We anticipate San Gold reporting unremarkable gold production of approximately 24,000 ounces at a cash cost of US$492/oz from its Rice Lake operations in 2008. However, things begin to get very interesting from our perspective in 2009. We expect the company to begin mining the high-grade Hinge Zone in January (only 11 months after its discovery), followed by the Cartwright Zone in Q3/09. We believe the company is fully funded in respect of these initiatives.

Together with ongoing production from the Rice Lake and San Gold #1 mines, we project production of 133,000 ounces at an average cash cost of US$361/oz in 2009. According to our forecasts for continued growth from these new mines, we expect sequential production improvement to 175,000 ounces at US$336/oz and 193,000 ounces at US$326/oz in 2010 and 2011, respectively.

Our positive outlook for the company depends heavily on the evolution of the Hinge Zone. We anticipate receiving a preliminary resource estimate in January and have included 750,000 ounces at a grade of 0.60 opt into our project model. We view this as a minimum and would suggest that the depth-extent of analogous deposits in the camp suggest multiple-times expansion potential.

We anticipate the following events over our target price horizon:
• January – Initial resource estimate for Hinge Zone
• Q1/09 – Commence mining Hinge Zone
• Mid-09 – Expand capacity from 1,250 tpd to 1,800 tpd
• Q3/09 – Commence mining Cartwright Zone