Update on Merger with Polymetals - Notice of Meeting

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in terms of assets and market recognition that would not otherwise be achievable. The
Merged Group will have flexibility in respect of the combined asset base.
Your Board strongly believes that the Merger is in the best interests of SXG Shareholders,
particularly given current market conditions, which make it very difficult for junior resource
companies to raise capital and to progress their assets through exploration and project
development.
Should the Merger not proceed, the Directors are of the view that SXG’s ability as a
stand-alone company to progress its exploration projects and to develop its flagship asset,
the Marda Gold Project, would be negatively impacted.
1.9 Directors’ recommendation
The Directors unanimously recommend that SXG Shareholders vote in favour of Resolution
1 to enable the Merger to be implemented.
The Directors consider that the Merger is in the best interests of the Company in the
absence of a Superior Proposal.
The Directors’ reasons for their recommendation are outlined in this Explanatory
Memorandum, particularly at Section 1.10.
Based on the information available, including that contained in this Explanatory
Memorandum and the Independent Expert's Report, the Directors consider the advantages
of the Merger and Shareholder approval of Resolution 1 outweigh any perceived
disadvantages. (Refer to Sections 1.10 and 1.11 for further information on the perceived
advantages and possible disadvantages.)
In the absence of a Superior Proposal, each Director intends to vote all SXG Shares held or
controlled by that Director in favour of Resolution 1.
1.10 Advantages of the Merger and reasons to vote for Resolution 1
Shareholder approval of Resolution 1 is necessary for the issue of New SXG Shares to the
Sproule Interests under the Merger and is therefore necessary to enable the Merger to
proceed.
The Directors consider that there are several reasons why SXG Shareholders should vote
in favour of Resolution 1.
(a)
The Merger provides an opportunity to create a diversified Australian gold and base
metals company with potential annual production of 69,000 ounces of gold
As shareholders of the Merged Group, SXG Shareholders are expected to benefit
from being part of a larger, more diversified Australian gold and base metals
company with exploration tenements of approximately 4,930 km 2 that contain a
JORC compliant Mineral Resource totalling 1.63 million ounces of gold and JORC
compliant Ore Reserves totalling 254,400 ounces of gold.
The Merged Group will have a diversified risk profile spread across assets in two
States with projects spanning development, scoping study and exploration stages.
The Merged Group’s strong emerging pipeline of near-term production assets
include the Marda Project in Western Australia and the Mt Boppy Project in New
South Wales, which combined have the potential to support a near-term production
profile of up to 69,000 ounces of gold per annum at a competitive forecast cash
cost.
(b)
The combination of the Company and Polymetals broadens the capital base and
strengthens the balance sheet which improves funding capability