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Institutional Equity Research

Earnings Update

October 1, 2010 Precious Metals

San Gold Corporation

Exploration Versus Mining

_ San Gold continues to find good-grade mineralization atits Rice Lake Mine

in Manitoba with the latest discovery located a mere 200 metersfrom

existing underground mine development. It is likely that theEmperor Zone

will provide a new source of ore in less than one year.

_ The prospects for surface mineralization extending todepth are considered

good, with each zone potentially offering about 300,000 oz. ofadditional

gold if it extends to depth. Thus far, three of these zones havebeen found

and we suspect one or more will extend to the lower reaches ofRice Lake.

_ Production build has been slow with lower grades than wehad anticipated.

We think part of the issue lies with the lack of cutting factorsapplied to raw

drill data. It is likely that the grades for the surfacemineralization will be

only slightly higher than that of historical grades at Rice Lake.

_ Valuations have been impacted by our view of lower gradesfrom higher

dilution. We have also included the increased share count comingfrom the

recent equity raise of about $80 million. We are lowering ourprice target for

SGR to $4.75 from $6.00 and maintain our Sector Performer rating.

Stock Price Performance

Source: Reuters

All figures inCanadian dollars, unless otherwise stated. 10-105102 © 2010

CIBC World Markets does and seeks to do business with companiescovered in

its research reports. As a result, investors should be aware thatthe firm may

have a conflict of interest that could affect the objectivity ofthis report.

Investors should consider this report as only a single factor inmaking their

investment decision.

See "Important Disclosures" section at the end of thisreport for important

required disclosures, including potential conflicts of interest.

See "Price Target Calculation" and "Key Risks toPrice Target" sections at the

end of this report, where applicable.

Barry Cooper

Khaled Sultan

Stock Rating:

Sector Performer

Sector Weighting:

Overweight

12-18 mo. Price Target $4.75

SGR-V (10/1/10) $3.33

Key Indices: None

3-5-Yr. EPS Gr. Rate (E) NM

52-week Range $2.43-$5.00

Shares Outstanding 277.4M

Float 274.0M Shrs

Avg. Daily Trading Vol. 1,700,000

Market Capitalization $923.7M

Dividend/Div Yield Nil / Nil

Fiscal Year Ends December

Book Value NM

2010 ROE (E) NM

LT Debt $2.1M

Preferred Nil

Common Equity $115.2M

Convertible Available No

Earnings Per Share PrevCurrent

2009 (
.12A)

2010
.07E (
.11E)

2011
.23E
.14E

P/E

2009 NM

2010 47.6x NM

2011 14.5x 23.8x

Cash Flow Per Share

2009 (
.07A)

2010
.17E (
.03E)

2011
.40E
.31E

P/CF

2009 NM

2010 19.6x NM

2011 8.3x 10.7x

Company Description

San Gold Corporation is a mining company located in

Canada and focused on exploration and mining in the

Rice Lake Greenstone Belt in Manitoba.

sangoldcorp.com

Exploration Versus Mining - October 01, 2010

2

San Gold Date Source:Company reports and CIBC World Markets Inc.

SGR-TSX Share Price

Rating Sector Performer BarryCooper - 1 (416) 956-6787 - Barry.Cooper@cibc.ca

Target Khaled Sultan - 1(416) 594-7297 - Khaled.Sultan@cibc.ca

Allfigures in C$ million, unless otherwise stated. Gold price assumption in yr2010 @ US$1200 and yr 2011@ US$1400

Riskadjusted discount rates vary from 8% to 15% depending on the location of theasset and its technical challenges

MultiplesP/NAV* P/NAV** 2010 PE 2011 PE 2010 PCF 2011 PCF Investment Thesis

San Gold 1.3 x 1.6 x NEG57.3 x NEG 16.5 x

North American Average 1.5x 2.1 x 46.9 x 32.9 x 20.8 x 15.4 x

Large Cap Average(>$10B) 1.7 x 2.7 x 70.2 x 31.3 x 30.4 x 17.5 x

Mid Cap Average ($2B-$10B)1.5 x 2.3 x 28.3 x 26.9 x 15.4 x 12.3 x

Small Cap Average (<$2B)1.4 x 1.7 x 26.6 x 28.2 x 11.1 x 12.3 x

Large Cap Average > 1Moz 1.6 x 2.3 x 75.3 x 37.7 x 26.1 x 16.6 x

Intermediate Producers0.2-1 M oz 1.4 x 2.3 x 30.8 x 28.4 x 18.3 x 14.6 x

Small Producers < 0.2Moz 1.0 x 1.6 x 30.2 x 32.0 x 15.4 x 17.1 x

* Cash Adjusted NAVMultiples Using: US$1200/oz Gold Pricing And 5% Discount Rates

** Using: US$1200/oz @ RiskAdjusted Discount Rates

5%Discount Risk Adjusted Discount

P/NAVSensitivity P/NAV P/NAV P/NAV P/NAV P/NAV P/NAV Production Profile

Avg. Gold Px - US$ $1,000$1,100 $1,300 $1,000 $1,100 $1,300

San Gold 2.0 x 1.6 x 1.1 x2.5 x 1.9 x 1.3 x

North American Average 2.1x 4.0 x 1.3 x 4.4 x 2.7 x 2.1 x

Large Cap Average(>$10B) 2.6 x 2.1 x 1.5 x 4.1 x 3.2 x 2.3 x

Mid Cap Average ($2B-$10B)2.0 x 1.7 x 1.3 x 3.5 x 2.8 x 2.0 x

Small Cap Average (<$2B)1.8 x 5.8 x 1.1 x 4.8 x 2.3 x 1.9 x

Large Cap Average > 1Moz 2.3 x 1.9 x 1.4 x 3.4 x 2.7 x 2.0 x

Intermediate Producers0.2-1 M oz 2.0 x 1.7 x 1.2 x 3.8 x 2.8 x 1.9 x

Small Producers < 0.2Moz 1.3 x 1.2 x 0.9 x 2.1 x 1.9 x 1.5 x

EVStatistics (2010) - US$ EV ($mln) EV/Prod EV/2P* EV/R&R**

San Gold $879 $20,644$2,640 $1,053

North American Average$7,993 $654 $390

Large Cap Average(>$10B) $10,257 $484 $347

Mid Cap Average ($2B-$10B)$3,857 $359 $213

Small Cap Average (<$2B)$4,733 $745 $420

Large Cap Average > 1Moz $8,042 $406 $293

Intermediate Producers0.2-1 M oz $8,179 $506 $320 Production (2010E)/Resource Detail

Small Producers < 0.2Moz $7,418 $890 $227 Asset Production* Cash Costs** 2P M & I

* Proven & ProbableReserves ** Reserves and Resources Rice Lake 43 1,083 668 1,573

Total 43$1,083 668 1,573

IncomeStatement 2009A 2010E 2011E 2012E * Gold (000s oz) 2P: ModeledProven & Probable Reserves (000s oz)

Gold Price Assumptions US$ $975$1,200 $1,400 $1,500 ** Net of by product credits (if applicable) M & I: ModeledMeasured + Indicated Resources (000s oz)

Production (000s ounces) 38 43 129201 NAV Breakdown - US$ Gold Price of: $1,200

Cash Costs US$/oz
$1,083$585 $451 Ownership Discount Rate US$ Millions Per Share

Capital Expenditures 94 25 2020 Current Assets

Revenues $37 $55$192 $318 Cash 99 0.33

Expenses 0 0 0 0

Operating Expenses 32 49 8095 Mining Assets

D,D&A, Reclamation 7 10 27 46Rice Lake 100% 5% 611 2.04

S,G&A 19 12 1212 Total Assets 710 2.37

Royalty Payment 8 8 8 8

Exploration 7 9 9 10

Total Expenses 65 87 135172 Liabilities

LT Debt 2 0.01

Income Before Tax -29 -32 57146 Reclamation 2 0.01

Income Taxes 0 0 14 44 TotalLiabilities 4 0.01

Net Income -29 -32 43103

Net AssetValue 706 2.35

EPS -0.12-0.11 0.14 0.34

CFPS -0.07-0.03 0.31 0.64 Asset Locations

Shares Outstanding 252 289303 305

October 1,2010

SGR has re-invigoratedinterest in the historical mining camp of Rice Lake of Manitoba. The

discovery of high-gradezones within the shadows of existing infrastructure has led to fast paced

development that oftencomes with little capital requirements. The existing milling facilities are

undergoing an expansion totake production up to 200,000 ounces per year. When achieved, the

company is likely toreceive multiples afforded the intermediate producer space that are higher than

normal due to the abilityto grow and where finding additional mineralization has an impact. SGR

should be able to achieveits growth plans while at the same time reducing operating costs as

efficiencies are improvedthrough economies of scale. The company devotes considerable

investment into drillingfurther enhancing the likelihood of success. Valuations are moderately high

for what has beenestablished to date but this region should command multiples that are similarto

the neighboring Red Lakebelt which although is a province apart, geologically has the same

attributes.

CAD 4.75

CAD 3.53

0

50

100

150

200

250

2010E 2011E 2012E 2013E2014E 2015E

Production000s Ounces

$200

$400

$600

$800

$1,000

$1,200 $/oz CashCosts

Production Total Cash Costs

Exploration Versus Mining - October 01, 2010

3

Another Discovery For Quick Mining

San Gold (SGR–TSX-V) has made another discovery on the Rice Lakeproperty

that appears to have many of the same characteristics as otherhigh-grade

zones found of late: shallow depth, high-grade intercepts,proximity to

infrastructure, and widths of the intersections. The Emperor Zone(see Exhibit 1)

is adjacent to the 007 Zone, which in itself is located about 500meters from the

Hinge Zone, which is in production. It is possible that theEmperor Zone and the

007 Zone are connected, with further drilling yet to test thishypothesis.

Furthermore, there is likely a reasonable chance that each ofthese zones may

be connected to the deeper portions of the Rice Lake Mine, asshown in

Exhibit 2. Should the zones connect, there are over 600 meters ofuntested

target area.

Exhibit 1. Plan View Of Rice Lake Area And Discovered Zones

Source: Company reports.

Exploration Versus Mining - October 01, 2010

4

Exhibit 2. Longitudinal Section Of Rice Lake And SurfaceDiscoveries

Source: Company reports.

The zones found at surface each have the potential to host gold atabout

500 ounces (oz.) per vertical meter. This assumes the averagegrade is about

12 g/t. We think this represents a reasonable approximation ofwhat the grade

will be when mined after top cutting high-grade material and accountingfor

dilution. The figure of 500 oz. per vertical meter is better thanaverage for small

shallow underground mines but well below the average of about2,500 oz. per

vertical meter at the Red Lake Mine. The offsetting advantage ofthe lower gold

content is the shallower depth, which carries with it loweroperating costs per

ton. While the cost per ton at Red Lake is about $250, it is about$120, or about

half the amount, at the Hinge and 007 Zones.

Each 300,000 oz. of gold adds about US$70 million in net presentvalue (NPV)

(US$1,200/oz. gold, 5% discount) to the deposit, suggesting thatif the Hinge,

007 and Emperor Zones all connect to deeper portions of the RiceLake Mine

there is the potential for about US$200 million–US$250 million inadded value

for the mine. While we think the likelihood of all three zonesextending to depth

is optimistic, we also think there are likely to be other zonesfound and these

may also have much greater depth potential than just the surfaceore.

One of the redeeming features of the discoveries found to date isthe ability to

bring the assets into production in relatively short order.Discovery to production

has been taking about nine months compared with normal development

programs for grass-roots finds that typically take in excess ofseven years.

Exploration Versus Mining - October 01, 2010

5

Valuation Impacts

We have lowered our expectations for grade from the Rice Lakecomplex. This

includes expectations for the Rice Lake Mine and for the surfaceareas being

discovered. Following a visit to the mine in August, we haveincreased our

expectations for dilution and believe that rates will be in the50% range given

the complexities of the veins. These expectations serve to lowerour overall

estimate for a recovered grade over the next two years, leading tohigher

operating costs. We have also taken into account the company’srecent

financing, which has diluted cash flow estimates by about 9%.

Resource Additions Show High Variability

San Gold released an update for its resources at the Rice LakeMine and

environs – grades at most operations fell. The decrease in gradewas due, in

part, to some extraction that was under way, and in some casesgrades were

simply lower as more drilling around high-grade interceptsindicated a smaller

area of influence was appropriate for these intersections. Whilein some cases

the lower results are quite substantial, they are not unexpectedgiven the

early-stage drilling. Most impacted was the M&I categoryresource of the 007

Zone where grades fell from 88 g/t to 26 g/t as the hole thatcarried most of the

high-grade became diluted with the addition of further drillholes. A comparison

between the new resources and those previously reported is shownin Exhibit 3.

Exhibit 1. Resource Changes At 007 Zone

May 2010Category Tons Grade (opt) Ounces

007 Zone Indicated 74,9602.58 193,695

007 Zone Inferred 293,7401.78 522,857

Sept 2010

007 Zone M&I 305,2400.75 230,330

007 Zone Inferred 398,2000.47 186,980

Source: Company reports.

The drop in grade was not surprising given the weighting that wasascribed to

the one hole from the initial drilling that intersected 1,787 g/t(52 opt) gold over

2.1 meters. We believe that intervals such at this, whichrepresent an extreme

deviation from the norm, should be top cut, as is the case at mostgold

operations. This is not done for reporting purposes at San Goldand, thus, can

distort market expectations when there are a small number of drillholes, such

as when the initial resource was calculated. The drop in M&Igrade to 26 g/t

(0.75 opt) remains uncut for this hole and undiluted so we areexpecting that

mined grades will be closer to around 0.35 opt (12 g/t) whenmining occurs at

the 007 Zone.

Similarly, the Hinge Zone is likely to mine out at lower gradesthan the resource

average of 0.38 opt from the M&I figure. We are expectinggrades from this

Zone in the 0.28 opt range, although they could be lower ifdilution is not

controlled or zones are narrower than anticipated and dilutionincreases simply

due to minimum mining widths. Thus, while the Hinge Zone is likelyto offer

much lower operating costs per ounce than the deeper Rice Lakeore, the

improved costs will likely stem from a lower operating cost perton, not

necessarily from higher grades. The Hinge Zone (and all of thesurface

discoveries) enjoys the advantage of shallow decline accesswithout the need for

multiple muck handling from the deeper reaches of the Rice LakeMine.

Exploration Versus Mining - October 01, 2010

6

Price Target Calculation

Our price target of $4.75 (down from $6.00) is derived by applyinga multiple of

15x to our 2011 cash flow estimate of
.31/share (down from
.40/share)

generated from our 2011 gold price forecast of US$1,400/oz. The15x multiple is

based on our expectation that the company’s growth and explorationnews flow

will allow it to maintain a strong multiple going forward. The$4.75 price target

implies a P/net asset value (NAV) multiple of 2x using a US$1,200/oz.gold price

and a 5% discount rate. At current gold prices of US$1,300/oz. theNAV rises

from $2.35/share to $2.71/share.

Key Risks To Price Target

We consider the following as risks to our derived price target.

Gold Price Movements: A fall in the gold price will likely causeapathy amongst

investors towards smaller-capitalized companies. As thesecompanies move

towards production, gold price movements will play an increasinglyimportant

role in determining short- and long-term share movements. Ourprice target is

based on an environment in which we forecast the bullion pricerises to

US$1,400/oz. in the next 12 to 18 months.

Financing: San Gold has sufficient funds for current plans for thenext few

years. The company may need financing to undertake any expansionplans.

Markets for both equity and debt financing have been better forgold companies

than almost any other sector but this may not be true in thefuture. We have

assumed that not only is financing available but that it is equityfinancing (to

avoid the problems of hedging requirements associated with debtfinancing) and

at specific prices that may not be realized. San Gold has beendoing a good job

at shortening the period between ounce discovery and production,thereby

allowing for self-funding cash flow from the new discoveries.

Permitting: Permitting in Canada is fairly straightforward formost mining

operations, as governments are well versed in the procedures.Furthermore, San

Gold’s newly discovered zones all lie relatively close to surfaceon already

permitted ground, thereby reducing the potential permitting riskusually

associated with intermediate operators.

Resources And Costs: As with all mining operations, reserves andresources

are estimated. Tonnes and grades may not be as continuous asforecast, which

could lead to higher-than-expected costs and shorter-than-expectedmine lives.

Particularly in San Gold’s case, resource expectations at thecompany’s newly

discovered zones have been based on historical mining parametersof the Rice

Lake Mine that may prove not to be applicable given the differencein grade and

lithological setting. We make numerous assumptions that may or maynot prove

accurate in assessing a project’s economic viability. We monitorand reevaluate

new information as it becomes available and make the changes webelieve are

necessary.

Political Risk: Although located in a mining-friendly province ina

mining-friendly country where political risk is considered low,there are several

examples of instances in which provincial or federal tax laws havebeen

changed. A change to the taxation regime would likely prompt achange in our

price target.

The analyst who covers San Gold visited San Gold’s Rice Lake Mineon

August 31, 2010. All travel costs to and from the mine were paidfor by CIBC

World Markets Inc.

Exploration Versus Mining - October 01, 2010

7

Our EPS estimates are shown below:

1 Qtr. 2 Qtr. 3 Qtr. 4Qtr. Yearly

2009 Current -- -- -- -- (
.12A)

2010 Prior
.00A
.01E
.03E
.03E
.07E

2010 Current
.00A (
.03A) (
.04E) (
.04E) (
.11E)

2011 Prior -- -- -- --
.23E

2011 Current -- -- -- --
.14E

Our CFPS estimates are shown below:

1 Qtr. 2 Qtr. 3 Qtr. 4Qtr. Yearly

2009 Current -- -- -- -- (
.07A)

2010 Prior (
.04A)
.05E
.08E
.08E
.17E

2010 Current (
.04A) (
.01A)
.00E
.02E (
.03E)

2011 Prior -- -- -- --
.40E

2011 Current -- -- -- --
.31E

Exploration Versus Mining - October 01, 2010

8

IMPORTANT DISCLOSURES:

Analyst Certification: Each CIBC World Markets research analystnamed on the front page of this research report, or

at the beginning of any subsection hereof, hereby certifies that(i) the recommendations and opinions expressed herein

accurately reflect such research analyst's personal views aboutthe company and securities that are the subject of this

report and all other companies and securities mentioned in thisreport that are covered by such research analyst and (ii)

no part of the research analyst's compensation was, is, or willbe, directly or indirectly, related to the specific

recommendations or views expressed by such research analyst inthis report.

Potential Conflicts of Interest: Equity research analysts employedby CIBC World Markets are compensated from

revenues generated by various CIBC World Markets businesses,including the CIBC World Markets Investment Banking

Department. Research analysts do not receive compensation basedupon revenues from specific investment banking

transactions. CIBC World Markets generally prohibits any researchanalyst and any member of his or her household from

executing trades in the securities of a company that such researchanalyst covers. Additionally, CIBC World Markets

generally prohibits any research analyst from serving as anofficer, director or advisory board member of a company that

such analyst covers.

In addition to 1% ownership positions in covered companies thatare required to be specifically disclosed in this report,

CIBC World Markets may have a long position of less than 1% or ashort position or deal as principal in the securities

discussed herein, related securities or in options, futures orother derivative instruments based thereon.

Recipients of this report are advised that any or all of theforegoing arrangements, as well as more specific disclosures

set forth below, may at times give rise to potential conflicts ofinterest.

Important Disclosure Footnotes for San Gold Corporation (SGR)

2a San Gold Corporation is a client for which a CIBC World Marketscompany has performed investment banking

services in the past 12 months.

2c CIBC World Markets Inc. has managed or co-managed a publicoffering of securities for San Gold Corporation

in the past 12 months.

2e CIBC World Markets Inc. has received compensation forinvestment banking services from San Gold

Corporation in the past 12 months.

2g CIBC World Markets Inc. expects to receive or intends to seekcompensation for investment banking services

from San Gold Corporation in the next 3 months.

Exploration Versus Mining - October 01, 2010

9

CIBC World Markets Inc. Price Chart

No rating history datafound for San Gold Corporation

Exploration Versus Mining - October 01, 2010

10

CIBC World Markets Inc. Stock Rating System

Abbreviation Rating Description