Initiating Coverage : San Gold Corp. (SGR-V) : Evolving into a Gold Producer, "Hinged" on Exploration

Adding high-grade ounces adjacent to existing infrastructure.
SGR's exploration efforts have been successful in adding ounces near infrastructure - two mines developed, four deposits discovered in 3 years.

High-grade Hinge zone should augment near-term production.
Shallow, high-grade Hinge zones to enter production in Q1/09 (200-250 tpd by late 2009); higher grades should improve production and costs.

New "Hinge" exploration model greatly broadens project potential.
Reserve/resource update in Q1/09 after two years of drilling. New discoveries open potential on unexplored area near the mine.

Initiating coverage of San Gold with a Buy rating and $1.70 target.
Target is based on a 1.16x multiple of our estimated 5%NAV of $1.46 per share. See Exhibit 5 for sensitivities to the price of gold and FX rate.

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