SGR (TSX) $3.44
TARGET PRICE: $4.40
POTENTIAL RETURN: 27.9%

Company Profile
San Gold Corp. is a Canadian-based gold exploration and mining
company focused on the 100%-owned Rice Lake project in Manitoba,
where current efforts are focused on expanding and advancing newly
discovered high-grade Shoreline Basalt into production.
Investment Thesis
We believe San Gold's operation is gaining momentum and should
provide an excellent base for gold exploration and production growth with
minimal future capital costs. We believe the existing plan of taking the
company's 45,000 oz production profile to 165,000 oz should capture
some economies of scale and allow higher grades to help drive costs to
~US$500/oz long term from the current ~US$860/oz. Ultimately, we
believe the camp should support a resource of more than seven million
ounces of gold. Catalysts to focus on over the next six months include:
1) Production Set to Increase Over the Next Six Quarters
Production improvements over the past five months have translated to a
growing stockpile, higher mill throughput and lower production costs. We
believe that this trend is set to continue over the next six to eight quarters
as the company installs additional process tanks, more grinding capacity
and expands the number of working stopes. The plan is to expand the
plant capacity from the current ~1,200 tons-per-day (tpd) and exit the year
at approximately 1,600 tpd. The plant should continue to expand through
2012 with a target rate at year end of 1,800 tpd.
2) Exploration Plan Set For Growth Net of Depletion
San Gold continues to offer superior exploration potential with a number
of new discoveries along the Shoreline Basalt. Management plans to
access the deeper levels of the Rice Lake Mine to drill the adjacent
Shoreline Basalt and rapidly expand resources. Management has set a
2011 exploration budget of $20 million or 292 km of diamond drilling with
a medium-term target of developing a new mine complex along the
Shoreline Basalt.
Valuation
We reiterate our Outperform rating and our $4.40 target on San Gold
shares. Our target is derived by averaging both NAVPS and P/CFPS
methodologies. Specifically, we average the following: 1.76x Base Case
NAVPS of $2.38, 1.0x Forward Curve NAVPS of $4.48 and 15x 2012
CFPS of $0.32.
Risk Factors
The company is exposed to normal risks associated with any mining
company. These include permitting, commodity price, technical, exchange
rate and financial risk.