Investment Analysis for Intelligent Investors

Siddharth Rajeev, B.Tech, MBA

Analyst

Vincent Weber, B.Sc

Research Associate-Mining

Randall Hsu, BBA

Research Associate

October 23, 2009

??

2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Evolving Gold Corp. (TSXV: EVG) –Positive Drill Results at Rattlesnake Hills, Wyoming; Fair Value

Raised

Sector/Industry: Junior Exploration/Mining www.evolvinggold.com

Market Data (as of October 22, 2009)

Current Price C$1.04

Fair Value C$1.40 (?)

Rating* BUY

Risk* 5 (Highly Spec)

52 Week Range C$0.15 - C$1.94

Shares O/S 91.95 mm

Market Cap C$95.63 mm

Current Yield N/A

P/E (forward) N/A

P/B 2.87

YoY Return 511.8%

YoY TSXV 38.5%

*see back of report for rating and risk definitions

0

4,000,000

8,000,000

12,000,000

16,000,000

20,000,000

22-Oct-08 20-Feb-09 21-Jun-09 20-Oct-09

0.00

0.40

0.80

1.20

1.60

2.00

Investment Highlights

?? Evolving Gold Corp. (“Evolving Gold”, “EVG”, “the company”)

is a Vancouver, British Columbia based exploration company

focused on acquiring and developing gold projects in the western

United States.

?? 2009 drilling highlights include 67.1 meters grading 10.8 g/t Au,

including 12.2 meters grading 39.29 g/t Au in hole RSC-020 (a

high grade zone of mineralization located along the wall of the

diatreme).

??Drilling at Antelope basin intersected broad intersections of low

grade mineralization (163 meters at 1.25 g/t Au) with bulk

mineable potential.

?? In July 2009, the company received total proceeds of $4.89

million from the exercise of 7.33 million warrants at prices

ranging from $0.60 to $1.50 per share.

?? The company continues to be in a strong cash position with about

$19 million ($0.21 per share) in its treasury as of August 5, 2009.

Our discussions with management indicated that the company

will have about $13 million after all its current payables are paid.

??We have raised our valuation from $0.70 to $1.40 per share.

EVG has increased 131% since we initiated coverage in June

2009.

Key Financial Data (FYE - March 31)

(C $) 2008 2009 2010

3 mo

Cash + Inv in Marketable Securities 24,959,327 17,091,777 15,540,322

Working Capital 24,391,360 16,956,239 14,266,061

Mineral Assets 8,824,242 15,578,409 17,856,824

Total Assets 34,216,744 32,932,580 34,722,491

Net Profits (8,742,364) (4,808,513) (1,317,411)

EPS (0.21) (0.06) (0.02)

Evolving Gold is currently exploring it's 100% owned Rattlesnake Hills gold project in central Wyoming. Two

drill rigs are currently operating on the property to complete the final holes of the approximately 75 hole,

30,000 meter drill program. The company will have about $13 million after all its current payables are paid.

Evolving Gold Corp. (TSXV: EVG) –Update Page 2

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Rattlesnake

Hills Update

Evolving Gold has released a series of positive results from the 2009 drill program at its

Rattlesnake Hills project in Wyoming. Check Tables 2-4 on the following page for selected

significant intersections as released by the company.

Key points to be observed in drill results:

??The high grade structural mineralization intersected in Hole RSC-020 - 67.1 meters at

10.8 gpt, including 12.2 meters at 39.29 gpt (true width has yet to be established) -

significantly increases the strike length of the high grade structural mineralization

encountered in holes RSC-003 and RSC-007. Hole 020 is approximately 210 meters

southeast of hole 003. The high grade zone appears to extend 240 meters horizontally.

??Management states that the high grade intersections in holes RSC-039, and RSC-046,

(see Table 2) indicate that the high grade structural mineralization can be found at

approximately 15 meters below surface to a depth of approximately 300 meters. Note:

Hole RSC-046 intersected the high grade contact approximately 180 meters vertically

below the contact in hole RSC-020.

??The high grade mineralization was encountered along the wall of the diatreme, and into

the surrounding Archean Schist, continuing to demonstrate this to be the most

favourable location for the high grade mineralization.

??Continued expansion of the low grade, potentially bulk mineable, mineralization at the

North Stock diatreme.

??A new style of mineralization was encountered over the last 30 or so meters of hole

RSC-027 including a 7.6 meter interval grading 3.75 g/t Au. This new mineralization,

located to the southeast of the North Stock (see Figure 1 below), appears to be porphyry

dyke related with stockwork style veining, and as management has stated, could

potentially be the connecting mineralization between the North Stock and Antelope

Basin. Ultimately, we feel hole RSC-027 represents another significant exploration

target at Rattlesnake Hills.

Table 1: Assay results of new mineralization encountered in Hole RSC-027

Drill Hole From (m) To (m) Interval* (m) Gold (gpt)

RSC-027 699.5 730 30.5 1.89

includes 711.7 726.9 15.2 3.11

includes 716.3 723.9 7.6 3.75

*Intervals are down hole, not true width. (Source: Evolving Gold Corp.)

??Hole RSC-019 continues to prove near surface potentially bulk mineable mineralization

is also present at Antelope Basin (see Antelope Basin drill hole locations in Figure 2

below).

??Hole RSC-042, also drilled on Antelope basin, had a significant intersection of 32.0

meters grading 2.72 g/t Au including an interval of 3.1 meters grading 10.19 g/t Au.

??Hole RSC-028, drilled directly through the North Stock intrusion, showed weak gold

mineralization. This alkaline intrusion was initially interpreted to be post mineralization

and as expected, to be barren of gold. We believe the presence of gold mineralization,

Evolving Gold Corp. (TSXV: EVG) –Update Page 3

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

while low grade, may positively influence the strip ratio, and thus, costs in a bulk

mining operation.

??According to management, core at depth is still showing quartz adularia alteration. This

is important as it indicates vertical continuation of hydrothermal alteration present in

other mineralized sections lending to the possibility of a high grade zone that can be

mined to depth.

??Results continue to demonstrate similarities to alkalic systems such as the Cripple Creek

deposit, particularly, high grade mineralization overprinting in a larger zone of lower

grade halo gold mineralization.

Table 2: Selected High Grade Intervals –North Stock

Drill Hole From (m) To (m)

Interval**

(m) Gold (gpt)

RSC-003* 149.4 295.7 146.3 2.92

RSC-007* 105.2 236.2 131.1 2.84

RSC-020 121.9 189 67.1 10.8

RSC-039 70.1 106.7 36.6 4.11

RSC-046 411.5 414.5 3.0 13.23

*Results previously discussed. **Intervals are down hole, not true width. (Source: Evolving Gold Corp.)

Table 3: Selected Potential Bulk Tonnage Style Intervals –North Stock

Drill Hole From (m) To (m)

Interval**

(m) Gold (gpt)

RSC-003* 342.9 416.1 73.2 0.9

RSC-005 109.7 163.1 53.3 1.18

RSC-009 94.5 274.3 179.8 0.64

RSC-022 56.4 184.4 128 1.23

RSC-026 83.8 163.1 79.3 1.76

RSC-027 61 196.6 135.6 0.89

RSC-028 33.5 93 59.5 0.85

RSC-034 22.9 137.2 114.3 0.7

*Results previously discussed. **Intervals are down hole, not true width. (Source: Evolving Gold Corp.)

Table 4: Selected Intervals –Antelope Basin

Drill Hole From (m) To (m) Interval* (m) Gold (gpt)

RSC-016 111.3 190.5 79.2 0.85

RSC-019 85.3 248.4 163.1 1.25

Including 167.6 190.5 22.9 4.18

RSC-042 147.8 224 76.2 1.7

Including 157 189 32 2.72

*Intervals are down hole, not true width. (Source: Evolving Gold Corp.)

Evolving Gold Corp. (TSXV: EVG) –Update Page 4

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Figure 1: North Stock Drill Locations. (Source: Evolving Gold Corp.)

Evolving Gold Corp. (TSXV: EVG) –Update Page 5

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Figure 2: Antelope Basin Drill Locations. (Source: Evolving Gold Corp.)

Additional Comments

We feel the company’s ability to continue to expand zones of bulk mineable mineralization

is just as important as the vertical and lateral expansion of the high grade zone. As a

potential bulk mineable project with a complicated structure, we feel the company

receives more benefit from exploration focused on determining the full scope rather

than spending money on replicating market appeasing drill results.

Our reasoning for this is that as the project currently sits, neither the bulk mineable

targets, nor the high grade zones are standalone mines. We feel the low grade material

will determine the mining method used. Should a sufficient high grade resource be

delineated, it may be mined by a decline and bulk tonnage underground methods. We

believe the optimal situation however, would be the delineation of both low grade and

high grade zones that are mineable by a single open pit. Another very important factor

–perhaps the most important factor - will be the metallurgical characteristics of the

material which determine the viable processing method.

In discussion with management, we have learned that the higher grade intervals noted for

holes RSC-019, and RSC-042, are associated with a diorite intrusive body trending

southwest/northeast. While there is no current proof of continuity, we feel the porphyritic

Evolving Gold Corp. (TSXV: EVG) –Update Page 6

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

dykes encountered could be related to the intrusive body and are potentially the link between

the two mineralized zones.

Current Status: The company's near term focus will include defining the high grade

mineralization at the North Stock with additional effort to better define the extent of the

large, bulk tonnage style halo gold mineralization. We also anticipate future work will seek

further geological information allowing the company to produce an accurate geological

model. This may include following the diorite and porphyry dykes discussed above. Four

drill rigs are currently operating in the Phase II program following a plan to increase total

meters drilled in 2009 by approximately 50%. There is currently no limit on the total meters

the company drills, but drilling must conclude by November 1 of this year.

Current Geological Cross Sections

Figures 3 and 4 are current cross sections depicting the company’s current interpretation of

the deposit. The location of cross sections can be viewed on the company’s website.

Figure 3: Cross Section A – A’ depicting the geology near Hole RSC-020 (Source: Evolving

Gold Corp.)

Evolving Gold Corp. (TSXV: EVG) –Update Page 7

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Figure 4: Cross Section E – E’ depicting the geology near Hole RSC-027. Note the

increased presence of the porphyry system at depth. (Source Evolving Gold Corp.)

Things we will be watching for in future drill results:

??Can the company replicate these results?

??Continuity of the high grade zone in both lateral and vertical directions.

??Continued expansion of potentially bulk mineable zone at Antelope basin, and can it be

connected to the North Stock (this is a long term objective)?

Note on the South Stock: Holes drilled into the South Stock intersected predominantly low

grade mineralization. The company has stated that there are no plans for additional drilling

in the South Stock area. We feel the North Stock and Antelope basin represent substantial

potential for the near term, and believe the South Stock is best left for long term expansion

exploration.

Updated 43-101

The company is planning to release an updated 43-101 technical report on the property in Q2

of 2010, which we anticipate will include an estimate of inferred resources. The project will

also be advanced through the initiation of baseline environmental studies and metallurgical

studies.

Evolving Gold Corp. (TSXV: EVG) –Update Page 8

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Carlin Property

Kiyuk Property

Acquisition and

Optioning

Financials

Resource estimate: Through drilling completed since our initiating report at both North

Stock and Antelope basin, the company has effectively doubled the area of known

mineralization. Some intersections have been lower grade than the 0.96 g/t used in our

previous estimate, while some intersections have been considerably higher (as noted in Table

2). From these results, in combination with the significant potential of a deposit that

remains open in nearly every dimension, we feel comfortable estimating that the

company now holds a resource somewhere between 1.5 million and 2.0 million ounces

(weighted average grade of 1.22 gpt). This has been increased from our previous

estimate of 0.95 million ounces (weighted average grade of 0.96 gpt).

On September 10, 2009, the company released assay results (see Table 5) from Hole CAR-

002 completed on their 100% owned Carlin property in Nevada. The hole was completed to

a final length of 1,519 meters. We feel that while results were not spectacular, this is the

first hole on the property, and it comes with several positives:

??Gold mineralization was intersected;

??The appropriate host rocks were intersected;

??There is evidence of hydrothermal activity;

??Sulphides of gold trace elements iron, arsenic and antimony were present.

Table 5: Assay Results, Hole CAR-002 Carlin Project, Nevada

Hole CAR-

002 From (m) To (m) Interval* (m)

Gold

(Au/tonne)

858.0 893.1 35.1 1.21

includes 890.0 891.5 1.5 11.90

914.4 925.1 10.7 1.01

includes 922.0 923.5 1.5 3.68

1420.4 1443.2 22.8 1.11

includes 1428.0 1438.7 10.7 1.79

*Intervals are down hole, not true width. (Source: Evolving Gold Corp.)

On August 5, 2009, the company announced the acquisition of the Kiyuk gold property in

southern Nunavut, Canada, for payment of $0.35 million and 250,000 shares of the company

over a five year period. A 2.0% NSR applies to the property and can be entirely purchased

for US$2.0 million for each percentage point of NSR.

The company subsequently announced that on September 10, 2009, it signed a letter of intent

with Ridgemont Capital Corp. (“Ridgemont” TSXV: RDG-P). The agreement states

Ridgemont may earn: 50% ownership in the property by spending $5 million on the project

prior to the third anniversary of the date of the definitive agreement; an additional 20%

ownership by spending an additional $5 million prior to the fifth anniversary of the date of

the definitive agreement.

At the end of Q1-2010 (quarter ended June 2009), the company had $15.54 million in cash

($14.94 million) and investments in marketable securities ($0.60 million). We estimate

EVG’s burn rate (cash spent on operating and investing activities) was $0.75 million per

month in Q1-2010. The following table shows the company’s cash and liquidity position at

Evolving Gold Corp. (TSXV: EVG) –Update Page 9

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Valuation

month in Q1-2010. The following table shows the company’s cash and liquidity position at

the end of June 2009.

(C $) 2008 2009 2010 (3 mo)

Cash 24,959,327 17,091,777 15,540,322

Working Capital 24,391,360 16,956,239 14,266,061

Current Ratio 30.7 70.6 10.9

Monthly Burn Rate (675,308) (810,508) (751,485)

Cash From Financing Activities 32,987,401 1,779,246 943,674

Subsequent Financings: In July 2009, the company received total proceeds of $4.89 million

from the exercise of 7.33 million warrants at prices ranging from $0.60 to $1.50 per share.

Stock options and warrants: The company currently has about 11.25 million warrants

(exercise prices ranging from $1.25 to $1.50) and 7.81 million stock options (weighted

average exercise price of $0.37) outstanding.

Conclusion: The company continues to be in a strong cash position with about $19 million

($0.21 per share) in its treasury as of August 5, 2009. Our discussions with management

indicated that the company will have about $13 million after all its current invoices are paid.

We do not foresee any need for the company to seek external financings at least for the next

12 months.

Our revised valuation (average of DCF, real options and comparables valuation) on the

Rattlesnake property increased from $0.38 to $1.18 per share, as we revised our resource

estimate and long-term gold price forecast (since our initiating report, in June 2009, we have

revised our long-term gold price forecast from US$600 to US$750/oz), offset by higher

operating cost estimates. As a result of these changes, our DCF valuation increased from

$0.45 to $1.29 per share, real options valuation increased from $0.36 to $1.37 per share, and

comparables valuation increased from $0.34 to $0.89. A summary of our valuation models

follows:

Revised Previous

Resource (in tonnes) 44,615,642 30,936,781

Average Au Grade (g/t) 1.22 0.96

Contained Gold (in troy oz) 1,750,000 954,855

Gold Recovery 65% 65%

Mill Processing (tpy) 3,750,000 3,750,000

Mine Life (in years) 12 9

Gold Price (in US$/oz) $750 $600

Average Operating Costs ($/oz) $300 $250

Capital Costs ($) $50,000,000 $50,000,000

Discount Rate 11.5% 11.5%

Net Present Value $126,187,898 $39,025,943

No. of shares (diluted) 97,979,027 86,724,913

Value per share $1.29 $0.45

DCF Valuation Summary

Evolving Gold Corp. (TSXV: EVG) –Update Page 10

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Estd.Value of Minerals if extracted today ($) $166,413,094

Annualized Standard Deviation of Mineral prices 19%

Capital Investment ($) $50,000,000

Estd. Mine Life (years) 12

Riskfree Rate 3.55%

Stock Price $166,413,094 T.Bond rate 3.55%

Strike Price $50,000,000 Variance 0.04

Expiration (in years) 12 Annualized div yield 0%

d1 = 2.803

N(d1) = 0.997 Value of Option ($) $133,857,951

d2 = 2.145 No of shares (Dil.) 97,979,027

N(d2) = 0.984 Value per share $1.37

Real Options Valuation

Output

Inputs relating to the underlying asset

EV /

Resources

1 Silverado Gold Mines Ltd. OTCBB: SLGLF $102.9

2 US Gold Corporation AMEX: UXG $96.9

3 J-Pacific Gold Inc. TSXV: JPN $59.5

4 NioGold Mining Corporation TSXV: NOX $55.5

5 Golden Band Resources Inc. TSXV: GBN $39.1

6 Harvest Gold Corp. TSXV: HVG $38.1

7 Garson Gold Corp. TSXV: GG $34.0

8 Sutter Gold Mining Inc TSXV: SGM $32.1

9 Rye Patch Gold Corp. TSXV: RPM $23.2

10 Midway Gold Corp. TSXV: MDW $16.2

Average EV / Resources $49.8

Fair Value of Rattlesnake Property $0.89

* Resources include all measured and indicated, and half of inferred and historical resources

Company SYM

The sensitivity of our DCF valuation to changes in long-term gold price forecasts and

discount rates is shown below.

$1.29 8% 11.5% 15%

$500 $0.59 $0.40 $0.27

$600 $1.04 $0.76 $0.55

$700 $1.49 $1.11 $0.84

$750 $1.71 $1.29 $0.98

$800 $1.93 $1.47 $1.12

$900 $2.38 $1.82 $1.41

$1,000 $2.83 $2.18 $1.69

Gold Price

(US$/oz)

Discount Rate

Evolving Gold Corp. (TSXV: EVG) –Update Page 11

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Conclusions &

Rating

Risks

Adding book values of the company’s other projects($0.09 per share), and current working

capital ($0.13 per share) to our revised valuation on the Rattlesnake project ($1.18 per

share), we arrived at a revised fair value of $1.41 per share.

Valuation Summary Valuation ($/Share)

Rattlesnake Property

DCF $1.29

Real Options $1.37

Comparables $0.89

Average $1.18

Book Value of Other Properties $0.09

Working Capital net Debt $0.13

Fair Value $1.41

Therefore, based on our revised valuation models and review of the company’s

progress since our initiating report, we reiterate our BUY rating, and raise our fair

value estimate from $0.70 to $1.40 per share.

The following risks, though not exhaustive, may cause our estimates to differ from actual

results:

??The value of the company is dependent on commodity prices.

??The company has not defined any NI 43-101 compliant resource estimates and does not

currently have any operating mines.

??The success of drilling, project development and resource expansion are important longterm

success factors for these early projects.

We rate the company’s shares a RISK 5 (Highly Speculative).

Evolving Gold Corp. (TSXV: EVG) –Update Page 12

?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA