Cannon Gold Mine

The Cannon Gold Mine forms the centre piece of Southern Gold's Bulong Project located within the Company's 100% owned Mining Lease (M25/333), 30 km south-east of Kalgoorlie in WA. Southern Gold has taken the Cannon project from initial discovery to the commencement of mining in July 2015.

Mining is being conducted by Westgold Resources Ltd (‘Westgold’) and includes their George’s Reward Resource to the north of Cannon. The Cannon mine is being developed in a 50/50 profit share arrangement with Southern Gold. A major cutback at the pit has been completed and the high grade ore zone in the lower half of the pit is now being mined. As a result, ore from Cannon is now being processing at the Westgold South Kalgoorlie Operation’s (SKO) Jubilee Mill, with the majority of the in-pit gold expected to be recovered in this final phase up to 30 June 2017.

Assuming no disruptions to the mine schedule, open pit mining will be completed during March/April 2017, with stockpiled ore processed until the end of June 2017. The project became cumulative cash flow positive in December 2016 and cash distributions to Westgold and Southern Gold have occurred every month since this milestone.

Recent operational performance, in particular the higher than budgeted metallurgical recovery rates achieved at SKO, and a revision of Cannon Mine’s ore block model based on recent grade control drilling, has resulted in an improved overall gold recovery estimate, lower operational costs on a per ounce basis and a higher net cash generation.

At the a gold price of $1600/oz, the net profit (50% basis) attributable to Southern Gold from Cannon Mine increases from A$12m to A$15m and the cash distribution, net of the debt facility owed to Westgold becomes approximately A$12.3m. The Westgold debt facility was fully repaid early in 2017 and the company become entirely debt free from February 2017.

Local Geology

High-MgO basalts, komatiites and related intrusives underlie most of the area in the vicinity of Cannon. Black shale horizons located between the mafic and ultramafic flows are also present. A small monzogranite intrudes these lithologies in the southern parts of M25/333.

The vicinity of the shear zone hosting the mineralisation is also a focus for the intrusion of several small diorite dykes and a suite of larger lamprophyre dykes. The lamprophyre dykes appear to postdate the main mineralisation event, while the diorites host some lower grade intersections and have been extensively silicified in some places.

South-south-west of Cannon, a prominent, roughly north – south trending, quartz vein cuts both high-MgO basalts and the monzogranite and extends for at least 1.5km. A number of smaller quartz veins are also present, sub-parallel to the main vein. This quartz vein system has been the focus of past shallow prospecting and mining activities in the past, but does not appear to be related to the main Canon Mine mineralisation

Outcrop and sub-crop of basement lithologies is widespread throughout the tenement, but are best developed within the western two thirds of the tenement, where outcrop of high-MgO basalt and the monzogranite is common, or is covered by shallow calcareous and/or ferruginous soil.

Drilling completed by past explorers indicates, that where there is no outcrop, the regolith profile is shallow and it is commonly less than 20m before saprock or fresh rock is reached.

Mineralisation

The Cannon orebody is a typical orogenic, shear-hosted, lode-gold style, with characteristic associated biotite, calcite, chlorite, albite and pyrite alteration (photo). Very strongly sheared, mafic and ultramafic rock types host the mineralisation, which is structurally controlled, strikes north-easterly and dips to the west. The lithologies outside the shear zone generally strike north-south.

Cannon Mine Drill Core - Showing typical Eastern Goldfields type alteration assemblage and dilational structures (A), and visible gold (B).

Detailed geological mapping as mining progresses has shown that mineralisation is predominantly localised at, or near the sheared contacts between basaltic and ultramafic units where the ductility contrast is greatest.

Cannon JORC Resource and Reserves as at 30 June 2016

Mineral Resource Estimate

Annual Ore Reserve Inventory

Notes:

  • Cannon mineral resource estimate is inclusive of the reserve estimate.
  • JORC Table 1 details for the Cannon mineral resource and Competent Person statement are detailed in SAU ASX announcement of 16/06/2015.
  • JORC Table 1 details for Cannon ore reserves and Competent Persons statement are detailed in MLX ASX announcement of 18/08/2017.
  • Under contracting arrangements with development partner Metals X, profit from the operation exploiting the ore reserve with be split 50%/50%. This is the equivalent of attributing 50% of the ore reserve ounces in the above table to Westgold.

Underground Opportunities

The significant widths of high grade mineralisation obtained from the recent deep drilling program, re-affirms the Company’s belief that there is potential for high grade mineralisation to continue beneath the base of the Stage 2 pit. It is anticipated that testing of this hypothesis will be undertaken in the first half of 2017.

This recent deep drilling (ASX Release 22/7/2016) has identified a northward plunging structure, that extends beneath the current pit design (Figure 2). Based on the results of the drilling, this termination is now interpreted as a thinning from wide downhole intervals of medium to high grade mineralisation to relatively narrower zones immediately prior to being off-set by predominantly north-south movement on a low angle north dipping structure (Figures 2 and 3).

Significantly, previously identified mineralisation has been extended with the high-grade intersection in BSRCD269 and, in addition, a new zone of high grade mineralisation with typical Cannon-style textures and alteration has been intersected in BSRCD273, in a structural setting which implies that the deposit remains open at depth (Figure 3).

Figure 2: Schematic Long Section of South Plunging High Grade Shoots defined by Grade Control Drilling and Inferred North Plunging Fault

Figure 3: Schematic of section 6590105mN showing interpreted lateral offset on north plunging fault .