December 2015

QUARTERLY ACTIVITY REPORT

Key Highlights

Production

Quarterly production reached 9,244 Au oz and 11,157 Ag oz leading to a total annual production of 46,872 AuEq oz for calendar year 2015.

For a third consecutive year, the Guanaco Mine delivered total gold production in the 45,000-51,000 Au oz range. For the 12-month period ended December 2015, total gold production reached 46,250 Au oz.

Strong profitability ratios with an average cash cost of US$626/AuEq oz and an average realised selling price of US$1,168/Au oz during calendar year 2015.

Exploration

The company continued with its on-going exploration program at Guanaco with an underground drilling campaign of 1,300 metres during the quarter to continue supporting annual production in the 45,0000 to 50,000 Au oz range.

Mergers & Acquistions

The definitive Arrangement Agreement with Argentex is expected to be executed shortly.

The Company continued exploring opportunities relating to its consolidation strategy in Chile and in Argentina.

Cash Generation

Quarterly cash flow from operations was US$2.9 million. Cash and cash equivalents reached US$10 million at year end.

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 9,244 Au oz and 11,157 Ag oz during the quarter ended 31 December 2015. When measured in gold equivalent ounces1 (AuEq oz) total production was 9,411 AuEq oz compared to 13,553 AuEq oz in the prior quarter.

The lower production for the quarter meant that actual production for the calendar year 2015 fell just short of the budgeted 50,000 Au oz. This was due to the low feed of gold ounces to the heap leach pads from the mine in the latter part of 2015. The main reasons for the lower production were due to several factors: (i) delays in the benching sequence caused by delays in the scheduled preparations for changes in geometry between the long-term and short-term models (ii) geotechnical conditions and (iii) operational disruptions such as lack of ventilation, increased fortification, delays in the arrival of equipment, amongst others.

Gold and Silver Production

1 AuEq ratio is calculated at 67:1 Ag:Au

At the same time, the December 2015 quarter operating cash cost2 (C1) increased to US$823/AuEq oz while the all- in sustaining cost3 (AISC) was US$1,010/AuEq oz (US$539/AuEq oz and US$649/AuEq oz respectively for the quarter ended 30 September 2015).

AuEq oz Production per Quarter (Calendar Year (CY) 2015)

For full calendar year 2015, average C1 remained as expected at US$626/AuEq oz while total AISC was US$793/AuEq oz (US$558/AuEq oz and US$669/AuEq oz respectively for the 12-month period ended 31 December 2014). The Austral Gold operational cashflow for the quarter remained steady, despite lower production, as a result of the devaluation of the Chilean peso and due to the drop in prices of key consumables of the operation such as cyanide and oil.

AuEq oz Production per Calendar Year (CY)

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

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

Mining

During the December 2015 quarter, mining continued at the Cachinalito underground operations with a total of 114,129 tonnes mined. The crushed and leached ore totalled 130,488 tonnes for the quarter at an average grade of 2.90 g/t Au and 8.30 g/t Ag.

Total underground mine development was 2,536 metres for the December 2015 quarter leading to a total of 8,809 metres for the calendar year ended December 2015.

As a result of decreasing grades, more tonnes would be needed from the underground mine to reach the expected production targets for next 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 new budget for 2016 considers underground mining exclusively from the Guanaco deposit and continuing with heap leaching. Budgeted production for the 2016 calendar year is expected to be in the 45,000-50,000 Au oz range 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, no lost-time accidents (LTA) occurred, and one nil-lost-time accident (NLTA) was 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

The Geology team continued to advance with the exploration program within the current development area of the Guanaco deposit. During this period, underground works were mainly performed at the Aurora vein and Dumbo sector.

The exploration program during the quarter comprised the following main activities: (i) completion of 1,300 metres underground drilling campaign, (ii) design of the next quarter drilling program (up to 1,000 metres of Diamond drilling); (iii) execution of geophysics studies including detailed ground magnetics survey; and (iv) evaluation of potential geological resources located in the south of the Cachinalito structure, amongst others.