San Gold announced the discovery of two new zones of gold mineralization located parallel to and below the company's Hinge Mine. The zones are referred to as L4 and L10 and begin at depths of 200m and 300m below surface, respectively. The zones are situated in the footwall of the main Hinge zones (Figure 1).

While the overall average grade of the new results is lower than the reserve grade for the Hinge Zones, there are several intersections that suggest the presence of high grade shoots within the zones. Average widths are greater than seen previously in the Hinge Zones. Perhaps more importantly, the discovery of the mineralization supports the geological model that the structures that host the near surface zones extend to depth, and are likely the same structures that control high grade zones (98, RL, RL East) at depths of 1,200m and deeper.

We continue to view the potential of the Rice Lake property as being far greater than that presently quantified, and believe that further drilling will likely result in the discovery of additional high grade gold mineralization located both beneath and parallel to the currently known zones. While we see the potential for upwards of eight to ten million ounces on the property, our valuation is based on the exploitation of around 4.5 million ounces, primarily from the near surface ramp accessible high grade zones and the existing underground infrastructure. We are maintaining both our

BUY rating and 12-month price target of C$5.50/share.

Averaging 8.9 g/t over 5.4m

The results of 18 holes from the L10 zone were released that included intersections of 12.7 g/t over 11.6m and 31.5 g/t over 2.6m (results from the L4 zone are pending). We calculate a weight averaged grade of 8.9 g/t over an average width of 5.4m (uncut assays over core widths) from the holes reported to date (Table 1), somewhat lower than the Hinge Zone reserve grade of 10.5 g/t. That said, the new zones have a metal content of almost US$300/tonne (assuming 25% dilution) at today's gold price, suggesting to us that future development of the mineralization should be highly profitable.