LION SELECTION GROUP LIMITED. — Interim / Quarterly Report 2014

Mar 2, 2014

Quarterly report for the 3 months ended 31 january 2014

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SUMMARY

Markets

• Improved gold price as ETF outflows stabilise and demand grows for physical metal from China.

• Some signs of liquidity in resource stocks.

• Capital markets are defrosting with multiple equity raisings in the quarter.

Investments

• One Asia – challenge to ownership of Pani project.

• Doray Minerals – strong first quarter full production at Andy Well gold project and material step out drilling.

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
31 January 2014 Resources
20%
1 Year -22.1% -42.6%
3 Years -10.5% -30.6% 0%
5 Years 34.2% -4.3%
-20%
10 Years 12.6% 2.9%
15 Years 17.2% 6.5% 4-0%
Lion ASX Small Resources
Inception (16yrs) 12.9% 3.4% -60%
1 Year 3 Year 5 Year 10 Year 15 Year Return since
Return Return Return Return Return inception
34.2%
17.2%
12.6%
12.9%
-22.1% -10.5%
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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 December 2008, and the distribution of shares in Catalpa Resources via the demerger of Lion Selection Limited in December 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

There are a few signs of dawn in the cycle for the junior mining sector, with mining indices stabilising in the quarter and even improving the last month or so as some risk appetite appears to have returned. It is probably too early to tell whether this is a key inflection point for the cycle, however there has been a number of fund raisings by junior miners, generally those with more advanced assets. At this stage there still seems little appetite for new listings.

One of the key factors in the improving outlook for mining equities has been the price of gold that has stepped up since mid-December 2013. The dynamics of the gold market are complex and opaque, however the tide of ETF physical gold hitting the market appears to have eased. The Gold Council estimates ETF’s sold 880T of gold during 2013, largely absorbed by consumer demand and central bank purchases in Asia, and China in particular. Gold has benefited from the uncertainty of the fundamentals of the US recovery, and what this means for tapering the quantitative easing. These market dynamics are potentially long term factors that could continue to positively influence gold throughout 2014.

Two other interesting developments in the resources space have manifest in the quarter.

Firstly there have been a number of majors conducting distressed sales of operating assets, mainly in the gold space. The sale processes have often been hurried, with small mining companies picking up these assets at bargain basement prices. These small companies have raised funds for these assets premised on being able to deliver operational efficiencies and head office savings.

Secondly, large amounts of private equity have emerged chasing a diminishing pool of near production assets, with Bloomberg identifying $8.5B of available funds. These funds invest at later stages than Lion, and may provide Lion with an opportunity to exit investments or bring in financial partners for investments.

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Predictive Discovery, Burkina Faso
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page 2 | Quarterly report 31 jAnUARY 2014

inveSTMenT newS

one Asia Resources Limited

Doray Minerals Limited

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

One Asia’s 90% interest in the Pani project tenement is under an Izin Usaha Pertambangan licence (the Pani IUP) held by a regional co-operative, KUD Dharma Tani (KUD), formed under Indonesian law. One Asia holds its economic interest in Pani through contractual arrangements with the KUD as its local joint venture partner. A shareholder update received from One Asia advises that Indonesian media reports on 24 December 2013 indicate that the KUD has signed a co-operation agreement with a subsidiary of publicly listed Indonesian company J Resources over the Pani IUP which conflicts with the contractual obligations the KUD has with One Asia. One Asia advises that all legal agreements with the KUD remain in place under Indonesian law. One Asia continues to liaise with local authorities and its advisors to ensure that those contractual obligations are honoured. One Asia has had outstanding exploration success at its Pani project, cumulating in a maiden 1.88Moz JORC Resource announced on 13 June 2013.

During the quarter Doray reported an outstanding first full quarter of production at its Andy Well project, supporting its credentials as a high grade/ low cost gold producer. Doray produced 24,162oz of gold for $448/oz (C1 cash cost) and $949/oz (all in sustaining cost). Accounting for the company’s hedging, the average gold price achieved was A$1,472/oz.

Doray also had success with exploration with a step out horizontal hole confirming the potential for multiple parallel gold lodes. This hole successfully intersected quartz in the position of interpreted northerly extensions of Judy, Suzie, Margaret and Kirsty lodes, with high grade assays received for Suzie (0.5m @ 59g/t Au) and Kirsty (0.8m @ 16.6g/t Au).

Mindoro Resources Limited

Subsequent to the end of the quarter, Lion and Asian Lion realised their investments in Mindoro. Based on historical cost, Lion made a loss of $2.7 million on the sale of the investment with sale proceeds of $0.4 million less than the original investment of $3.1 million.

One Asia also secured 100% ownership (previously option over 80%) of the Awak Mas project in the quarter, with its Joint Venture partner, Vista Gold Corp, opting to receive a royalty of 2 – 2.5% NSR on gold production from Awak Mas. The Awak Mas project is held under a 7th generation Contract of Work. As announced by Lion on 13 December 2013, One Asia also provided an updated JORC Resource of 2.55 Moz gold incorporating the Salu Bulo deposit, approximately 2km from the main Awak Mas deposit. One Asia is remodeling the mine plan for the Awak Mas prefeasibility study to factor in the higher grade material at Salu Bulo with a view to enhancing the economics of the project.

One Asia is 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 remains cognisant of portfolio balance, but is of the view that there is potentially many times upside in its One Asia investment if the challenges and risks of developing a mine in Indonesia can be overcome.

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Quarterly report 31 jAnUARY 2014 | page 3

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SUMMARY of inveSTMenTS AS AT 31 jAnUARY 2014
Market Value Portfolio
Commodity
A$M %
Australia
Doray Minerals Gold 6.4
Rum Jungle Resources Phosphate 2.4
Auricup Resources Gold 1.5
Other Australia 0.3 16%
African
Roxgold Gold 3.6
Kasbah Resources Tin 1.8
Toro Gold Gold 2.1
Other Africa 1.5
Cash dedicated to Africa [1] 3.0 18%
Asia
One Asia Resources [2] Gold 29.6
Sihayo Gold Gold 1.4
Other Asia 4.0 52%
Americas Iron Ore/Coal 0.9 1%
Uncommitted Net Cash 8.8 13%
Net Tangible Assets $67.3m 63c/ 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 31 january 2014

market Cap: $57m Issued shares: 106m share price: $0.53