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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Monday, March 24, 2008

San Gold

CURRENT PRICE: $1.43
TARGET PRICE RANGE: $2.04 to $2.51

San Gold Corporation is engaged in the exploration of gold primarily in the Bissett area of Manitoba, Canada. During the year ended December 31, 2006, the Company concentrated on developing its two active mining properties: the Rice Lake (Bissett Mine) located about 100 kilometers (kms) west of Red Lake on the Western Uchi sub-province. The Company has also developed a new mine, the San Gold 1 Mine, located three kms east of Bissett. Importantly, San Gold has recently purchased the nearby Timmons property, adding to their potential resource base.

San Gold Corporation is a publicly traded company on the TSX Venture Exchange trading under the symbol SGR. The Company’s shares also trade on the U.S. Over-the-Counter (OTC) market under the symbol SGRCF.

SAN GOLD SUMMARY

TSX: SGR

OTC: SGRCF

Shares Outstanding: 200.0 Million (249.9 million fully diluted)

Market Capitalization: ~$250 million

Telephone: 800-321-8564

San Gold Web Site

Presentation:

San Gold Corp. has a portfolio of properties with over 1.6 Million oz of measured, indicated, and inferred gold resources.

San Gold Corporation is a Canadian gold mining company focused on in the Rice Lake Greenstone Belt in SE Manitoba, Canada. The Company’s Rice Lake Gold Project includes two mines, the deep underground, high-grade Rice Lake mine and the nearby near-surface ramp accessed San Gold #1 (SG-1) deposit. A third nearby deposit, the recently discovered Cartwright gold deposit is slated for development in 2008. Production from both the Rice Lake and SG-1 mines, feeding the centrally located 1250 ton per day mill at Bissett, is expected to be achieved in early 2008

The Company also owns or controls nearly 15,000 hectares of exploration lands in the prime areas of the Rice Lake Greenstone Belt of SE Manitoba. The Company has increased its ore resources from 550,000 gold ounces when it acquired the Rice Lake Project in 2004 to over 1,600,000 ozs gold by the end of 2006. The Company developed the SG-1 deposit as a result of its exploration activities since 2004 and also discovered the Cartwright deposit in 2006.

The Rice Lake region is next door to the Red Lake mining belt where Gold Corp. grew from a small miner into one of the largest and most profitable gold mining companies in the world.

San Gold is likely to take a lot of effort to aggressively drill their properties to prove up more gold resources. Cash flow from production will likely be increasingly used to prove up resource. That’s not a bad thing. If they hit a lot of solid mineralization, the long-run share price will benefit greatly. And the Greenstone Belt of SE Manitoba holds good promise. In that respect, San Gold resembles more of a promising exploration company than a producer. San Gold has had some labor issues that have delayed progress in the past year. But they should prove up enough reserves over the next 12-24 months to raise the share price. In short, the real value in this play is a speculative one that San Gold can prove up considerable resources over time.

Production for San Gold is projected to be 50,000 oz. in 2008; 100,000 oz. in 2009; 100,000 oz. in 2010.

San Gold production is not hedged.

San Gold has ~$108 million in “royalty payments” and other long term liabilities.

Cash currently available as of March 2008 = ~$35 million,

The following methods are what I use to value San Gold Corp. for my investment purposes and provide a range of short-run and potential long-run value.

SHORT-RUN CASH FLOW SHARE VALUE
$2.04 per share in 2009 (2009 reflects San Gold’s full production profile relative to 2008) using a cash flow model valuation and assuming the following:

10x cash flow
$1,000 per oz. price of gold
$400 per ounce production cost
100,000 ounces of production in 2009 (~50,000 oz. projected in 2008)
$1.2 million G&A
$8 million capital expenditures
$109 million in long term liabilities
249,900,000 shares outstanding (fully diluted)

POTENTIAL LONG-RUN RESERVE SHARE VALUE
$2.51 per share based on current resource base.. The majors are paying about $280 an ounce for buyouts at $950 an ounce POG. San Gold currently has about 1.6 million ounces (M&I&I) and if they can prove up another 1.0 million that equals 2.6 million. 2.6 million times $280 an ounce equals $628 million (net of $108 liabilities). $628 million divided by 249.9 million shares equals $2.51 per share.

DIRECTORS AND OFFICERS

Hugh Wynne - Director and Executive Chairman
Dale Ginn, B.Sc., P.Geol. - Director and CEO
Richard Boulay, B.Sc. - Director
Courtney Shearer, B.Sc., MBA - Director
David Filmon, LLB - Director
Ben Hubert, B.Sc., M.Sc., MBA - Director
Gestur Kristjansson, BA, MBA, CA - Chief Financial Officer
-------------------------------------------------------------

Full disclosure: I own shares in San Gold Corp.. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their investment decisions. Do your own due diligence.

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