March 2016‌

QUARTERLY ACTIVITY REPORT

Key Highlights

Production

Guanaco mine production was 8,801 Au oz and 13,548 Ag oz in the March quarter 2016. It is estimated that gold production will be in the 45,000-50,000 Au oz range for a fourth consecutive calendar year.

Lower production for the quarter resulted in an average cash cost of US$917/AuEq oz along with AISC at US$1,096/AuEq oz. Average realised selling price was US$1,147/Au oz for the quarter.

Exploration and Mine Development

Exploration activities continue at the Guanaco and Amancaya sites. At Guanaco mine, underground mine development of 2,366 metres was advanced during the period.

Mergers & Acquisitions

The Company expanded its asset base in Chile with the acquisition of 12,500 hectares of mining concessions, part of the San Guillermo properties surrounding Amancaya.

During the period, the Company acquired 51% of the Casposo Project, located in the San Juan province of Argentina. It has mobilised a strong technical team to manage the project and use the experience of Guanaco mine to turn Casposo into a profitable project in the short-term after it was put into care and maintenance by Troy Resources Limited.

Cash Generation

As of 31 March 2016, total cash position was US$3 million despite payments of US$3 million instalment for the purchase of Amancaya and US$1 million for 51% of Casposo during the period.

CHILE

Guanaco Mine

Background

The wholly-owned Guanaco mine remains the Company's flagship asset. Guanaco is located approximately 220km south-east of Antofagasta in Northern Chile at an elevation of 2,700m and 45km from the Pan American Highway. Guanaco is embedded in the Paleocene/Eocene belt, a geological structural system which runs north/south through the centre of Chile, and hosts several large gold and copper mining operations including: Zaldivar, El Peñon and Escondida.

Currently, the majority of the ore processed from the Guanaco operation comes from the Cachinalito underground system and nearby vein systems with higher average grades.

Gold mineralisation at Guanaco is controlled by pervasively silicified, sub-vertical E/NE trending zones with related hydrothermal breccias. Silicification grades outward into advanced argillic alteration and further into zones with propylitic alteration. In the Cachinalito vein system, most of the gold mineralisation is concentrated between depths of 75m and 200m and is contained in elongated ore shoots. High grade ore shoots (up to 180 g/t Au), 0.5m to 3.0m wide, have been exploited, but the lower grade halos, below 3 g/t Au, can reach up to 20m in width. The alteration pattern and the mineralogical composition of the Guanaco ores have led to the classification as a high-sulfidation epithermal deposit.

Production

Production from underground operations using the heap leach process generated 8,801 Au oz and 13,548 Ag oz during the quarter ended 31 March 2016. When measured in gold equivalent ounces1 (AuEq oz) total production was 8,977 AuEq oz compared to 9,411 AuEq oz in the prior quarter.

The lower production for the quarter was partly due to the flow-on effect of operational difficulties and low feed of gold ounces to the heap leach pads from the mine in the latter part of 2015. In addition, there was lower than expected recovery of gold from Dumbo vein due to a higher concentration of copper (Cu) sulphides contained in the ore. All ore from Dumbo will be stocked to be sampled for Cu analysis to have greater control over the plant feed going forward.

Gold Equivalent Production

1. AuEq ratio is calculated at 77:1 Ag:Au

2. Three-month period ended 31 March 2016

   The March 2016 quarter operating cash cost3 (C1) was US$917/AuEq oz while the all-in sustaining cost4 (AISC) was US$1,096/AuEq oz (US$823/AuEq oz and US$1,010/AuEq oz respectively for the quarter ended 31 December 2015).

   AuEq oz Production per Quarter (Calendar Year)

   AuEq oz Production per Calendar Year (CY)

3. The operating cash cost (C1) for the Guanaco Mine includes: Mine, Plant, On-Site G&A, Smelting, Refining, and 3% ENAMI Royalty.

4. The all-in sustaining cost (AISC) for the Guanaco Mine includes: C1, Sustaining Capex, Exploration, and Mine Closure Amortisation.

Mining

During the March 2016 quarter, mining continued at the Cachinalito underground operations with a total of 123,313 tonnes mined. The crushed and leached ore totalled 135,236 tonnes for the quarter at an average grade of 3.30 g/t Au and 9.90 g/t Ag.

During the quarter, a total of 2,366 metres of underground mine development was advanced, of which 724 metres related to developments and accesses and 1,642 metres to advances in production.

As a result of decreasing grades, more tonnes would be needed from the underground mine to reach the expected production targets for this calendar year. This trend can be reversed as the Amancaya Project advances and when the new plant is constructed and used to process the ore from both the Guanaco and Amancaya deposits.

The budget for 2016 considers underground mining exclusively from the Guanaco deposit and continuing with heap leaching. Budgeted production is expected to be in the range of 45,000-50,000 Au oz for the 2016 calendar year but with slightly higher average cash costs (C1) of approximately US$650/AuEq oz as a result of the lower grades of the deposit as mentioned above.

Safety

During this quarter, one lost-time accident (LTA) occurred and no nil-lost-time accidents (NLTA) were reported involving employees of Guanaco and third party contractors. Safety and environmental protection are core values of the Company. The implementation of best practice safety standards along with a sound risk management program are key priorities for Austral Gold.

Exploration Program

In March, the 2016 Diamond drilling campaign started, which will involve the execution of 18 holes totalling 1,828m. During the quarter, 1,031 metres drilling was achieved, distributed over 7 holes.

In the next campaign in April, the plan is to continue with the detailed mapping of the Eureka-Palermo sector as well as detailed mapping and re-logging of holes of the Quillota sector and sectors west of this structure.

Other Projects

Amancaya

Detailed geological works started at the Amancaya project with the goal of advancing the recognition and detailed mapping of mineralised structures, complemented with systematic float sampling. The target sampling is from several veins within the area.

The task of mapping of floats will help to extend the known vein strikes and identify new branches and cross structures.