from a fund managers perspective.....

My interest in speculative stocks goes back to 1994. I became a client adviser in 1998 and from November 2010 I became Managing Director of LAM Speculative Ltd, which is a junior resource/part industrial fund that invests in high risk/high reward situations. FUM is around $4m as a start up. It is only available to 708 (8) investors, and this does not constitute an offer which must be completed through the IM. (More red tape than Twiggleys dress but has to be said).

My reasons for buying Southern Gold (SAU) from 6.5c

* I had previously covered DOM around 30c and witnessed a major re-rating to >$6.00 when the underground potential opened up and the mine life extended. I was also covering RMS and in June 2004 the share price collapsed due to tax loss selling. The belief was that RMS could replicate DOM if Wattle Dam went underground. 48m @ 152 g/t saw the stock increase 50x (with options from the June 2004 lows).

* SAU's results remind me of Wattle Dam in the early days. The worst case scenario is that the even if SAU's deposit fails to extend at depth, there is still room to move on the valuation front to the upside with further blue sky from Cambodia.

* I have known Nanette Allen for many years and was one of the major supporters of Herald Resources (HER) which discovered a very high-grade zinc-lead resource in Nth Sumatra. From my dealings with the Allen family I also assisted in the Sandfire (SFR) IPO, and also Jaguar Minerals (JAG) which had one strong rally to 36c post IPO. They are people in the industry I have come to respect and trust and in order to succeed as a manager I need to rely on others for opinions and assessment of results.

* I saw Nanette present at the Brisbane conference in late 2010, and could sense her passion for SAU and the belief that the company was being undervalued by the market.

* A gold resource at these grades and so close to Kalgoorlie has to be mined, either by SAU or a predator. There is significant scope to grow this resource base as recent results have suggested. It has far too much strategic value to be left alone and this provides downside support which I look for in every investment.

* Speculative Buy recommendations from Hartleys and DJ Carmichaels. Coming from the broking industry these will have an impact through increasing SAU's profile and cannot be discounted.

* I also looked for liquidity, and during the Christmas lull I was able to purchase 4m shares mainly around 7c up to 7.8c for a handful. If SAU re-rates into the mid-teens I can sense excellent trading volumes and liquidity. I would expect my fund to show up somewhere in the top 20, however as I am not up to 5% I do not have to report 1% changes in ownership as yet.

* After Northern Star (NST) moved strongly from 6c, finding the quality gold juniors in the same price range has been difficult and SAU was an obvious choice for a number of reasons.

Please note that around current prices I have no intention of selling the stock as yet, however may elect to take part profits on further strength or when I require funding for another position.

Over the years I have developed my own stock selection model where companies have to tick a number of boxes before I will launch into them. SAU met that criteria, although for further upside potential I am assuming that SAU's resource will in fact increase therefore becoming more attractive to other gold producers in the region with potentially hungry mills.

Good luck with SAU.

Cheers

Budfox