San Gold Corporation

BUY, High Risk*
12-month target price: C$2.60

Hinge Zone #4 hangs together

The latest batch of drill results reported from San Gold's Hinge #4 (see our April 20 comment) continues to demonstrate the zone's excellent continuity in both grade and width (Figures 1 and 2). Mineralization appears to be controlled by a steeply west plunging fabric that may represent flexures or crosscutting structures to the primary zone of deformation.
It is perhaps the consistency of the drill results (and the underground sampling) that most impress. Drill holes into Archean lode deposits can usually be relied upon to have a 50% or so success ratio. While the majority of holes will normally intersect alteration, not all will return economic assays - a testament to the nugget-like nature typical of the style of mineralization. San Gold's Hinge #4 appears to be atypical - in this case a good thing - as almost all holes have returned not only significant widths but high grades.
Zones like Hinge #4 are rare, and offer the owner the opportunity to develop a low-cost, high-margin operation. We suspect that the Hinge will continue to attract the attention of larger companies.

Zone remains open in all directions
We should note that our interpretation of the mineralization as shown is somewhat misleading. While the figures might imply that the mineralization has been closed off to the east and west, the zone is in fact open for expansion in all directions. It is of particular interest that hole 09-63, the most westerly hole targeted on the zone returned 207.0 g/t over 2.3m, one of the best intersections to date.

Model becoming predictable
We began modeling the Hinge #4 zone prior to the release of the last set of drill holes. To our surprise (due to the nugget-like style of mineralization and the still early stage of development), the infill holes tended to confirm our earlier interpretation, suggesting that the mineralization is becoming predictable. Understanding the controls on mineralization should allow the company to better target higher grade and/or thicker portions of the deposit, particularly below the 200m level where current drill density is sparse.