Contango MicroCap Limited

ABN 47 107 617 381

INVESTMENT COMMENTARY

Quarterly Update

June 2012

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Table of Contents Managing Director‟s Letter Quarterly Investment Update

Global Overview 1

Global Interest Rates 2

Exchange Rates 3

Commodities 3

Domestic Developments 3

Australian Equity Market Review 4

Australian Equity Market Outlook 5

MicroCap Overview 5

MicroCap Portfolio Overview 5

IPO‟s & Placements 7

Portfolio Details 7

Key Investment Indices 11

Distribution Update

DISCLOSURE STATEMENT & DISCLAIMER

Contango MicroCap Limited, Contango Asset Management Ltd and/or staff at any of these companies may or may not hold positions in companies mentioned in this investment newsletter. This is general information and is not intended to constitute a securities recommendation. Contango MicroCap Limited is not licensed to give advice and does not warrant that past performance is an indication of future performance. A reference to a Fund or a company as to an outlook, or possible factors affecting future performance should not be relied upon or considered as being a statement of likelihood of future performance. While the information contained in this newsletter has been prepared with all reasonable care, Contango MicroCap Limited nor any affiliated companies accept no responsibility or liability for any errors or omissions however caused. Performance results are presented before all management and custodial fees and before any performance fees, trading costs or taxes. All fees are disclosed in CTN Prospectus and are available upon request. Before you make a decision to invest in any product you should obtain a Product Disclosure Statement as it contains crucial information including risks. Contango MicroCap Limited may not be suitable for your investment requirements and you are encouraged to consult a professional financial adviser prior to making any investment decisions.

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Dear Fellow Shareholder

INVESTMENT UPDATE – JUNE QUARTER 2012 MANAGING DIRECTOR’S COMMENT

Sovereign debt problems weighed heavily on markets in the June quarter. Heightened fears of a Greek exit

from the Euro led to a sell off of risk assets including resources and small and microcap stocks.

CTN‟s investment portfolio declined by 18.6% over the quarter, more than offsetting the solid gains that were

made in the first nine months of the financial year. Over the year, CTN‟s portfolio outperformed the ASX S&P

Small Ordinaries Accumulation Index and the ASX S&P Emerging Companies Accumulation Index but

underperformed the less volatile All Ordinaries Accumulation Index.

CTN focuses on a segment of the market that offers very attractive long term returns. However, as the June

quarter demonstrated, these gains can be accompanied by considerable short term volatility.

PERFORMANCE

Performance of underlying portfolio As at 30.06.12

1m %

3m %

6m %

1Yr %

2 Yrs %pa

3 Yrs %pa

5 Yrs %pa

Inception 25/03/04

%pa

CTN Investment Portfolio -4.65% -18.62% 2.15% -12.40% 9.60% 14.0% -2.40% 18.40%

All Ords Accum. Index 0.25% -5.64% 2.86% -7.00% 2.10% 5.90% -4.10% 6.77%

Small Ords Accum. Index -4.78% -15.30% -2.61% -14.6% -0.30% 3.40% -8.90% 4.84%

During the June quarter, the Net Tangible Asset Value (before tax on unrealised gains) of CTN fell from $1.46

to $1.20, or -17.8%.

The CTN Share Price fell from $1.14 to $0.99, with the discount to NTA narrowing from -22.3% to -17.9%.

Performance of Key Indicators June

Quarter

CTN Investment Portfolio1 -18.6%

CTN NTA -17.8%

CTN Share Price -13.2%

CTN Share Price to NTA Discount* -17.9%

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DIVIDEND INFORMATION

In line with the CTN Dividend Policy to pay 6% pa of the 1 July NTA value of the Company, CTN is able to

provide an indication of the FY12/13 dividends. Please note that this is not a formal declaration of dividend.

Shareholders and investors should only rely on the Formal Declaration for confirmation of the dividend amount

and relevant dates including what level of Franking that may be attached to any dividends declared.

Indicative Dividend Information as at 1 July 2012 Amount

October 2012 FY12 Final proposed # 4.7 cents p/s

March 2013 FY13 Interim proposed ##

3.2 cents p/s

October 2013 FY13 Final proposed ##

4.0 cents p/s

Share Price as at 30.06.2012 $0.99

Proposed Dividend Yield^ 8.0%

# Based on Dividend Policy announcement of 16 April 2010 - applied to the NTA prevailing on 1 July 2011 being $1.411. ## Based on Dividend Policy announcement of 16 April 2010 - applied to the NTA prevailing on 1 July 2012 being $1.193. Since declaring its first dividend in December 2004, CTN has paid a total of 58.5 cents per share in dividends to shareholders amounting to a total payout of over $57m. MARKET OVERVIEW

Global equity markets sold off during the June quarter as uncertainty surrounding the outcome of the Greek

elections, a softening outlook for China and the US, and a recapitalisation of Spanish banks weighed heavily

on market sentiment. However, by quarter end, Europe had stepped back from the brink with a pro-bailout

party being elected in Greece, a strategy for recapitalisation of Spanish banks and the announcement of a

vision for closer EU integration.

The sell off was global with the MSCI World index excluding Australia down 4.1%. The largest declines were

in the Japanese Nikkei (-10.7%), the German DAX (-7.6%) and French CAC 40 (-6.6%). The best performing

markets over the quarter were the Indian BSE 300 (-0.9%) and the Shanghai Composite Index (-1.7%). US

indexes generally outperformed the global average with the Dow Jones down only 2.5% and the S&P 500

down 3.3%. However, the technology biased NASDAQ traded 5.1% lower over the quarter.

Despite successive interest rate cuts, the domestic market sold off slightly more than the global average with

the ASX 300 down 5.0% over the quarter. For the 2011-12 financial year, the Australian market

underperformed the global average with the ASX 300 down 7.0%.

PORTFOLIO STRUCTURE

In the current environment of heightened risk aversion, markets typically attach a higher premium to yield and

income certainty. The manager has been selectively reducing the portfolio‟s exposure to mining and mining

services companies, and introducing some new industrial names to provide a more diversified structure while

retaining our ability to benefit from an expected improvement in risk appetite later in the year.

The position in SPI futures contracts at the end of the March quarter (7.2%) was unwound. By the end of the

June quarter the cash position had been increased to 6.1%.

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OUTLOOK

The outlook for the Australian equity market is heavily dependent on developments in the global economy.

Despite avoiding a catastrophic outcome as a result of the second Greek election, the base case for Europe

remains weak. Ongoing public and private sector deleveraging and associated austerity measures will weigh

on economic growth for some time to come. Nevertheless we expect periodic rallies on the back of policy

responses to the ongoing weakness in growth.

The US economy is slowing with weak employment growth and moderate consumer spending. On the

positive side, the housing market appears to have bottomed which will start to add to growth in late 2012.

Downside risks remain but the US typically takes remedial action in response to economic weakness.

China‟s economy continues to moderate with growth in production and exports decelerating. While recent cuts

in the reserve requirement are positive, they have not yet had a material impact on activity. Importantly, the

government has the capacity to introduce additional stimulus measures if required. We expect to see a pickup

in activity in China in late 2012 with easier monetary conditions and additional fiscal stimulus.

Domestically, the economy continues to surprise on the upside. Despite the weakness in the non-mining

sectors of the economy, the massive terms of trade boom is boosting overall national income. As a

consequence, GDP growth and employment have held up well. Going forward, the 75 basis point reduction in

official interest rates will help to support growth.

In summary, valuations have become very attractive as a result of the recent weakness in equity markets.

With the continuing strength of the Australian economy and some pickup in growth in China later in the year,

we see scope for positive returns in the Australian market over the coming year. The microcap sector is well

positioned to benefit from this improvement in risk appetite.

Despite the likelihood of continuing volatility we will continue to work to generate positive returns and reliable

dividends for our shareholders

Yours sincerely

David Stevens Managing Director

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1

QUARTERLY INVESTMENT COMMENTARY

BACK FROM THE BRINK

Global Overview

Global equity markets sold off during the June

quarter as uncertainty surrounding the outcome of

the Greek elections, a softening outlook for China

and the US, and a recapitalisation of Spanish

banks weighed heavily on market sentiment.

However, by quarter end, Europe had stepped

back from the brink with a pro-bailout party elected

in Greece, a strategy for recapitalisation of

Spanish banks and the announcement of a vision

for closer EU integration.

Global Indices 1 mth 3 mth 12 mth

ASX 300* 0.5% -5.0% -7.0%

Dow Jones Industrial 3.9% -2.5% 3.8%

S&P 500 4.0% -3.3% 3.1%

NASDAQ Index 3.8% -5.1% 5.8%

Nikkei 225 Index 5.4% -10.7% -8.2%

Hang Seng Index 4.4% -5.4% -13.2%

Shanghai Composite Index -6.2% -1.7% -19.4%

FTSE 100 5.0% -3.4% -6.3%

German Aktien Index (DAX) 2.4% -7.6% -13.0%

France CAC40 6.0% -6.6% -19.7%

India BSE 200 Index 6.7% -0.9% -7.6%

MSCI World ex Aust (hedged) 4.4% -4.3% -2.1%

MSCI World ex Aust (unhedged) -0.6% -4.1% -0.5% * Total Return

Global equity markets reflected the increased

uncertainty during the quarter with the MSCI World

index excluding Australia down 4.1%. The largest

declines were in the Japanese Nikkei (-10.7%), the

German DAX (-7.6%) and French CAC 40 (-6.6%).

The best performing markets over the quarter were

the Indian BSE 300 (-0.9%) and the Shanghai

Composite Index (-1.7%). US indexes generally

outperformed the global average with the Dow

Jones down only 2.5% and the S&P 500 down

3.3%. However, the technology biased NASDAQ

traded 5.1% lower over the quarter.

Despite successive rate cuts, the domestic market

sold off slightly more than the global average with

the ASX 300 down 5.0% over the quarter. For the

2011-12 financial year, the Australian market

underperformed the global average with the

ASX 300 down 7.0%.

The current quarter marked the 7th straight quarter

of common-currency underperformance by the

Australian index compared to its US counterpart, a

run not seen since 1997-98.

Europe

Uncertainties surrounding the outcome of French

and Greek elections led to a sharp selloff in equity

markets during the quarter.

In France, the pro-austerity incumbent Nicholas

Sarkozy was ousted in favour of the less austere

Francois Hollande. In Greece, the first poll left no

party able to form a coalition, while the second

election saw the pro-austerity New Democracy

party claim victory. The strong showing of the

radical left group Syriza party in the first election

spooked the market as the risk of a sovereign

default and potential exit from the Euro became a

possibility.

Spain‟s struggling savings bank conglomerate

Bankia asked the State for a €19 billion bailout

during the quarter. This highlighted the perilous

state of the Spanish banking sector which is

struggling to digest the fallout from the property

bubble. The bailout of Bankia was soon followed

by a formal request for a €100 billion system-wide

bank recapitalisation which was eventually

supported at a summit of European leaders in late

June.

Leaders at the summit also agreed to a

€120 billion European growth fund, a move

towards an integrated banking union, and more

flexible arrangements for Europe‟s emergency

stabilisation funds (EFSF/ESM). The new

arrangements for the funds attempt to break the

negative feedback loop between the indebted

sovereigns and undercapitalised banks. Due to the

markets low expectations of the summit, the mildly

positive outcome generated a small relief rally

despite the persistence of underlying structural

problems.

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China

China‟s economic growth continued to moderate

during the June quarter. GDP growth slowed from

8.9% in late 2011 to 8.1% in the first quarter of

2012.

The slowdown was also reflected in the

manufacturing data with the official PMI down

2.9 points to 50.4 in May. The HSBC flash PMI fell

to a seven-month low of 48.1 in June.

In response to the weak data, the People's Bank of

China cut the reserve requirement ratio by

0.5 percentage points, the third cut since

December. In addition, the Bank lowered the key

interest rate by 25 basis points in June, the first cut

since December 2008. This reduced the 1 year

lending rate to 6.31% and 1 year deposit rate to

3.25%. The moderation in demand put downward

pressure on inflation and the CPI slowed from

3.6% in March to 3.0% in May.

US

The pace of growth in the US also eased during

the June quarter. GDP growth slowed from an

annualised rate of 3.0% in late 2011 to 1.9% in the

first quarter of 2012. The manufacturing Institute of

Supply Managers index (ISM) fell to 53.3 in May,

though the non-manufacturing ISM index edged up

to 53.7. Regional activity surveys for June were

mostly weaker with the Empire State, Philadelphia

Fed and Richmond Fed surveys down over the

quarter.

The slowdown in activity was also evident in the

labour market. Non-farm payrolls growth slowed

from 143 000 in March to a much weaker-than-

expected 69 000 in May (consensus 150 000). In

total, nonfarm payrolls grew by 289 000 in the

three months to May, 62% less than in the prior

three months. However, the unemployment rate

remained roughly steady during the quarter at

around 8.2%.

The weakness in the labour market weighed on

the University of Michigan consumer sentiment

index which declined from 76.2 in March to 73.2 in

June. Headline inflation remained subdued during

the June quarter due to falling gasoline prices.

However, core CPI inflation (excluding food and

energy) edged higher from 2.2% to 2.3% in May.

Due to concerns around the outlook, the US

Federal Reserve announced some modest

stimulus measures in June. These measures

included maintaining very low interest rates into

2014 and an extension to the „Operation Twist‟

program. The extension effectively adds

$267 billion to the existing programme in which the

Fed buys long-term Treasuries and sells short-

term ones with the aim of lowering long yields to

support growth.

Bucking the overall trend, US housing data

continued to improve during the June quarter. The

S&P/Case Shiller composite 20 home price index

increased 1.3% in the month of April which was

the strongest gain since May 2010. New home

sales increased 7.6% to 369 000 per year in May,

the strongest pace since April 2010.

GLOBAL INTEREST RATES / CREDIT MARKETS

Due to the increased uncertainty in Europe, global

bond markets generally rallied during the June

quarter.

The safe haven status of US government

securities was confirmed as the yields on 10 year

Treasuries declined 56 basis points, briefly

breaking through 1.5%. Similarly, the yield on

German 10 year bonds declined to a record low of

1.17%, before selling off to close at around 1.65%

for the quarter. Of note, the yield on German

2 year Bunds traded near zero during the month,

suggesting that investors are currently willing to

pay a very high price for security.

Given Australia‟s AAA credit rating, the support for

Commonwealth Government bonds remained high

during the quarter. The Australian 10 year bond

yield fell 94 basis points to finish at a record low of

2.77%. The domestic market was also supported

by 75 basis points of RBA rate cuts. The

Interest Rates Level 1 mth 3 mth 12 mth

AUS UBS Compos ite Bond 7,290.76 -0.2% 4.6% 12.4%

AUS UBS Bank Bi l l Index7,603.74 0.3% 1.0% 4.7%

% basis point change

AUS Cash Rate 3.50 -25 -75 -125

AUS 90 day Bank Bi l l rate 3.53 16 -75 -143

AUS 10 year Bond yield 3.04 11 -104 -217

US Federa l Funds rate 0.25 0 0 0

US 30 year Bond yield 2.76 11 -58 -162

US 10 year Bond yield 1.65 9 -56 -151

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Australian-US 10 year bond yield spread

(139 basis points) is now at its lowest level since

the second quarter of 2007.

Peripheral euro-zone bond markets told a different

story. Due to ongoing funding stress, the yield on

Spanish 10 year bonds increased 98 basis points

during the quarter. Italian bond yields also rose

sharply (70 basis points), although the EU summit

at the end of June sparked a rebound in these

markets.

EXCHANGE RATES

Despite falling interest rates, falling commodity

prices and low risk appetite, the AUD lost only

1.0% during the June quarter against the USD.

This was partly due to the increased international

demand for Australian government securities,

which are currently one of only a few AAA rated

securities available.

Exchange Rates Level 1 mth 3 mth 12 mth

AUD/USD 1.02476 5.3% -1.0% -4.4%

AUD/YEN 81.8055 7.3% -4.6% -5.3%

EURO/USD 1.26561 2.4% -5.1% -12.7%

AUD/EUR 0.8098 2.9% 4.3% 9.5%

AUST TWI 76.5 3.9% -0.5% -1.7%

On a trade weighted basis, the AUD declined only

0.5%, partly supported by a weaker Euro against

most other currencies. The USD rose against all

major currencies as the demand for safe haven US

government bonds supported the market.

COMMODITIES

Commodity prices declined during the June

quarter on the back of slowing global demand and

a softer economic outlook.

Oil prices gave back their strong first quarter gains

despite the imminent tightening of European

sanctions on Iranian oil exports. Brent crude

(-21.9%) traded below $90 for the first time since

December 2010, and sustained its biggest

quarterly drop since the fourth quarter of 2008.

WTI also declined sharply (-17.4%), with the

added drag of increased gas supply in the US.

Spot gold slipped -4.3% in the June quarter and

retested its December 2011 low as traders

preferred US treasuries as a safe haven

investment. Derivative plays in the gold market

shrank during the quarter and the number of

contracts held by „money managers‟ reached its

lowest level since December 2008.

The LME index of base metals (-9.2%) nearly

broke its December low as the outlook for global

demand deteriorated. Spot iron ore was weaker

(Tianjin 62% fines down 9.2%) but remained well

above its 2011 lows. Of note, Chinese iron ore

imports for the first five months of the year are up

8.9% with port inventories up 1.7%.

DOMESTIC ECONOMIC DEVELOPMENTS

The Australian economy surprised on the up side

during the June quarter. Economic growth came in

stronger than expected and the unemployment

rate actually declined 0.1 percentage points.

Indicator Outcome

Employment change, persons, qtr, May 46 000

Unemployment rate, %, May 5.1

Consumer confidence, index, May 95.6

NAB business confidence, index, May -2.2

RBA cash rate, %, June 3.5

Credit growth, %, mom, May 0.5

In the first quarter of 2012, Australian GDP

increased a strong 1.3% (4.3% over the year).

Despite the strong result, some commentators

have suggested that it overstates the underlying

strength of the domestic economy. The headline

estimate assumed a 1.2% decline in aggregate

prices in the quarter. Such a large fall in prices is

usually not associated with times of strong

demand.

The labour market also showed resilience during

the June quarter, outperforming most market

forecasts. The unemployment rate declined

0.1 percentage points from 5.2 in March to 5.1 in

May. Employment growth averaged 15 000 per

month with a total of 46 000 jobs created in the

quarter. The official data is inconsistent with other

estimates of the labour market including ANZ job

Commodities Level 1 mth 3 mth 12 mth

Gold (US$/oz) 1,597.00 2.4% -4.2% 6.5%

Oi l WTI (US$/bbl) 84.99 -1.7% -17.4% -10.6%

Aluminium (USc/lb) LME 83.21 -7.0% -12.6% -26.9%

Copper (USc/lb) LME 344.93 1.2% -10.3% -18.2%

Nickel (USc/lb) LME 747.29 0.6% -5.5% -28.8%

MG Metals Index 329.41 -1.8% -10.5% -22.6%For

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ads and NAB business conditions which remain

weak.

The Westpac-Melbourne Institute Consumer

Sentiment Index declined 0.5 points during the

quarter from 96.1 in March to 95.6 in June. The

decline in confidence was also evident in business

sentiment as the NAB Business Confidence Index

eased from +2.7 in March to -2.2 in May.

On the back of increased risks emanating from the

global economy, the RBA cut the cash rate by

50 basis points in May and by an additional

25 basis points in June. This lowered the official

borrowing rate from 4.75% to 3.50%. The cuts

followed lower than expected inflation data, which

gave the RBA more room to stimulate demand.

First quarter headline annual inflation rate

increased by 1.6% compared with 3.1% in the last

quarter of 2011. In addition to the easing in the

headline rate, the core rate fell from 2.6% to 2.2%.

Minutes from the RBA board meetings suggest

that further cuts were constrained by the extent of

the Commonwealth Government‟s fiscal

consolidation. The 2012-13 Budget forecast a

small surplus of $1.5 billion for financial year 2013,

from a projected deficit of $44 billion in financial

year 2012. If the forecast is correct, this would be

the largest one-year deficit reduction in Australian

history. However, due to cash flow timing and

growth assumptions, the underlying tightening may

be more modest than the headline figure suggests.

AUSTRALIAN EQUITY MARKET

The domestic equity market was buffeted by

international headwinds during the June quarter.

Greater uncertainty around potential outcomes in

Europe and the moderating Chinese economy

were the main drivers of negative sentiment.

Accumulated Australian Indices

1mth 3mth 12mth

ASX 200 0.7% -4.7% -6.7%

ASX 300 0.5% -5.0% -7.0%

ASX 300 Industrials 2.4% -0.6% 3.5%

ASX 300 Resources -4.6% -15.8% -28.5%

All Ordinaries 0.3% -5.6% -7.0%

Small Ordinaries -4.8% -15.3% -14.6% As at 30 June 2012. Source: Iress * Total return

The ASX 300 accumulation index sold off 5.0%,

giving back most of its 2012 gains. The decline

was largely due to the sharp selloff in the

Resources sector (-15.8%) as the outlook for

China deteriorated and commodity prices declined.

The Small Ordinaries index underperformed the All

Ordinaries index and Small Resources

underperformed the Small Ordinaries index.Due to

the increased volatility and tough trading

conditions, the more defensive sectors

outperformed the broader market. The best

performer was the Telecoms sector (11.3%),

driven by Telstra (3.9%) which was demanded for

its high dividend yield and stable earnings. Other

defensive sectors such as Property Trusts

(+8.6%), Healthcare (4.3%), and Utilities (1.1%)

also outperformed the overall market.

Australian Sector * 1 mth 3 mth 12 mth

Materials -3.5% -14.4% -28.0%

Consumer Discretionary -0.7% -4.3% -5.0%

Consumer Staples 1.3% 0.7% 2.3%

Energy -6.2% -16.3% -20.1%

Financial 4.8% 1.0% 2.7%

Financial (ex LPT's) 4.8% -0.5% 1.1%

Healthcare 2.5% 4.3% 10.5%

Industrials -4.8% -13.6% -4.7%

Information Technology -1.5% -11.3% -7.7%

Property Trusts 4.3% 8.6% 11.0%

Telecoms 3.6% 11.3% 38.3%

Utilities -0.9% 1.1% 16.7%

S&P/ASX300 0.5% -5.0% -7.0% As at 30 June 2012. Source: Iress * Total return

The deteriorating global outlook weighted heavily

on commodity prices and the Energy sector which

was down 16.3% over the quarter. The other

underperformers were also more cyclical sectors

including the Materials (-14.4%), Industrials

(-13.6%), and Information Technology (-11.3%).

The Financials sector outperformed the All

Industrials sector despite the ongoing banking

crisis in Europe. Domestic banks are generally

better regulated and capitalised compared to their

international counterparts. In addition, they offer

attractive yields given current short term interest

rates. Commonwealth Bank (+7.5%) was the clear

standout performer of the major Banks; however,

ANZ (+5.4%), National Australia Bank (+4.7%) and

Westpac (+4.1%) all delivered positive returns.

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AUSTRALIAN EQUITY MARKET –

OUTLOOK

The outlook for the Australian equity market is

heavily dependent on developments in the global

economy.

Despite avoiding a catastrophic outcome from the

second Greek election, the base case for Europe

remains weak. Ongoing public and private sector

deleveraging will weigh on economic growth as the

region continues to impose strict austerity

measures. Nevertheless we expect periodic rallies

on the back of policy responses to the on going

weakness in growth.

The US economy is slowing with weak

employment growth and moderate consumer

spending. On the positive side, the housing

market appears to have bottomed which will start

to add to growth in late 2012. Downside risks

remain but the US typically takes remedial action

in response to economic weakness.

China‟s economy continues to moderate with

growth in production and exports decelerating.

While recent cuts in the reserve requirement are

positive, they have not yet had a material impact

on activity. Importantly, the government has the

capacity to introduce additional stimulus measures

if required. We expect to see a pickup in activity in

China in late 2012 with easier monetary conditions

and additional fiscal stimulus.

Domestically, the economy continues to surprise

on the upside. Despite the weakness in the non-

mining sectors of the economy, the massive terms

of trade boom is boosting overall national income.

As a consequence, GDP growth and employment

have held up well. Going forward, the 75 basis

point reduction in official interest rates will help to

support growth.

Valuations have become very attractive as a result

of the recent weakness in equity markets. With the

continuing strength of the Australian economy and

some pick up in growth in China later in the year,

we see scope for positive returns in the Australian

market over the coming year.

MicroCap Overview

We believe that the European authorities will do

whatever it takes to ensure that the Euro holds

together. Nevertheless, fears of a Greek exit led

to a sell down of risk assets during the June

quarter.

Despite the announcement of measures to

stabilise the situation, risk assets are still trading at

a significant discount to the market. We believe

that slower global growth will lead to the injection

of liquidity into the global economy over H2 or

early 2013, which will support the repricing of risk

assets notwithstanding the subdued pace of global

growth.

Over the June quarter, smaller companies

(-15.3%) strongly underperformed their larger

peers (-4.0%), reversing the outperformance from

the previous quarter. The weak quarter meant that

smaller companies finished down 2.6% for FY12.

The ASX Small Ordinaries are currently trading at

8.7x based on forward FY13 earnings - a 2 PE

point discount to the ASX100 which is trading at

11.0x. Both multiples are well down on historic

averages.

Portfolio Overview

The Contango MicroCap portfolio return of -18.6%

underperformed the Small Ordinaries return of

-15.3% and the All Ordinaries return of -5.6% in

the June quarter.

The calendar year performance of the portfolio is

-12.4% versus -7.0% for the All Ordinaries return

and -14.6% for the Small Ordinaries.

Period (%, p.a)

Contango MicroCap Portfolio

%

All Ords

Accum %

Small Ords

Accum %

1 Month -4.7% 0.3% -4.9%

3 Months -18.6% -5.6% -13.0%

6 Months 2.1% 2.9% -0.7%

1 Year -12.4% -7.0% -5.4%

2 Years pa 9.6% 2.1% 7.5%

3 Years pa 14.0% 5.9% 8.2%

5 Years pa -2.4% -4.1% 1.7%

Inception pa 18.4% 6.8% 11.6%

NB Inception March 2004

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As mentioned earlier in the report, global equity

markets sold off during the June quarter as

uncertainty surrounding the outcome of the Greek

elections, a softening outlook for China and the

US, and a recapitalisation of Spanish banks

weighed heavily on market sentiment. Although

the feared break up of the Euro did not eventuate,

the relief rally has been muted.

Going forward, we are facing a softer global

outlook as both developed and emerging

economies are showing signs of further slowing.

Importantly inflation is now well contained around

the world and economies including China have

started to lower interest rates. We expect further

easing over coming months. In addition, China has

also announced new fiscal measures to boost

economic activity. In the developed economies,

we expect central banks to inject additional

liquidity into the system as they strive to

encourage stronger growth.

We believe that these measures will support the

repricing of risk assets over the next six to twelve

months.

Based on our conservative outlook for world

growth, the microcap sector as a whole looks

cheap relative to the market and relative to its own

history. The two sectors that the portfolio has

been overweight for quite some time are mining

and mining services. Based on our valuations, the

mining sector is trading at an average discount of

around the 55-60% to NPV, while the mining

services sector is trading on a prospective PE of

7.5x times based on our forecast 2013 earnings,

compared with the ASX Small Ords PE of 8.7x and

ASX Small Industrials PE of 10.7x.

Although the mining construction boom in Australia

has many years to run, we believe that the sector

will come under pressure in response to the

slowdown in global growth. Resource prices have

weakened in response to the slow down in global

growth but remain elevated in relation to history

and importantly in relation to production costs.

Against this background we have been selectively

reducing the portfolio‟s exposure to mining and

mining services companies.

Sector Weightings (%) Mar-12 Jun-12

Energy 17.3% 17.2%

Materials 34.0% 31.0%

Industrials 26.3% 27.8%

Consumer Discretionary 4.0% 4.9%

Consumer Staples 0.0% 0.0%

Healthcare 0.5% 0.7%

Financials 4.7% 7.0%

Information Technology 2.0% 2.3%

Telecommunications 1.6% 2.3%

Utilities 0.5% 0.7%

SPI 7.2% 0.0%

Cash 1.9% 6.1%

In environments of heightened risk aversion, the

market attaches a higher premium to yield and

income certainly.

We have introduced some new industrial names

into the portfolio to provide a more diversified

structure while retaining our ability to benefit from

a rebound in risk appetite later in the year. In

addition, we are anticipating a reasonable

reporting period for mining and mining services

companies in August.

In the June quarter we reduced the exposure to

the Resources sector with the exit of a few names

including Panoramic Resources, Poseidon Nickel,

Phoenix Gold and Sheffield Resources.

Within the Energy sector, some profits were taken

in Aurora Oil & Gas as it graduated into the

ASX100, with the proceeds being reinvested into

Molopo Energy and Pancontinental Oil & Gas.

The major new inclusion into the portfolio was

FlexiGroup which is a provider of vendor and retail

point-of-sale finance services. The company has a

diversified business mix with a solid earnings

growth and dividend yield profile.

The portfolio participated in a number of

placements (see table below), but one notable one

was M2 Telecommunications Group as the

opportunity allowed the stock to become one of the

larger positions in the portfolio.

Finally, the position in SPI futures contracts at the

end of the March quarter (7.2%) was unwound and

left in cash by the end of the June quarter (6.1%).

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IPOs and Placements

The portfolio participated in placements for 8

companies and no IPOs.

Company Name Code Price PLACEMENT

Aust Bauxite Ltd ABZ $ 0.39

M2 Telecommunication MTU $ 2.66

Senex Energy Limited SXY $ 0.74

Nanosonics Limited NAN $ 0.53

Iproperty Group Ltd IPP $ 1.00

Straits Res Ltd. SRQ $ 0.62

Coalworks Limited CWK $ 0.78

Pancontinental Oil PCL $ 0.18

Portfolio Details

As at 30 June 2012 there were 85 securities in the

portfolio. The tables below show the breakdown of

these positions within the portfolio.

Position Weight # of stocks % of portfolio

> 2% 7 16.5%

1% - 2% 39 56.9%

0.5% - 1% 24 17.0%

< 0.5% 10 2.9%

Market Cap # of stocks % of portfolio

$1b+ 2 3.7%

$350m- $1b 12 21.5%

$100m-$350m 43 54.8%

$0m - $100m 23 13.3%

NB: these tables do not include the holding of CCQ nor the assets held within CCQ.

Attribution of 5 Best and 5 Worst holdings June 2012 quarter

Company Name Contribution

BEST

McMillan Shakespeare Ltd MMS 0.44%

Slater & Gordon Limited SGH 0.39%

Cardno Limited CDD 0.34%

Bradken Limited BKN 0.34%

Coalspur Mines Limited CPL 0.32%

WORST

SP AusNet SPN -0.37%

Forge Group Limited FGE -0.37%

Adelaide Brighton Limited ABC -0.35%

Imdex Limited IMD -0.34% Australian Infrastructure Fund AIX -0.33%

Top 20 Stock Weights as at 30 June 2012 (as a percentage of the total CTN investment portfolio)

Code Company Name Weight

MMS McMillan Shakespeare 3.25%

MTU M2 Telco Group 2.34%

ASL Ausdrill 2.34%

GRR Grange Resources 2.21%

MYE Mastermyne Group 2.13%

ANG Austin Engineering 2.12%

CDD Cardno Limited 2.12%

MLD MACA Limited 1.99%

SXY Senex Energy 1.95%

MAD Maverick 1.92%

AUB Austbrokers Holdings 1.90%

TRY Troy Resources 1.77%

FGE Forge Group 1.75%

TOX Tox Free Solutions 1.74%

BSE Base Resources 1.73%

DLS Drillsearch Energy 1.72%

FXL FlexiGroup 1.67%

NCR Nucoal Resources 1.63%

BDR Beadell Resources 1.61%

NWH NRW Holdings 1.58%

These top 20 represent 39.5% of the portfolio.

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McMillan Shakespeare (MMS) McMillan Shakespeare is a provider of workplace benefits administration in Australia. Services include the administration of salary packaging services and fleet management (covering procurement of motor vehicles and finance, and arrangement of related services such as insurance). The company acquired Interleasing in March 2010, positioning the company well to increase its opportunities particularly within the private sector. Scale benefits allows the company to drive a higher margin advantage over its competitors, with this forecast to improve further over time as the company demonstrates double digit growth. M2 Telecommunications Group (MTU) M2 Telecommunications Group is Australia‟s largest network-independent provider of fixed line, mobile and data services. Operating as a reseller, MTU primarily utilises Telstra‟s and Optus‟ networks to provide retail services to the small and medium enterprise (5 to 50 employees) market. They also have a smaller wholesale presence offering products to small Internet Service Providers. Through organic growth and selective acquisitions, MTU has delivered nine consecutive years of both revenue and profit growth. With a firm eye on further acquisitions and control over one of the largest dealer/agent networks in Australia we anticipate this strong growth to continue over the long-term. Ausdrill (ASL) Ausdrill is a diversified mining and service company engaged in providing services to mining, earthmoving, manufacturing, logistics and telecommunications industries. The company is seeing unprecedented demand for its services particularly in underground mining and surface drilling such that each business is operating close to full utilisation. We expect the company to grow profitability by over 25% in FY12 on the back of increased capital investment in its in-field mining service capability. Grange Resources (GRR) Grange Resources owns and operates iron ore mining and pellet production business located in the North-West region of Tasmania, Australia. GRR focuses on magnetite exploration in two main areas, namely, Savege River Mine Operations and Southdown Development Project. Mastermyne Group (MYE) Mastermyne is a specialist provider of services to the Australian coal mining industry. The company is a market leader in underground coal mining services in Queensland‟s Bowen basin and recently extended its service offering in the Hunter Valley in New South Wales. We expect the company to grow profit by more than 50% in the

current financial year on the back of stronger revenue as well as better margins. Austin Engineering (ANG) Austin Engineering is an engineering company with manufacturing facilities in Australia, USA and the Middle East. The Australian and USA facilities provide fabrication facilities servicing the mining, oil, gas and industrial sectors. The Middle East operation provides specialised products and services for the aluminium smelter industry. Austin owns rights to welding processes and robotic applications to suit product lines, general fabrications and any repetitive production processes. Austin has become a leading supplier to the truck body market globally, initially in Australia via its business JEC mining and earthmoving, then globally by consolidating its former licensor Westech allowing Austin to exploit the South American and Canadian markets amongst others. Cardno (CDD) Cardno is a professional infrastructure and environmental services company, with specialist expertise in the development and improvement of physical and social infrastructure for communities around the world. Cardno‟s team includes leading professionals who plan, design, manage and deliver sustainable projects and community programs. The company has a global presence and recently strengthened their US business via the acquisition of ATC Associates which added in-field capability to their project management and consulting business in the US. MACA (MLD) An Australian based mining service company which offers integrated drilling & blasting, loading & haulage and crushing & screening services. The advantage for the client is a single contractor on site between the mine and the processing plant. The company has a diversified customer and commodity list. The largest customers include Crosslands Resources, Atlas Iron, Western Areas, Regis Resources, Barrick Gold and Sinosteel. By commodity, the significant contracts are exposed to iron ore, gold and base metals. MACA takes risk on delivering contracted volumes, employment numbers and equipment utilisation/availability and type. Senex Energy (SXY) Senex is a diversified energy company engaged in exploration and production of oil and gas in Cooper Basin and coal seam gas in the Surat Basin. The Company also engages in the exploration and development of unconventional gas in the South Australia Cooper Basin. Despite the relatively low proven and probable resource level current, it is the company‟s vast unconventional gas resources that provides the greatest upside to the current share price.

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Maverick Drilling & Exploration (MAD) Maverick is a diversified oil company with existing oil production and reserves. MAD's flagship assets are leases and oil reserves that it holds over parts of the Blue Ridge Dome, a producing oil field located south of Houston, Texas in the U.S. The company recently added additional acreage to the portfolio at Nash and Boling close to the existing portfolio. We expect the company to grow production from current levels of below 1000 barrels of oil per day (bopd) to around 2000bopd by year end on the back of increased drilling capability applied to the fields. The company also has numerous exploration prospects on the acreage which have yet to be fully exploited. We value the company conservatively at $1.80/share given its existing proven and probable reserves. Yet expect this to increase on the back of increased production and further reserves additions. Austbrokers Holdings (AUB) Holds equity interests in 40 insurance broking businesses around Australia. In addition to its core general insurance broking business, Austbrokers cross markets other financial products and services suitable for its client base, including premium funding, life insurance and investment products. The recent formal alliance with the IBNA Group (a buying group of insurance brokers) provides further long-term growth initiatives as the industry continues to consolidate. Austbrokers only generates fees and commissions and does not take on any underwriting risk. Troy Resources (TRY) Troy Resources is a profitable explorer/ developer/producer operating in Argentina and Brazil. The company poured its first gold at its recently developed Casposo Mine, Argentina late 2010 and despite some earlier commissioning issues is now running at full production rates. Additionally, its second but smaller gold mine in Brazil is running well. The company produced 71koz in FY11 and expects this to lift to 130koz in FY12. Exploration prospectively is high, particularly around the Casposo area. Tox Free Solutions (TOX) Tox Free Solutions is an integrated waste management and environmental service provider. The company focuses on the provision of industrial and hazardous waste treatment, contaminated site remediation and industrial services. The company also provides industrial maintenance services through its subsidiaries strategically located throughout Western Australia. Recent acquisitions include the purchase of a recycling business Greenchip in Victoria and the industrials services business Barry Brothers (from Programmed Maintenance Services). We expect the company to grow profit by around 25% in FY12.

Forge Group (FGE) Forge Group is a Western Australian based engineering and construction company. It operates three wholly owned subsidiaries specialising in industrials services to the resources sector. Cimeco provides civil and concrete, mechanical, electrical and maintenance services. Abesque Engineering specialises in the provision of engineering design, construction and project management services for the implementation of projects involving processing facilities and associated infrastructure. Webb Construction (West Africa) also provides comprehensive construction services to the resources sector yet, with over 15 years of operational experience in the West African region the company is well recognised for its ability to perform in remote and difficult environments. Base Resources (BSE) Base Resources is an exploration company with projects in the mid-west region of Western Australia, prospecting mainly for iron ore, base metals, gold and uranium. The company is also developing a world-class mineral sands project in Kenya, East Africa which is in an advanced stage, prospecting for industrial minerals such as ilmenite, rutile and zircon. The company has one of the few advanced projects world-wide that will be in production in two years & the current resource in Kenya supports a mine life of 10+ years. Drillsearch Energy (DLS) Drillsearch explores and develops conventional and unconventional oil and gas project primarily focused on the Cooper-Eromanga Basin in South Australia and Queensland. Production is forecast to triple from 0.5mboe in 2012 to 1.5mboe in 2013. Yet, it is Drillsearch‟s exposure to the evolving unconventional resource contained in the Cooper Basin that provides the most upside to the company. The company has the greatest leverage to Cooper Basin shale gas play with 500,000 acres relative to company size - its equity interest high at 40% and is project operator. We value the company at $1.80/share and expect the price to increase as activity levels ramp-up throughout 2012 and 2013. FlexiGroup (FXL) FlexiGroup is a provider of vendor and retail point-of-sale finance services in Australia, New Zealand and Ireland. The group operates four main businesses, namely Leasing-Retail, Leasing Vendor & Commercial, Telecommunications, and Interest Free Loan. The company operates within a number of industries, including home improvement, solar energy, fitness, IT, electrical appliances, navigation systems, trade equipment and point of sale systems. Since listing in late 2006, the company has diversified its business mix

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through a combination of acquisitions and development of products in-house which has seen its EPS grow 16.7% p.a. over the period FY09 to FY11. Nucoal Resources (NCR) Nucoal Resources is a coal producer based in Australia. With a focus on coking coal, the company is currently focusing on the 100%-owned Doyles Creek Underground Mine Project, which is located in NSW, Australia. The company also has a 100% interest in Dellworth and Training Mine Project. Beadell Resources (BDR) Beadell Resources is an up and coming gold producer in Brazil. The company has faced a number of delays in recent months and based on current projections, the mill at Tucano should start processing its first ore in August 2012 and its first gold in September 2012. In the first years of the project when the grade is elevated the project should be producing +150k oz of gold at a cash cost of US$600/oz. We expect life of mine production will stabilize around 130k oz p.a. with an estimated cash cost of US$700/oz. Mine life is c10 years with good levels of in-pit and regional exploration. Further earnings could be derived from the potential iron ore that is contained within the waste, however it is reliant on a deal being structured with Anglo, so we have not assumed this in our overall valuation. If a deal can be consummated then the potential cost savings would be in the order of US$100/oz. NRW Holdings (NWH) NRW Holdings is a Western Australian based provider of services to the resources sector. The company provides civil contracting services including rail formation, bulk earthworks, mine development, road and tunnel construction and a range of contract mining services. Blue chip clients among others include Rio Tinto, BHP Billiton and Fortescue Metals Group.

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DISTRIBUTION UPDATE

June 2012

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Contango MicroCap Limited June Quarter 2012

MICROCAP DISTRIBUTION UPDATE

FY12 was a successful year for Contango MicroCap Limited. In this year CTN‟s share price substantially outperformed the smaller, micro and resources part of the market. CTN built its profile and shareholder base while it continued to develop its relationships with sharebrokers and financial advisers. Since the company expanded its marketing and communications initiatives in mid-2010 the CTN share price

has returned over 54% (including dividends), narrowing its Discount to NTA from 41.9% to 17.9%. Over the same 2-year period the ASX Small Ordinaries Accumulation Index has returned -0.30%pa and the ASX All Ordinaries Accumulation Index returned 2.11%pa. (nb: these are pre fees and pre-tax indices). Chart 1 demonstrates the performance of CTN over 6, 12 and 24 months.

Chart 1: Source CTN A measure of CTNs success is reflected in the growth in the number of its shareholders, who recognise the opportunities in and benefits of owning CTN shares. The following two charts map the growth in Shareholder numbers over the past 2 years and coincide with the growth in the share price.

On the last trading day of FY12 CTN had its highest ever number of shareholders (4234).

These new shareholders were primarily attracted through the promotion and marketing campaigns undertaken by CTN in FY11 & FY12.

With the number of shareholders having increased during a falling sharemarket in FY12, it could be inferred that new shareholders have purchased shares with a longer term horizon and may be less likely to sell their holding during market corrections.

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The shareholder holdings table below indicates where new growth in shareholders has been experienced.

(Financial Year ended)

2005 2006 2007 2008 2009 2010 2011 2012

1 - 1,000 24 41 115 145 135 168 249 308

1,001 - 5,000 341 399 501 583 539 416 573 675

5,001 - 10,000 401 509 626 669 656 456 603 684

10,001 – 100k 666 937 1,352 1,726 1,729 2,214 2,307 2,370

100,001 + 35 51 76 132 151 205 204 197

Total 1,467 1,937 2,670 3,255 3,210 3,459 3,936 4,234

While growing its shareholder base across the ranges, CTN has been particularly successful in arresting the 2009/10 slide in shareholder across the 1-10,000 range (see red circles).

We believe that as sentiment towards the investment market improves that CTN will be able to continue the steady growth in the number of shareholders, thus helping the share price more fully reflect the value of its underlying Asset Value.

Engaging the Investment Community

In May and June CTN presented to around 1000 investors at the Morningstar SMSF Trustee Day conferences across Australia. These were successful for us, presenting on Listed Investment Companies and Microcap investing to a new audience of investors.

In addition to our regular communications with over 4500 advisers and 3000 investors who have opted in to receive updates from us, during the quarter CTN presented to investor groups aligned to the Australian Investors Association, Australian Shareholders Association, University of the 3

rd Age as well as

other groups.

The CTN display stand at these conferences is often the most popular with attendees. The breadth and depth of the information CTN makes available to its shareholders as well as the nature of Microcap investing itself proving an attractive proposition to pique people‟s interest. CTN has developed many positive relationships and outcomes from these events.

Through these and other initiatives the outcome is that CTN is significantly enhancing its presence and visibility, leading to greater publicity, a creation of a “Microcap” investors community and recognition that “CTN = Microcaps”, and “Microcaps = CTN”.

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PROMOTION

Articles and features including CTN during the quarter included:

Eureka Report

CTN was positively “Road Tested” by Dr Tony Rumble of The Eureka Report in June. A copy of this report can be found on our web site

1

Morningstar and InvestorDaily.com.au

Morningstar and InvestorDaily.com.au have been featuring CTN in a 10-minute interview with CTN discussing the merits of Microcaps. This video can be found here

2

ASX Investor Update May 2012

A regular in the monthly ASX Investor Newsletter, CTN produced a feature article for the ASX May Newsletter… Don't let discounts and premiums blind you. This article can be found on the ASX web site

3.

It is understood that the monthly ASX Investor Newsletter is sent to 225,000 people with a 40% open rate. CTN receives many hits to our web site from these articles.

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RESEARCH

In May CTN was was formally assigned a “Recommended” rating from Research house Zenith Investment Partners.

This is outstanding recognition of both CTN and the company‟s investment manager Contango Asset Management Ltd. This research opens CTN to a new group of financial advisers who rely on Zenith investment research.

CTN retains the following formal ratings (as distinct from Broker reports) which can all be obtained from the Research page on the CTN web site

4

Morningstar “Investment Grade”

Zenith “Recommended”

IIR “Highly Recommended” (CTN is the only LIC that is Highly Recommended by IIR)

DISCUSSION PAPER: KNOW WHAT YOU ARE INVESTING IN

In April CTN released a discussion paper on proper analysis of LIC

performance. This is the full version of the abbreviated summary which was in

the previously mentioned May ASX Investor newsletter. It extends to include the

relationship between Share Price and NTA in relation to market timing. This can

be found on the CTN web site5 and we encourage shareholders to read this.

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SUBSCRIBE TO THIS NEWSLETTER We encourage shareholders and interested investors to use the subscription

6 feature on our web site to

receive notification when this and other important documents have been released to the ASX.

COMPANY PROMOTION AND ACTIVITY

CTN has been successful in increasing both the company‟s visibility and profile.

In the coming quarter CTN will make public presentations in most capital cities as well as other industry events.

CTN continues to contribute articles and materials on microcaps in the media.

CTN WEBSITE RESOURCES CTN will continue to engage its shareholders through providing ongoing information relating to the underlying investment portfolio as well as other important operational matters.

KEEP UP TO DATE WITH THE LATEST INFORMATION Shareholders should be aware of the information which is already available through the Investment Centre

7 on the CTN website.

CTN produces articles and papers relevant to Microcaps and LICs which are often published in various industry magazines and websites. Where possible, these are loaded onto the CTN website. In addition, commentaries and research conducted in CTN by stockbrokers and researchers can be found there. Shareholders should keep an eye on the Articles

8 and Events

9 tabs on the CTN Investor Centre website.

THE CONTANGO REVIEW OF MICROCAP COMPANIES

In the coming weeks CTN will release selected findings from its Annual

review of ASX-listed companies and Microcap performance for the financial year ended 30 June 2012. The report once completed can be found on the Articles

8 page on the CTN

web site.

The CY 2011 document can be found here10

, the March 2012 document here

11.

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CORE ACTIVITIES

Key activities remain around broker and adviser visits, support activities, group speaking presentations and

promotional materials.

As always, if shareholders or interested parties have any questions, suggestions or requests, please feel

welcome to contact me at any time.

Yours sincerely

Boyd Peters National Distribution Manager Notes: CTN performance is of the underlying portfolio before fees, taxes and charges. Past performance is not necessarily indicative of future performance. All data is to 30 June 2012. All comments in this newsletter should be read in conjunction with the Disclosure Statement & Disclaimer found at the beginning of the newsletter. Inception date 25 March 2004.

Hyperlink references:

1. Eureka Report Article http://www.contango.com.au/data/Eureka.pdf

2. The Merits of Microcaps Video Interview with InvestorDaily.com.au and Morningstar http://www.investordaily.com.au/cps/rde/xchg/id/style/14646.htm?utm_source=newsletter&utm_medium=email&rdeCOQ=SID-0A3D9633-DCD98BD0

3. ASX Article link http://www.asx.com.au/resources/investor-update-newsletter/201201-top-micro-cap-shares.htm 4. CTN Research Page http://www.contango.com.au/ctn_contango_microcap_research.php 5. Know what you are investing in http://www.contango.com.au/data/docs/reports/research/CTN_Research_LIC_Apr_12.PDF 6. Subscribe http://www.contango.com.au/ctn_contango_microcap_news.php?newsArticle=1 7. CTN Investment Centre http://www.contango.com.au/ctn_contango_microcap_investor_centre.php 8. CTN Articles http://www.contango.com.au/ctn_contango_microcap_articles.php 9. CTN Events http://www.contango.com.au/ctn_contango_microcap_events_and_dates.php 10. 2011 Review of Australian Microcaps http://www.contango.com.au/data/docs/reports/research/CTN_Microcap_Survey_2011.PDF 11. March 2012 Review of Australian Micros http://www.contango.com.au/ctn_contango_microcap_research.php

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