ASX Release 4 April 2016

Glandore Project Farm In and Joint Venture

• Southern Gold to earn up to 90% with total of $1.2m expenditure within the next three years under a farm­in and joint venture agreement with Aruma Exploration, with all expenditure fully funded

• Three advanced prospects (Supergene Zone, Axial Planar and Central Fault) with significant gold intersections and JORC resource potential

  ASX Code: SAU

  Issued Shares: 36.53M

  
  

  Directors

  Greg Boulton AM (Chairman) Simon Mitchell (MD) Michael Billing

  David Turvey

  
  

  Head Office Southern Gold Ltd Level 1, 8 Beulah Rd

  Norwood SA 5067

  Telephone: (08) 8368 8888

  Facsimile: (08) 8363 0697 [email protected]m.au www.southerngold.com.au

  
  

  Postal Address

  PO box 255

  Kent Town SA 5071 ABN: 30 107 424 519

• Extensive database from previous workers including Western Mining Corp and Anglogold, with approximately 23,000m of historical drilling

• Southern Gold has estimated an exploration target range and anticipates rapid project advancement in the next 12­18 months

Highlights

Y Southern Gold Limited ("Southern" or "the Company") has entered into a binding legal agreement with Aruma Exploration Pty Ltd ("AEPL") to earn up to a 90% interest, through staged exploration expenditure of $1.2M (including a $0.3M minimum spend) within three years over 14 mining tenements comprising the most prospective part of the Glandore Project, approximately 37km east of Kalgoorlie in Western Australia. (Figure 1)

Y The agreement covers an area of 28.7 km2 of contiguous tenements located adjacent to Southern's Bulong Gold Project and hosts significant zones of near surface mineralisation located by previous explorers. (Figure 2)

Y Three high priority prospects with significant near surface drill intersections have been identified from a review of historic exploration data: Supergene Zone, Axial Planar and Central Fault. (Figure 2 and Table 1)

Y The tenor and distribution of mineralisation already identified is anticipated to facilitate fast tracking of JORC resource definition activities and if successful, potential economic extraction by open pit.

Y Southern has acquired AEPL's comprehensive technical database which contains detailed geophysical, geochemical and drilling information and will enable detailed exploration programme planning to take place aimed at fast tracking resource delineation activities over the next 12­18 months.

Y Given the proximity of Cannon Gold Mine, it is anticipated that any gold resources defined at Glandore will have potential for economic extraction.

Southern Gold's Managing Director, Simon Mitchell commented:

"This important transaction provides Southern Gold with an advanced set of projects with very valuable and extensive drilling information and the potential to advance to JORC resource status relatively quickly. Given the amount and quality of drilling information available we see a unique opportunity to define open pit resources and, because of the proximity to our Cannon Gold Mine and other district infrastructure, the opportunity to move another project into production. We are excited by the prospect of new ore sources and ensuring our cash flow is sustainable into the medium term."

Glandore Farm In and JV Agreement with Aruma Exploration Pty Ltd

Southern is pleased to announce the signing of a binding Farm In and Joint Venture Agreement ("FJV" or "the Agreement") with Aruma Exploration Pty Ltd ("AEPL"). AEPL is a wholly owned subsidiary of Aruma Resources Ltd, an ASX listed exploration company (ASX code "AAJ"). Southern Gold is to earn up to a 90% interest in a package of tenements immediately east of Southern's Bulong Project (Figure 1).

The JV area covers approximately 28.7 km2 of highly prospective exploration terrain consisting of 14 tenements (Appendix 2), situated on the south­western shore of Lake Yindarlgooda, approximately 37km east of Kalgoorlie and 8km southeast of Bulong township.

Exploration by AEPL and earlier explorers has identified a number of significant zones of near surface mineralisation plus other targets that include potentially economic gold intersections which have not been subject to detailed economic evaluation.

Figure 1: Location of Glandore JV Area with respect to Kalgoorlie and SAU's Bulong Project

Work undertaken to­date by Aruma and previous explorers has included fluid flow modelling, structural analysis, geophysical data interpretation, geological mapping, geochemical sampling and auger, aircore, reverse circulation (RC) and Diamond drilling.

The Company believes that the likely conceptual exploration target size present may be of the order of 500,000 to 2,500,000 tonnes with grades in the range of 2.4 - 3 g/t Au (or 50koz - 200koz Au located in several deposits). This exploration target is not a mineral resource and is conceptual in nature. The estimate is based on the substantial body of information generated by previous explorers that is publically available either in ASX announcements or via the Western Australian Department of Mines and Petroleum WAMEX web site. Details of all previous exploration undertaken in the JV area is summarised in Table 1 of Appendix 1 and the supporting details relating to sampling, analytical and drilling quality and location reliability are shown in Appendix 2. All significant assays are listed in the accompanying tables and plans of Appendix 1. The cross sections and plans shown in Appendix 1 are believed to adequately show the range of widths and grades intersected to date. The exploration

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carried out to­date is insufficient to estimate a resource and it is uncertain whether further exploration will result in the estimation of a resource.

Future exploration activities that will test the validity of this exploration target will focus predominantly on drill testing of the mineralisation zones by reverse circulation and Diamond drilling, expected to be completed over the 12­18 months.

Glandore Farm In and Joint Venture (SAU earning up to 90%) - Summary of Terms

Y Southern is to make a cash payment of $100,000 within 10 business days of 1 April 2016.

Y Southern can earn up to 90% by expending a further $1.2M in three tranches within three years:

• Tranche 1: Southern to spend a minimum of $300,000 qualifying expenditure (Form 5 declared expenditure under the WA regulatory system) in the first year (or earlier) to earn a 50% interest in the tenement package;

• Tranche 2: Southern to spend a further $400,000 qualifying expenditure in the second year (or earlier) to earn an additional 25% for a total 75% interest in the tenement package at which point AEPL can elect to retain its 25% interest and a joint venture will commence in which the respective joint venture interests will be SAU 75% and AEPL 25%;

• Tranche 3: If AEPL elects not to retain its 25% interest in the tenement package Southern is to spend a further $500,000 qualifying expenditure in the third year (or earlier) to earn an additional 15% interest for a total 90% interest in the tenement package.

Y Once Southern has earned in total a 90% interest in the tenement package AEPL may elect to:

• retain its 10% interest, in which case a joint venture will commence in which the respective joint venture interests will be SAU 90% and AEPL 10%;

• sell it's 10% interest, subject to a pre­emptive right in SAU's favour; or

• convert its 10% interest into a 1.25% net smelter return style royalty on all products derived from the then tenement package, in which case SAU will have 100% ownership of the tenement package.

Y At any point after Tranche 1, and so long as the tenement package is in good standing, Southern has a right to withdraw but would forfeit any interest it had earned in the tenement package.

Y The terms of the joint venture aspects of the Agreement are substantially in the form of the Australian Mining and Petroleum Law Association model document. Both parties have an obligation to contribute to joint venture expenditure in proportion to their joint venture interests with rights to elect to dilute, on a straight line basis, in respect of a particular programme and budget. Southern will be the manager of the joint venture if it arises.

Y As the tenement package includes 3 mining leases the Agreement is subject to in principle Ministerial approval being obtained within one month for the transfer of the interests in those mining leases which Southern earns in accordance with the Agreement. Southern will seek that in principle approval shortly.

It is important to note that the farm in and joint venture arrangement will be entirely funded by Southern Gold from internal cash resources, with no need to raise any additional funding to fulfil the above farm in requirements.

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Glandore Project Technical Summary

The Company believes the Glandore Project offers one of the best near­term new development opportunities currently known in close proximity to operating mills in the Kalgoorlie district. In addition to the known mineralisation, work carried out by Aruma and previous explorers has highlighted the potential for the area to host additional mineralisation. This belief and potential are supported by:

Y The presence of significant widths and grade of near surface supergene­style mineralisation at three locations (Table 1 and Appendix 1);

Y The grades and widths of supergene mineralisation are likely to be amenable to mining by open pit methods and is anticipated to be free­milling;

Y Ore grade intersections (>1g/t Au) untested at depth or along strike in multiple locations (Table 1 and Appendix 1); and

Y Modern modelling techniques employed by Aruma have highlighted the presence of extensive alteration pathways which will facilitate more regional exploration targeting.

Figure 2 Glandore Gold Project Tenements and Basement Geology

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