Dundee Research out today

New discovery above the 28th level

San Gold reported additional high grade results from its underground drill program at the Rice Lake Mine. Ongoing testing of the 98 Vein located above the 28th level (Figure 1) has led to the discovery of parallel footwall zones that have returned intersections including 36.6 g/t over 12.2m, 15.1 g/t over 11.7m, and 11.0 g/t over 7.8m (Table 1).

The discovery of the 98 Vein footwall zones further points to the excellent exploration potential for additional high grade (and high margin) zones at Rice Lake, and we are maintaining our BUY rating and 12-month price target of C$4.20/share.

Close to existing infrastructure

San Gold has identified four footwall (FW) zones that range in grades and widths from 22.5 g/t over 5.0m (weighted average from eight holes testing zone FW1) to 4.8 g/t over 2.7m (one hole intersecting FW3). Additional drilling is underway, including deepening some existing holes that may have been stopped before reaching the footwall mineralization.

The new zones are within close proximity to existing underground workings that access the 98 Vein (Figure 2), an area that is expected to contribute about 30% of the operation's mill feed in 2010. The positive impact of the 98 Vein has already been felt on the operation - production grade increased to around 10.3 g/t in December 2009 from less than 8.0 g/t in the third quarter.

Highlights Hinge Zone depth potential

We find it interesting that the 98 Vein and the newly discovered footwall zones are similar in attitude (strike and dip) to the Hinge Zone. We suspect that the higher grade areas within the underground gabbroic mine sequence (such as the 98 Vein) may be located at the intersection with crosscutting structures that control the near surface high grade zones that are hosted in volcanic flows. The interpretation of crosscutting structures suggests that the area located between the deepest intersection of the Hinge zone (at about 400m below surface) and the top of the 98 Vein (around 1100m below surface) has excellent potential for further high grade discoveries. Our conversation with management would seem to support this view, with consideration being given to extend a drill platform from the 8th level to the east in order to test the area. Furthermore, we believe the identification of previously mined high grade veins (particularly those that are parallel or sub parallel to the 98 Vein) could point to additional high grade zones hosted within the volcanic sequence