This latest letter from TMM to CGC management is a must-read and worth posting in full....

Board of Directors
Capital Gold Corporation
76 Beaver Street, 14th Floor
New York, NY 10005

Attention: Stephen M. Cooper,
Chairman of the Board

Proposal for a Merger of Equals

Gentlemen:

We are resubmitting our final proposal for a merger-of-equals of CapitalGold and Timmins Gold, in which each share of Capital Gold common stockwould be exchanged for 2.27 common shares of Timmins Gold (the"Merger").

Based on the average of the respective closing share prices for the last20 trading days, our proposal has a value of US$4.48 per Capital Goldshare and exceeds the value of the Gammon offer by US
.22 per CapitalGold share.

By now you will have noted that Capital Gold shares are trading at apremium to the Gammon offer price. On 20 of the last 20 trading days,Capital Gold's shares have closed at a price that is higher than theimplied value of Gammon's offer. The market is clearly expressingdissatisfaction with the Gammon transaction and its preference for ourproposal.

Although you have rejected our proposal on two occasions, we remaincommitted to persuading you of the value of the Merger. Combining ourtwo companies will, we believe, provide immediate and long-term benefitsto Capital Gold shareholders, including:

1. Increased Production: We estimate that the combined company will have 2011 production of approximately 180,000 ounces of gold, making us a solid mid-tier producer.
2. Re-Rating Opportunity: We expect that the combined company will be recognized as a solid mid-tier producer, which should lead to a re-rating of the combined company's share price. You are no doubt aware that this can be a significant medium-term benefit to your shareholders that is not available in connection with a sale of Capital Gold to Gammon. In fact, your financial advisor advised you that "the long-term valuation re-rating was potentially greater under a transaction with Timmins Gold."
3. Low-Cost Producer: We estimate that the combined company will have a cash production cost of between US$400 and US$425 per ounce of gold.
4. Strong Gold Reserves. We estimate that the combined company will have approximately 2,200,000 ounces of proven and probable reserves, with significant opportunities to further develop and add to such reserves.
5. Complementary Assets: Capital Gold's El Chanate Mine and Timmins Gold's San Francisco Mine are located within 65 kms of one another in the Sonora region of Mexico, making the combination of these assets ideal from an operational and strategic perspective.
6. Experienced Management Team: Our combined teams will provide excellent leadership from an operational perspective and have a strong track record raising capital.
7. Supportive Shareholder Base: The combined company will benefit from a supportive base of institutional shareholders that understand our business and want to see us succeed. Currently, shareholders representing more than 35% of Capital Gold's shares have advised us of their support for the Merger, including some of Capital Gold's largest institutional shareholders.

Our board has authorized us to proceed expeditiously with theMerger and our proposal is NOT subject to due diligence - we only seekto confirm the cost of any change of control payments that may bepayable in connection with the Merger.

To that end, we are prepared to enter into a merger agreement withCapital Gold based on your agreement with Gammon but which will imposefar less onerous terms on Capital Gold. For example, we would:

• reduce the termination fee from approximately 3.6% to 1.0% of the equity value of the transaction, which would enhance the likelihood that another interested party may surface with a competing bid;
• eliminate the onerous, circular five-day matching rights, which have a decidedly chilling effect on another interested party surfacing with a competing bid;
• eliminate Gammon's $2 million unilateral and arbitrary termination right, which is not only highly unusual, but essentially makes your merger agreement an option for Gammon to acquire Capital Gold (and a badly mispriced option at that); and
• eliminate a number of highly unusual conditions imposed by Gammon which individually and as a whole should raise serious concerns regarding certainty of closing the Gammon transaction.

We are confident that once you have reviewed our proposal youwill agree that it delivers both greater short-term and long-term valueand provides greater certainty of closing than the Gammon offer, andtherefore constitutes a "Superior Proposal" as defined in your agreementwith Gammon. Your fiduciary duties compel you to immediately commencediscussion with Timmins Gold. To that end, we and our advisors areready to meet with you and your advisors any time, anywhere to discussour proposal and to answer any questions you may have.

We note that your proxy statement offers four reasons why you rejectedour proposal. For the sake of transparency, we have set out below eachof your reasons followed by the facts.

Reason 1: "the transaction proposed by Timmins Gold would result in a merger of equals, with CGC receiving a small upfront premium".

Fact: On October 1, 2010, when you entered into the mergeragreement with Gammon, the value of our proposal exceeded the value ofthe Gammon offer by US
.44 per Capital Gold share. Today, based on theaverage of the respective closing share prices for the last 20 tradingdays, the value of our proposal exceeds the value of the Gammon offer byUS
.22 per Capital Gold share. In all cases, our proposal deliversCapital Gold shareholders a greater premium than the Gammon offer.Moreover, this rationale for rejecting our offer is ironic, as it wasCapital Gold that first approached Timmins Gold about a Merger in whichCapital Gold would pay a premium for Timmins shares.

Reason 2: "the Timmins Gold proposal presented certainfinancial risks to CGC given Timmins Gold's current cash balance, itsgoing concern issue with respect to its financial statements and itsoutstanding short term gold loan, which required repayment of the cashequivalent value of a fixed number of gold ounces on a monthly basis".

Fact: Timmins Gold is cash positive and has been since its firstquarter of production ending June 30, 2010. As such, our liquidity isnot constrained. Moreover, in connection with our original offer onSeptember 1, 2010, we provided you with letters from financial advisors,each expressing a high degree of confidence in our ability to raise anyfunds that the combined company may require. The concern expressedabout our gold loan is particularly odd in light of the fact that we areadding cash every quarter and have not had and do not anticipate anydifficulty paying the gold loan. As of November 30, 2010, we have madethe first four payments on the gold loan when due and only have eightmore payments to make, which we expect to make from cash flows. Indeed,this reason appears absurd in light of Gammon's announcement that ithas had to seek a $100 million credit facility in connection with itsdeal with Capital Gold.

Reason 3: "the obligation of Timmins Gold to seek theapproval of its shareholders, as a condition to closing any transactionwith CGC, was considered to increase overall transaction risk".

Fact: It is true that our proposal will require the approval ofour shareholders, but you never raised this concern with us so that wecould explain why we are very confident that we will obtain suchapproval. Given that your agreement with Gammon is itself conditionalon approval of Gammon shareholders, if required, we find this reasoningodd. Your agreement with Gammon also includes a right for Gammon towalk away from the transaction for a mere US$2.0 million, whichessentially makes your merger agreement an option for Gammon to acquireCapital Gold and creates significant transaction risk for yourshareholders. Likewise, it is the inclusion of a number of highlyunusual conditions to closing in your agreement with Gammon that shouldraise concerns about certainty of closing, as many of the conditions arein the hands of third parties. Finally, at the time you entered intothe agreement with Gammon, you were aware that a merger of Capital Goldwith Timmins was supported by a very significant percentage of yourshareholders, making it very uncertain whether a transaction with Gammonwould be approved by your shareholders.

Reason 4: "the combined company would likely need to raise additional capital to fund CGC's growth initiatives".

Fact: As stated above, Timmins Gold is cash positive and, to theextent additional capital is required, you have received letters fromfinancial advisors expressing a high degree of confidence regarding thecombined company's ability to access the capital markets if necessary.Further, given the expected re-rating of the combined company as amid-tier producer, the combined company's cost of capital should bereduced, which would diminish concerns regarding dilution.

As stated above, we expect that Capital Gold understandsthe benefits of the Merger as it was Capital Gold that first approachedTimmins Gold in July 2010 about a merger-of-equals of our two companies.At that time, your representatives extolled the benefits of theMerger, stating that it would create a larger, more diversified growinggold producer. Your representatives also told us that Timmins Gold wasan ideal merger candidate, meeting all of Capital Gold's strategiccriteria. We agreed and pursued discussions with you in good faith,including arranging for your management team to visit our San FranciscoMine in Sonora, Mexico, and for your CEO and financial advisor to meetwith our CEO.

On August 23, 2010, your financial advisor notified us that Capital Goldhad commenced a process to sell itself and invited Timmins Gold tosubmit a proposal. We responded positively and again, acting in goodfaith with the belief that the Capital Gold board would run a fair, openprocess, we submitted a proposal to you on September 1, 2010.Following submission of our proposal, we and our financial advisor triedon numerous occasions to contact you in order to discuss the proposal.Despite all of our efforts, Capital Gold appeared unwilling to engagein any discussion with us. No explanation or rationale was offered andthe lack of response was alarming.

To further demonstrate our commitment to the Merger, on September 3,2010 we unilaterally revised our proposal to increase the value of ouroffer by
.50 per Capital Gold share, from $4.00 to $4.50, which alsorepresented an increase in the exchange ratio from 2.02 to 2.27 commonshares of Timmins Gold per Capital Gold share. As a result of ourefforts to communicate directly with the Capital Gold board, you finallyagreed to allow us to present our revised proposal by conference call.That call took place on September 7, 2010 and lasted approximatelyforty-five minutes. Having reaffirmed our revised proposal again inwriting on September 17, 2010, we received written notice that you hadrejected our revised proposal on September 20, 2010. Confident that ourproposal represented a "superior proposal" under your agreement withGammon, we reaffirmed our proposal on October 12, 2010, but our proposalwas once again rejected without discussion or explanation.

Although you engaged in approximately seven months of negotiation withGammon, and had face to face meetings with Gammon during the week ofMarch 1, 2010 as well as on April 8, 2010, May 7, 2010, June 14, 2010,June 22, 2010 and August 3, 2010, and gave Gammon the opportunity tosend consultants to your mine and conduct full due diligence, you spentless than an hour discussing our proposal with us and repeatedly ignoredour efforts to engage with you. The imbalance in your process isbrought into sharp relief in your proxy statement. In particular, wenote that you entered into a letter of intent with Gammon on September9, 2010 that required the payment of a termination fee to Gammon ifCapital Gold sought another transaction with another party. Not only issuch a provision highly unusual in a non-binding letter of intent, itessentially cut every other bidder, including Timmins Gold, out of theprocess. More recently, your response to our efforts to open a dialoguewith you has included veiled threats from your legal counsel andcomplaints to regulators, which in the circumstances appear to us to be acoordinated effort to intimidate and silence Timmins Gold. Oursuspicions that there was not a level playing field seem to have beenvalidated.

We believe that the market's reaction to your deal with Gammon makes itimpossible for you to ignore the superiority of our proposal. In short,the higher price we are proposing, combined with our more balancedmerger terms, delivers greater short-term and long-term value to CapitalGold shareholders and provides greater certainty of closing. Ourproposal, therefore, clearly constitutes a "superior proposal" asdefined in your agreement with Gammon. As such, you have the rightunder the Gammon agreement and a fiduciary obligation under Delawarelaw, to immediately begin discussions with Timmins Gold.

We are hopeful that the passage of time will allow you to once again seethe benefits of the Merger and we look forward to moving forward withyou to provide Capital Gold shareholders the opportunity to realize thehighest and best value.

Sincerely,

Bruce Bragagnolo
Chief Executive Officer