St George Mining — Update 26 November 2015

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Focus on ultramafics: Initial exploration was primarily focused on the delineation of high MgO ultramafic units because of its prospectivity for nickel sulphide mineralisation. Generally, the higher the MgO level, the higher the nickel level. The ultramafics being sought are formed by high fluxes of exceptionally hot komatiite magmas in favourable environments such as lava flow paths and channel ways.

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Sulphur needed for nickel sulphide formation: The ultramafics need to be capable of assimilating crustal sulphur from the footwall rocks. Provided the available sulphur level is high, assimilation is the main trigger for the formation of komatiite-hosted magmatic nickel sulphide deposits. SGQ has identified large sulphur levels in contact with the ultramafics.

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Disseminated nickel sulphides: Massive higher-grade nickel sulphides are sometimes found near the lower-grade disseminated nickel sulphides. The disseminated nickel sulphides are usually too low in grade to be commercial unless there is a very large resource, but can provide a vector for exploration.

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Elevated platinum-group elements (PGEs): Elevated PGEs in ultramafics may also be indicative of magmatic sulphides and can potentially occur as a halo around a massive nickel sulphide deposit.

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Massive nickel sulphides: These are typically surrounded by a halo of disseminated nickel sulphides. Further exploration tools are used to locate any massive nickel sulphides that may be present, including electromagnetic surveys and geochemical analysis of drill-hole data.

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Basal contact of the ultramafic: This provides a prospective surface for the deposition of massive nickel sulphide. The massive sulphide may also be mobilised into nearby structural positions.

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Exploration drilling: reverse circulation (RC) or diamond drilling (DD) techniques to obtain rock samples for laboratory assaying.

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Gravity surveys: can help interpret high MgO ultramafics, which present as gravity highs.

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Magnetic surveys: surface electromagnetic (EM) surveys are widely used to identify conductive bodies that may be massive sulphide mineralisation. Down-hole EM (DHEM) surveys, where the geophysical tool is within or at the base of a drill hole, are used in combination with drilling of prospective ultramafic units.

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XRF analysis: a portable tool that can be used for the instantaneous assaying of certain elements, which include nickel. These assays can later be checked in the laboratory.

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Desert Dragon Central: Multiple ultramafic units identified in contact with sulphide-rich sequences. Significant nickel sulphide intersections for DDRDD005 are 2m at 0.44% from 215m, 4m at 0.34% Ni from 220m, 5.6m at 0.44% Ni from 231m, 1m at 0.30% Ni from 379m and 1m at 0.36% Ni from 400m. Drill testing is underway to test strong EM conductors in prospective geological positions. SGQ believes the electrical signatures are consistent with massive sulphides.

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Desert Dragon North: Massive nickel stringer veins (including 2m at 1.08% Ni from 55m) have been interpreted by SGQ to be from a larger nickel sulphide body at depth. An EM target at the base of the same ultramafic unit is in a prospective geological position for nickel sulphides and SGQ believes this is a "compelling" target.

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Windsor: The first discovery of nickel sulphides at Windsor was made by BHP in 2012. A total strike length for high MgO ultramafic of 1.5km has been identified and is open to the north and the south. Drilling has delineated widespread occurrences of high tenor disseminated nickel sulphides, which are open laterally and at depth. Pentlandite has been identified, indicating the potential to produce a high-grade nickel sulphide concentrate. Systematic drilling of the basal contact of this ultramafic and down-hole EM surveys are underway to test for massive nickel sulphides.

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Windsor North: Prospective ultramafic outcrop identified. Previous drilling has intersected thick sequences of komatiite ultramafic with nickel and PGE anomalism.

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Cambridge: Large dunite body (4km x 2km) with magmatic sulphides/PGEs confirmed by drilling. SGQ believes the dunite is similar to the Perseverence dunite (1.4Mt Ni) at Leinster.

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Cambridge North: Strong EM conductor co-incident with a gravity anomaly and high MgO ultramafics.

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Bristol: Large komatiite ultramafic unit. Magmatic sulphides/PGEs confirmed by drilling.

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Athena: Very thick ultramafic unit on Minigwal Belt.

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Mining: The intersection of nickel sulphides at Desert Dragon and Windsor has included thick intervals of disseminated nickel sulphide at around 100m depth. This suggests potential for shallow nickel resources. These could be mined by open-pit methods, providing early cash flow prior to the possible development of underground resources at a later stage.

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Metallurgy: Although none of the nickel sulphide from the project has been subject to metallurgical testing, petrographic examination has delineated high tenor 100% pentlandite nickel sulphide. Pentlandite normally produces a high-grade concentrate with a high recovery. Until a resource is delineated and project studies carried out, it is not possible to determine whether nickel ore from the project would be trucked to a nickel concentrator in the region or processed in a concentrator established on the site.

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Nickel sales: SGQ is free to negotiate sales of ore or concentrate from the East Laverton project to any party, providing flexibility in establishing contract terms. BHP, we expect, would monitor the project as a potential source of nickel units for its Kalgoorlie smelter in the future. No royalties are payable on sales, other than government royalties.

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Infrastructure: The East Laverton project has the benefit of proximity to the Tropicana access road. A gas pipeline is currently being installed to service the Tropicana mine. This provides potential power optionality to the East Laverton project in the future.

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The consideration payable for the acquisition is A$40,000.

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Nickel West (BHP) has off-take rights to any nickel produced from the acquired tenements.

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Nickel West may charge a base royalty of 1% of the proceeds from any mineral production at a tenement.

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Nickel West may charge an additional royalty of 1% on nickel production if a minimum measured and indicated JORC resource of at least 25,000t nickel is defined at the relevant tenement and payments of the additional royalty start 12 months after commercial production from the relevant tenement.

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Location: 55km west of the Sinclair Nickel Project, which is owned by Talisman Mining (TLM:ASX) and 90km south west of Cosmos, owned by WSA. Major exploration programmes are underway at both Sinclair and Cosmos.

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Exploration status: BHP discovered over 5km of moderate to high MgO ultramafics adjacent to the Ida Fault.

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Exploration outlook: SGQ is planning the first ever reverse circulation (RC) drilling to test the bedrock geology at Hawaii. Drilling was scheduled to begin in the second half of November. SGQ has also started a ground moving loop electromagnetic (MLEM) survey over a prospective area of high MgO ultramafics. The objective of the survey is to identify EM targets for drill testing. Newexco, SGQ’s geophysical adviser, is modelling the data.

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Location: Mt Alexander North is approximately 120km south west of Leinster, where BHP operates a nickel concentrator and mining operations.

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Exploration status: A structure on an adjacent tenement to the south has been interpreted to extend into SGQ’s licences with potential for the discovery of additional nickel-copper sulphides. The adjacent tenement E29/638 is held in joint venture by BHP and WSA. In 2008, high-grade nickel-copper sulphides were discovered in E29/638 with intersections including 4m at 4.9% Ni, 1.7% Cu and 3.9g/t platinum group metals equivalent (PGEs) from 91.4m and 3m at 3.8% Ni, 1.6% Cu and 2.7g/t PGEs from 56.3m.

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Exploration outlook: SGQ plans deep RC drilling in early 2016.

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Outlook: A recent broad-ranging gravity survey is being used as a basis for a technical evaluation of gold targets. It will identify prospect-scale targets for immediate follow-up exploration. The company expects to define high-priority gold targets for drilling in 2016.