LION SELECTION GROUP LIMITED. — Interim / Quarterly Report 2013

May 29, 2013

Quarterly report for the 3 months ended 30 april 2013

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SUMMARY

One Asia Resources

• Lion and Asian Lion combined equity interest increased to 35.5%.

• Pani project increases in significance, with the maiden Resource expected imminently.

• Pani is shaping up as being a company making deposit for One Asia.

Markets

• Resources stocks and gold declined as investors favoured high yield – this presents opportunities for investors with a long term view.

Lion PeRfoRMAnce

The performance data below shows that Lion has performed well in both the long term and the short term, including since re-listing on ASX in March 2013. In particular we believe our historic long term performance compares well relative to other fund managers and listed investment companies. Past performance is no guarantee of future performance, but we believe the sustained performance illustrated below endorses the Lion investment model which importantly has remained unchanged. Lion continues to focus on companies with quality people and projects, with the advantage of being able to take a long term investment view.

Annualised Total Shareholder Return[1-6]

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40%
Annualised TSR ASX Small
Lion
to 31 Apr 2013 Resources
20%
1 Year 3.3% -49.2%
3 Years 7.4% -21.2% 0%
5 Years 28.4% -16.4%
-20%
10 Years 19.7% 8.8%
15 Years 16.7% 5.7% 4-0%
Lion ASX Small Resources
Inception (15.8 yrs) 14.7% 4.6% -60%
1 Year 3 Year 5 Year 10 Year 15 Year Return since
Return Return Return Return Return inception
28.4%
19.7% 16.7% 14.7%
7.4%
3.3%
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1. Investment performance figures reflect the historic performance of Lion Selection Group Limited (ASX:LSG, 1997 – 2007), Lion Selection Limited (ASX:LST, 2007-2009), Lion Selection Group Limited (NSX:LGP, 2009-2013) and Lion Selection Group Limited (ASX:LSX, 2013-present).

2. Methodology for calculating total shareholder return is based on MorningStar (2006), which assumes reinvestment of distributions.

3. Distributions made include cash dividends, shares distributed in specie as a dividend, proceeds from an off market buyback conducted in Dec 2008, and the distribution of shares in Catalpa Resources via the demerger of Lion Selection Limited in Dec 2009. Lion assume all distributions are reinvested, with all non-cash distributions sold and the proceeds reinvested on the distribution pay date.

4. Investment performance is pre-tax and ignores the potential value of franking credits on dividends that were partially or fully franked.

5. Past performance is not a guide to future performance.

6. Source: IRESS, Lion Manager.

The SecToR

The turbulence in the mining sector continued unabated this quarter, particularly for gold which suffered one of its most precipitous falls in history. Gold has regained some of its lost ground, but equity markets remain skittish around the events that caused such volatility and whether they might reoccur.

Lion has historically invested around 50 percent of its available funds into gold. This weighting is largely driven by the relative simplicity of gold projects and the substantial available deal flow rather than a particular view on the commodity. Our perspective is that the key themes influencing the gold markets at present are long term supportive of gold, including an extended period of negative real interest rates and extremely strong physical demand for gold*.

With low interest rates and global financial markets awash with liquidity, yield has been the key value driver for many investors. As the chart below highlights, industrials largely driven by banking stocks have performed strongly. Large resource stocks have held their own, possibly due to their yields which are anticipated to improve as more cost discipline is enforced. Perhaps one of the most surprising developments from a market cycle perspective was Rio Tinto’s decision to sell many of its ‘non-core’ assets. This type of behavior is generally undertaken when assets are overvalued near the top of a cycle which doesn’t appear to be the case, possibly reflecting Rio Tinto being reactionary to shareholder demands.

The most telling factor in the chart below is that growth oriented juniors are most certainly not the flavour of the month, effectively offering negative yield with the on-going need for capital. The bleak market for juniors

Resources vs industrials, 2013 year to date:

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%
140
120
100
80
ASX100 Resources
60 Small Resources
ASX100 Industrials
40
1 Jan 2013 24 May 2013
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Source: IRESS

• Australian Resources indices have undergone a steady decline since the start of 2013, as investors broadly switched to industrials chasing yield.

• • Smaller Resource stocks have suffered more than large caps, reflecting their higher levels of funding and sole project risks and lower / lack of yield.

has been exacerbated by a number of institutions facing redemptions prompting fire sale like exits from many extremely illiquid juniors, thereby cratering prices. Lion, as a listed investment company, is not subject to redemptions – perhaps a more appropriate funding match of long term shareholders with long term investments.

Among mining equities, gold stocks have suffered the most, following the substantial decline in the price of gold during 2013. The chart below prepared by Melbourne based MiningPulse shows that the ‘best’ (ie least negative) performing group of gold stocks has been explorers. One possible explanation for this could be that all companies with gold exposure were sold down along with gold, explorers rebounding because they had already experienced substantial discounting prior to 2013 in comparison to their more advanced peers.

Historically there has been a good correlation between the performance of large and small mining stocks. Events where there has been a sustained bifurcation of performance have been rare, the last notable occurrence was the period 1998-2002, brought on by the Bre-X scandal and Asian currency crisis. Performance became strongly correlated again in the mining boom that followed.

Contrarian investors will realise that these dynamics will not last forever, but an extended bear market may create a natural selection event for many juniors. To the extent that available funds allow, Lion will seek to take advantage of opportunities both from its existing portfolio and new companies that meet Lion’s investment criteria.

• Lion Manager has recently compiled a review of gold in the latest LionAnalyst, which was distributed to shareholders by email (according to email contact details on record with Computershare). If you have not received the LionAnalyst, please contact jrose@lsg.com.au to request your copy.

ASX gold producers, developers and explorers, 2013 year to date:

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1.2
1.1
1
0.9
0.8
0.7 Producers
Developers
0.6 Explorers
Newcrest
0.5
0.4
1 Jan 2013 1 Feb 2013 1 Mar 2013 1 Apr 2013 1 May 2013
courtesy MiningPulse: www.miningpulse.com/market-insights
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• Comparative performance of gold stocks since the start of 2013 .

• Australian gold companies have also declined through 2013, most notably a substantial drop in April 2013 coinciding with the gold price fall.

• Most curiously the grouping of explorers has traded sideways to up following the gold price drop, whilst producers and developers have continued to suffer.

page 2 | Quarterly report 30 APRiL 2013

inveSTMenT newS

one Asia Resources Limited

One Asia is an unlisted emerging gold producer focused on the development of two gold mines in Sulawesi, Indonesia.

Lion has increased its ownership in One Asia through exercising options, and the combined equity interest of Asian Lion and Lion is now 35.5%.

On 21 May 2013 One Asia held its Annual General Meeting of shareholders in Melbourne, where the company advised it expects to deliver a maiden JORC Resource for the Pani Project (One Asia: 90% economic interest) in early June 2013. The Resource is presently being independently reviewed by SRK Australasia as an Independent Consultant. The company has previously reported an exploration target for the Pani Project of 2.2-2.5Moz of gold (refer to the Lion Selection Group Quarterly report for the period ended 31 January 2013).

In addition to the anticipated maiden resource, One Asia continues to identify extensions to the known mineralisation in most directions, with very encouraging results to date including:

Hole

Hole
PDH 69 169m	at 1.3g/t	Au Pani Valley
PDH 71 224m	at 0.9g/t	Au Goroba Ridge
PDH 75 290m	at 0.6g/t	Au Goroba Ridge

One Asia Chairman John Quinn made the following remarks in the Chairman’s letter which was contained in the 2012 Annual Report for One Asia Resources:

It has been my good fortune to be associated with several gold discoveries over my 45 year career. Prior to joining One Asia Resources, only two of those discoveries, Telfer and Ridgeway, stood out as company makers. Pani has the potential to be a company maker for One Asia’s shareholders – one of those rare deposits that can be developed at relatively modest capital cost and should produce gold over a significant mine life at comparatively low operating costs. It is for those reasons that the Company is accelerating the Pani development.

John Quinn, Chairman One Asia

As previously announced, One Asia’s other project, Awak Mas (One Asia earning 80%) has JORC resources of 2.142Moz of gold with an additional 0.5-0.9Moz of gold in an Exploration Target. One Asia has completed a pre-feasibility study that contemplates development of the Awak Mas Resource.

Further information on One Asia is available at www.oneasiaresources.com.

As disclosed previously, results of initial metallurgical test work being undertaken in Australia have indicated excellent recoveries from low cost heap leach processing. Free gold is commonly observed in higher grade portions of the deposit, including the fresh rock which is also highly amenable to leaching.

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Quarterly report 30 APRiL 2013 | page 3

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SUMMARY of inveSTMenTS AS AT 30 APRiL 2013
Market Value Portfolio
Commodity
A$M %
Australia
Doray Minerals Gold 4.0
YTC Resources Gold/Base Metals 2.0
Rum Jungle Resources Phosphate 2.1
Auricup Resources Gold 1.9
Other Australia 0.4 18%
African
Kasbah Resources Tin 1.7
Toro Gold Gold 2.0
Other Africa 3.1
Cash dedicated to Africa [1] 4.5 19%
Asia
One Asia Resources [2] Gold 20.3
Sihayo Gold Gold 3.7
Manas Resources Gold 1.2
Other Asia 2.2 47%
Americas Iron Ore/Coal 1.0 2%
Uncommitted Net Cash 8.6 14%
Net Tangible Assets $58.7m 67c/ share
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1. Includes committed cash of US$3.9m to AFL3.

2. One Asia at a value of A$0.75/share. Look through beneficial ownership of 28.9%.

Note: The above table includes investments held directly by Lion and the value to Lion of investments which are held by African and Asian Lion Funds.

Lion Selection Group Limited ABN 26 077 729 572 level 4, 15 Queen street, melbourne Vic 3000

t: +61 3 9614 8008 f: +61 3 9614 8009 www.lsg.com.au enquiries: hedley Widdup – hwiddup@lsg.com.au Jane rose – jrose@lsg.com.au

nSX code: LGP (ASX code: LSX) As at 30 April 2013

market Cap: $55m issued shares: 88m share price: $0.62