LION SELECTION GROUP LIMITED. — Interim / Quarterly Report 2014

May 28, 2014

Q ua r t e r ly r e p o r t f o r t h e 3 m o n t h s e n d e d 3 0 a p r i l 2 0 1 4

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SUMMARY

Markets

• Mining equity markets have maintained their low ebb, with limited further downside perceived.

• Some signs of liquidity in resource stocks, including improving signs of M&A activity and recognition of improved cost discipline.

• Good projects continue to get financed.

One Asia investment

• One Asia continues to work to remedy the challenge to ownership of Pani project.

• Once resolved, One Asia will move forward on the Pani project, and Macquarie Bank Limited has been mandated to provide $150 million finance for Pani.

• One Asia released an updated scoping study with respect to Awak Mas incorporating the higher grade Salu Bulo deposit proximal to Awak Mas. Both capital and operating costs have been reduced.

Lion PeRfoRMAnce

The performance data below shows that Lion has provided attractive returns over the long term, in both an absolute sense as well as in comparison with the closest reference index. We place the greatest emphasis on long term returns (5+ years), as this timeframe best matches the investment timeframe approach used by Lion. 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 takes a portfolio approach to invest in companies with quality people and projects, with the advantage of being able to take a long term investment view, elements which are essential to generating excess returns from the small resources sector.

Annualised Total Shareholder Return[1-6]

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40%
Annualised TSR to ASX Small
Lion
30 April 2014 Resources
20%
1 Year -26.6% -15.7%
3 Years -15.3% -29.9% 0%
5 Years 18.8% -9.7%
-20%
10 Years 13.9% 2.9%
15 Years 15.6% 5.9% -40%
Lion ASX Small Resources
Inception (16yrs) 11.7% 3.2% -60%
1 Year 3 Year 5 Year 10 Year 15 Year Return since
Return Return Return Return Return inception
18.8%
15.6%
13.9% 11.7%
-26.6% -15.3%
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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

Mining equity indices largely tracked sideways during the quarter, supporting the view that mining equities have stabilised and that the worst appears to be behind us. Mining booms are generally slower to start than to end, and any move back towards a boom is likely to be gradual as sentiment improves.

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Cycle 1999–2008 2009–2013 New Cycle
%
GFC market recover Market retraction Market separation
140
Risk appetite propped up by Coincided with debt Junior miners under perform
economic stimulus and China worries in Europe and major mines while broader
growth, which eventually wore off the longevity of global market trends up
120
economic recovery
100
80
60
40
20 Rebased to April 2011
0
Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
ASX100 Resources ASX Small Resources All Ordinaries
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The major issue impacting sentiment is poor profitability due to a pullback in commodity prices and an increase in costs. During the boom costs escalated as miners competed with each other for finite skilled people and resources, pursuing what often turned out to be sub-optimal growth. More recently mining companies have, across the board, culled their development budgets and non-performing assets. It is likely that the baby has been thrown out with the bathwater in some cases, with companies such as Northern Star positioning themselves to benefit from majors seeking to exit non-core assets. A number of companies have reported improved profitability and their share prices have responded accordingly, although trust in the industry will take some time to be rebuilt. Pre-production assets are likely to remain bottom of the pile due to the lack of cashflow and competition for risk capital from non-mining growth opportunities such as the technology sector. Notably good projects do continue to get financed, however value growth is likely to be slow and steady rather than explosive.

Sentiment could recover quickly if M&A activity picks up or there are exploration success stories. Notably there are signs that M&A activity has picked up with a number of active deals as we go to press. The main acquirers are strategic buyers – Chinese and mid-tier companies. There remains a disconnect between these buyers acting on cheap valuations and what the market at large is prepared to pay.

page 2 | Quarterly report 30 APRiL 2014

inveSTMenT newS

one Asia Resources Limited

Lion Selection Group and Asian Lion own a combined equity interest of 36% of One Asia Resources, an Australian unlisted public company. One Asia is focused on the development of two gold mines in Sulawesi, Indonesia.

One Asia continues to take all actions necessary to protect and enforce its interest in the Pani Gold project under the existing agreements with the KUD Dharma Tani (KUD). One Asia notes these arrangements remain in full force despite Indonesian media reports that the KUD had signed a co-operation agreement with a subsidiary of publicly listed Indonesian company J Resources. One Asia remains committed to developing the Pani Gold project, including mandating Macquarie Bank Limited (MBL) to provide up to US$150 million of capital to fund the development and all associated costs of the Pani Gold Project, and continuing to work with and support the local community as it has in the past. Upon a successful resolution, One Asia, with the support of MBL, will move to develop the Pani site for gold production activities in line with existing plans, which will deliver substantial benefits to the local community around the Pani Gold Project and the Gorontalo Province.

One Asia released an updated scoping study for its 100% owned Awak Mas project incorporating the Salu Bulo deposit, approximately 2km from the main Awak Mas deposit. One Asia remodeled the mine plan for the Awak Mas pre-feasibility study to factor in the higher grade material at Salu Bulo enhancing the economics of the project. As announced previously, the Awak Mas project has a JORC Resource of 2.55 Moz gold and is held under a 7th generation Contract of Work.

One Asia remains Lion’s largest investment, representing a material component of Lion’s net tangible assets. Lion’s investment model involves weighting investment towards the best opportunities in the portfolio, which from time to time results in concentration of Lion’s portfolio towards specific investments. The Lion board is conscious of the issues of portfolio balance but is of the view that the potential reward from a concentration of the portfolio in One Asia outweighs the risks if the challenges of developing a mine in Indonesia can be overcome.

PRoJecT PARAMeTeRS AnD finAnciAL MoDeL oUTPUTS SUMMARiSeD BeLow	PRoJecT PARAMeTeRS AnD finAnciAL MoDeL oUTPUTS SUMMARiSeD BeLow	PRoJecT PARAMeTeRS AnD finAnciAL MoDeL oUTPUTS SUMMARiSeD BeLow	PRoJecT PARAMeTeRS AnD finAnciAL MoDeL oUTPUTS SUMMARiSeD BeLow
AwAK MAS PRoJecT(2.5mtpa Cil processing plan)
	Unit		Value
Mine Life (Processing)	Years		8
Processed	Tonnes		19,994,702
Head Grade	Au g/t		1.54
Gold Recovery :	Overall		90.00%
Recovered Ounces Gold	Oz Au		887,279
Average Annual Gold Production for frst 4 years	Oz Au		127,251
	US $/Oz		Total Project US $,000
Total Net Revenue from Gold Sales	$	1,300	1,153,463
Total C1 Cash Costs	$	576	510,773
Corporate Tax	$	105	92,798
Sustaining Capital LOM	$	19	17,043
Corporate Admin Costs (100%)	$	11	10,000
Total C2 Sustaining Costs	$	711	630,615
CAPEX Pre-Production	$	254	225,750
Total C3 All in Costs	$	965	856,365
IRR	24%
NPV (7.5% Discount Rate)	$155,069,000
Pay Back Period from Start of Operations	3 years
Breakeven Gold Price (Unlevered free cashfow)	$832/oz

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SUMMARY of inveSTMenTS AS AT 30 APRiL 2014
Market Value Portfolio
Commodity
A$M %
Australia
Doray Minerals Gold 6.7
Rum Jungle Resources Phosphate 2.1
Auricup Resources Gold 1.5
Other Australia 0.1 16%
African
Roxgold Gold 4.0
Toro Gold Gold 1.9
Kasbah Resources Tin 1.5
Other Africa 1.5
Cash dedicated to Africa [1] 2.7 18%
Asia
One Asia Resources [2] Gold 29.6
Asian Mineral Resources Nickel 2.0
Sihayo Gold Gold 1.3
Manas Resources Gold 0.8
Other Asia 0.7 52%
Americas Iron Ore/Coal 0.7 1%
Uncommitted Net Cash 9.1 13%
Net Tangible Assets $66.2m 62c/ share
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1. Includes committed cash of US$2.4 million to AFL3.

2. One Asia at a value of A$0.75/share.

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

ASX code: LSX As at 30 April 2014

market Cap: $48m issued shares: 106m share price: $0.455