Slate Grocery REIT T.SGR

TD Newcrest initiates coverage

[veteran98]

Action Notes Equity Research

30 of 44

Company Profile

San Gold Corp. is a Manitoba-based

emerging mid-tier gold producer that is

focused on developing new mines in the Rice

Lake Greenstone Belt of Manitoba.

Please see the final pages of

this document for important

disclosure information.

San Gold Corp.

(SGR-V) C$1.20

Initiating Coverage

Event

We are initiating coverage of San Gold Corp. with a BUY recommendation

and a 12-month target price of $2.00/share.

San Gold Corp. is an emerging mid-tier gold producer that was formed

through the merger of San Gold Resources Corp. and Gold City Industries

Ltd. in 2005. The company has successfully enacted a discovery-driven model

of incrementally developing new mines and expanding feed to its centralized

mill within the Rice Lake Greenstone Belt of north-eastern Manitoba.

We believe the company is poised to declare commercial production and

begin generating positive operating cash flow in Q1/09. While this transition

typically generates significant share price appreciation, we are more

enthusiastic about the high-grade Hinge Zone discoveries it made earlier this

year. We expect the first resource estimate in connection with this zone and

for the company to begin mining it at more than double its reserve grade in

January.

Details

• Focused on the Rice Lake Greenstone Belt of Manitoba

• Discovery-driven business model with rapid forecast growth and

declining costs

• Potential transformation in 2009, with the declaration of

commercial production and start-up of two mines, including the

high-grade Hinge Zone

We anticipate San Gold reporting unremarkable gold production of

approximately 24,000 ounces at a cash cost of US$492/oz from its Rice Lake

operations in 2008. However, things begin to get very interesting from our

perspective in 2009. We expect the company to begin mining the high-grade

Hinge Zone in January (only 11 months after its discovery), followed by the

Cartwright Zone in Q3/09. We believe the company is fully funded in respect

of these initiatives.

Gold & Precious Minerals

Recommendation: BUY

Risk: HIGH

12-Month Target Price: C$2.00

12-Month Total Return: 66.7%

Market Data (C$)

Current Price $1.20

52-Wk Range $0.57-$2.25

Mkt Cap (f.d.)($mm) $298.7

Dividend per Share $0.00

Dividend Yield 0.0%

Avg. Daily Trading Vol. (3mths) 740203

Financial Data (C$)

Fiscal Y-E December

Shares O/S (f.d.)(mm) 248.9

Float Shares (mm) 215.1

Net Debt/Tot Cap 0.3%

NAVPS (current)(f.d.) $1.73

Resources (mm oz) 1.5

Working Cap ($mm) $2.2

Estimates (C$)

Year 2007E 2008E 2009E 2010E

EPS (f.d.) (0.19) (0.10) 0.15 0.21

CFPS (f.d.) (0.17) (0.10) 0.29 0.32

Valuations

Year 2007E 2008E 2009E 2010E

P/E (f.d.) nmf nmf 8.0x 5.7x

P/CFPS (f.d.) nmf nmf 4.1x 3.8x

Supplemental Data

Year 2007E 2008E 2009E 2010E

Gold Prd (koz) 5.6 24.2 133.0 175.0

Cash Cst ($oz) n/m 492 361 336

All figures in C$, unless otherwise specified.

Daniel Earle Shey Ylonen, CFA (Associate)

Action Notes December 16, 2008

Equity Research 31 of 44

Together with ongoing production from the Rice Lake and San Gold #1 mines, we project production of

133,000 ounces at an average cash cost of US$361/oz in 2009. According to our forecasts for continued

growth from these new mines, we expect sequential production improvement to 175,000 ounces at US$336/oz

and 193,000 ounces at US$326/oz in 2010 and 2011, respectively.

Our positive outlook for the company depends heavily on the evolution of the Hinge Zone. We anticipate

receiving a preliminary resource estimate in January and have included 750,000 ounces at a grade of 0.60 opt

into our project model. We view this as a minimum and would suggest that the depth-extent of analogous

deposits in the camp suggest multiple-times expansion potential.

We anticipate the following events over our target price horizon:

• January – Initial resource estimate for Hinge Zone

• Q1/09 – Commence mining Hinge Zone

• Mid-09 – Expand capacity from 1,250 tpd to 1,800 tpd

• Q3/09 – Commence mining Cartwright Zone

Outlook

Exhibit 1. San Gold Corp.: Mine Schedule and Production Profile

MODELLED MINING SCHEDULE LOM 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

D-Shaft (Lower Level)

Mining Rate (tpd) 300 300 300 300 300 300 300 300 300 300 300

Ore Mined (000 t) 1,208 45 108 108 108 108 108 108 108 108 108 108

Head Grade (g/t) 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2

Gold Production (000 oz) 273 10 24 24 24 24 24 24 24 24 24 24

D-Shaft (Upper Level)

Mining Rate (tpd) 300 300 400 400 400 400 400 400 400

Ore Mined (000 t) 1,071 36 108 144 144 144 144 144 144 63

Head Grade (g/t) 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3

Gold Production (000 oz) 272 9 27 37 37 37 37 37 37 16

San Gold #1

Mining Rate (tpd) 300 300 300 300 300 300 300 300 300 300 300

Ore Mined (000 t) 1,220 36 108 108 108 108 108 108 108 108 108 108

Head Grade (g/t) 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1

Gold Production (000 oz) 165 5 15 15 15 15 15 15 15 15 15 15

Cartwright

Mining Rate (tpd) 150 300 400 400 400 400 400 400

Ore Mined (000 t) 1,017 54 108 144 144 144 144 144 135

Head Grade (g/t) 6.2 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9

Gold Production (000 oz) 193 10 21 27 27 27 27 27 26

Hinge Zone

Mining Rate (tpd) 250 350 400 400 400 400 400 400 400

Ore Mined (000 t) 1,153 90 126 144 144 144 144 144 144 73

Head Grade (g/t) 20.5 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6

Gold Production (000 oz) 723 56 79 90 90 90 90 90 90 46

Total - San Gold

Mining Rate (tpd) 900 1,300 1,650 1,800 1,800 1,800 1,800 1,800 1,800 1,000 600

Ore Mined (000 t) 117 468 594 648 648 648 648 648 558 289 216

Head Grade (g/t) 7.6 10.4 10.7 10.8 10.8 10.8 10.8 10.8 11.1 10.7 6.7

Gold Production Summary

TD Newcrest Model (000 oz) 1,625 24 133 175 193 193 193 193 193 171 85 39

Cash Costs (US$/oz) $342 $492 $361 $336 $326 $326 $326 $326 $326 $317 $330 $549

Six years of mine life extension possible

through the full conversion of inferred

resources. Resource envelope is open at

depth.

In addition to the opportunities noted

above, the company may be able to

sustain or increase peak production

rates by putting the San Gold #2 and #3

deposits and/or new discoveries into

production.

We estimate the 'blue sky' potential of

the Hinge Zone at 3mm oz, 2.3mm oz

more than modelled (calculations in

Exhibit #13).

Source: TD Newcrest estimates.

Action Notes December 16, 2008

Equity Research 32 of 44

Valuation

We calculate that San Gold is currently trading at 0.69x corporate NAV5% and an implied EV/oz multiple of

$188/oz. This compares to its peer group of mid tier gold companies in our coverage universe which currently

trade at an average of 0.83x NAV5% and $111/oz, respectively.

Exhibit 2. San Gold Corp.: Mid-Tier Gold Coverage Universe

US $ Total NAV/

TSX US 52-Week Shares Market Debt Cash EV1 Share Price/

Company Symbol Symbol C$ US$ High O/S (mm) Cap (US$mm) (US$mm) (US$mm) (US$mm) (US$) NAV

Eldorado Gold Corp. ELD EGO $8.18 $6.64 $9.34 -28.9% 372.4 $2,473 $36 $87 $2,422 C$6.32 1.29

Gammon Gold Inc. GAM GRS $5.07 $3.99 $11.20 -54.7% 122.0 $487 $35 $5 $517 C$5.19 0.98

Northgate Minerals Corp. NGX NXG $1.07 $0.85 $3.45 -75.4% 255.5 $217 $44 $72 $189 $1.96 0.43

Minefinders Corp. Ltd. MFL MFN $4.75 $3.83 $14.05 -66.2% 57.9 $222 $107 $2 $326 C$6.51 0.73

Alamos Gold Inc. AGI $7.47 na $8.40 -11.1% 99.0 $740 $0 $35 $705 C$6.62 1.13

Jaguar Mining Inc. JAG $3.56 na $14.45 -75.4% 67.1 $239 $86 $41 $284 C$6.34 0.56

San Gold Corp. SGR $1.20 na $2.25 -46.7% 248.9 $299 $1 $15 $285 C$1.73 0.69

Lake Shore Gold Corp. LSG $1.20 na $2.09 -42.6% 175.4 $210 $0 $102 $109 C$1.53 0.78

Average: Mid-Tier Producers -16% 0.83

Notes:

1 Enterprise Value (EV) = Market Cap.+ Total Debt – Cash & Cash Equivalents. Gold price estimates (per oz): 2007 $697, 2008 $879, 2009 $850; long-term $800

2 IAMGOLD's cash balance includes gold bullion at market value Silver price estimates (per oz): 2007 $13.40, 2008 $14.94, 2009 $10.50; long-term $12.00

n/m: not meaningful, n/a: not available.

12-Dec-2008

% Change

from 52-

Week High

Source: Company Reports, TD Newcrest estimates

Exhibit 3. San Gold Corp.: Mid-Tier Gold Coverage Universe

EV/ EV/ EV/

Total Cash 2009 Prod. Reserve Oz Resource Oz

xx 2008E 2009E 2010E 2008E 2009E 2010E Prov & Prob. M&I 3 and Inf. Prod. Costs (US$) (US$) (US$)

Eldorado Gold Corp. 317 343 478 $263 $282 $286 7.7 14.1 51% 9% $7,060 $316 $171

Gammon Gold Inc.2 248 264 308 $516 $489 $475 1.9 5.3 24% -8% $1,958 $275 $97

Northgate Minerals Corp. 336 392 327 $532 $479 $546 1.8 6.7 -3% 3% $482 $103 $28

Minefinders Corp. Ltd.2 10 123 145 $619 $408 $452 2.4 3.8 1344% -27% $2,657 $134 $86

Alamos Gold Inc. 150 159 166 $411 $388 $369 2.1 4.4 11% -10% $4,434 $343 $159

Jaguar Mining Inc. 117 170 214 $476 $437 $401 2.0 4.6 83% -16% $1,671 $140 $61

San Gold Corp. 24 133 175 $492 $361 $336 0.3 1.5 625% n/m $2,140 $855 $188

Lake Shore Gold Corp. 0 20 97 n/a $674 $423 0.8 1.1 n/m n/m $5,431 $132 $101

Average: Mid-Tier Producers $473 $440 $411 -8% $3,229 $287 $111

Notes:

1 Adjusted Market Capitalization (AMC) = Market Cap.+ Long Term Debt – Working Capital. Gold price estimates (per oz): 2007 $697, 2008 $879, 2009 $850; long-term $800

2 Kinross Gold, Yamana Gold, Gammon Gold, Minefinders & Intl Minerals - production and costs Silver price estimates (per oz): 2007 $13.40, 2008 $14.94, 2009 $10.50; long-term $12.00

refer to gold equivalent ounces (Aueq) nmf: not meaningful, n/a: not available.

3 Measured & Indicated Resources are inclusive of Proven & Probable Reserves

Production (000 oz) Total Cash Cost (US$/oz) Reserves / Resources(mm)

2008–2010 Growth (%)

Source: Company Reports, TD Newcrest estimates

Justification of Target Price

We generate our target price from the application of a 1.2x multiple to our corporate NAV5% which we

calculated using a long term gold price of US$800/oz and USD/CAD exchange rate of $0.85. Companies that

are expected to achieve rapid growth in politically safe jurisdictions have typically commanded premium

multiples. This is especially true of those with high-grade projects, like San Gold, which tend to benefit from

greater exploration potential and lower capital and operating costs per ounce than their low-grade peers.

Key Risks to Target Price

The main risks facing the company include forecast, financial, technical and political risks. Among other

things, these include risks related to the gold and fuel prices, the governing fiscal and legislative regimes, the

timing of key developments, market conditions, capital and operating costs, foreign exchange rates, resources

Action Notes December 16, 2008

Equity Research 33 of 44

and reserves, operating parameters, permitting, environmental, indigenous peoples, and staffing and key

personnel retention.

Investment Conclusion

We believe that an investment in San Gold provides leverage to the emergence of a mid-tier Canadian gold

producer. We believe that as the company progressively ramps up production from new mines, particularly the

high-grade Hinge Zone, as expected over the coming years, the corresponding increase in production and

decrease in costs will see the company establish a reputation as a high-quality name in a challenged space.

With ongoing operations, the company appears well positioned to capitalize on future exploration success. As

such, we initiate coverage with a BUY recommendation and 12-month target price of $2.00/share