysis, testing for gold and a suite of base metal elements. Initial results have only been recently received and a detailed assessment of these results will be completed in the coming quarter. Preliminary interpretation indicates that the original anomalies identified are valid and have a similar extent and consistent values compared to the previous first pass sample results.

Following receipt and interpretation of all new results, prioritisation of targets for follow-up drill assessment will commence.

Regional RC Drilling

Twenty two RC drill holes for 2052m were drilled at the Hammersmith, Perivale and Turnpike prospects during the quarter to follow-up regional gold-in-calcrete soil anomalies (Figure 3).

Results of 1m sub-sampling has highlighted the prospectivity of Turnpike, returning encouraging results including narrow high grade gold intervals from 26m depth of 7m @ 8.31g/t Au (including 1m @ 55.12 g/t Au) and 15m @ 0.59g/t Au (including 1m @ 6.23g/t Au) from 67m in the same hole (Table 1).

Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March Quarter 2012
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All 10 holes drilled at Turnpike over an area of approximately 600m x 100m intersected gold mineralisation, however the southern zone of the prospect appears the more highly mineralised, as seen in holes BERC19 to BERC22 (Table 1). First pass drilling was conducted on widely spaced lines with approximately 50m spacing (Figure 2). Due to the size of the soil geochemical anomaly and the encouraging drill results, the Company believes that further test work evaluating the extent and continuity of the high grade intersections is warranted.

The drilling at Hammersmith and Perivale (Figure 3) has identified zones of low grade mineralisation between 3m to 9m wide which will be evaluated to determine if follow up test work is required. In addition to these three targets a further nine anomalies are yet to be tested.

Southern Gold has been able to leverage off its discovery experience in this area and apply this knowledge to the Bulong East tenement holding. Southern Gold regards securing 60% of the Bulong East tenement, which is contiguous with the Company’s Bulong South and Clinker Hill tenements (all three collectively referred to as the Bulong Project), as a logical step in the development of its project portfolio and the growth of its gold business in this region.

Given the success of this drill programme and the recent generation of additional targets with both gold plus a suite of elements similar in signature to the Cannon resource, work on regional targets will involve ranking the targets, selecting a minimum of 5 targets for first pass air core drilling.

The majority of exploration work will continue at Southern Gold’s flagship Bulong Gold project, with geochemical and geophysical surveys and assessment and follow up aircore and reverse circulation (RC) drilling of near resource and regional targets, aimed at growing the Company’s current resource base. While the Company’s focus will be primarily on the Bulong Gold project, exploration and evaluation of Southern Gold’s South Australian Challenger project will continue.

The work to be completed on the Cannon Gold resource is seen as the “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.

Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March Quarter 2012
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TURNPIKE
PERIVALE
HAMMERSMITH
CANNON
GOLD
RESOURCE
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Figure 3. RC drilling targeted 3 gold-auger anomalies – Turnpike, Hammersmith and Perivale. Infill auger sampling was completed on the remaining high priority auger anomalies. [Background map: GSWA 1:500000 scale Regional Geological Map].

Quarterly Report for the period ending 31 March 2012

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ASX Code – SAU
March 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 (BSc) 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 31 March 2012

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