San Gold Corp. (SGR-V)

We are resuming coverage of San Gold following the completion of an $85 million public offering of common shares (21.1 million common shares were sold at a price of $4.00/share in a deal that closed Wednesday). In our forecast financials, we had not foreseen a requirement for any additional financing.

The net proceeds are primarily intended for the development of the company's Rice Lake Project in south-eastern Manitoba. Total capital expenditures are now expected to reach $76 million over the next 36 months, compared to our prior estimate of $33 million for the same period.

We believe the substantial increase in budgeted capital expenditures may be indicative of the commencement of an extended period of intensive development at Rice Lake. While exploration continues at an aggressive pace, we believe there is a risk that the market could begin to focus on development.

In light of the above, and given the strong share price appreciation over the prior 12 months, we believe it is prudent to take a "wait and see" approach at this time. We are downgrading the stock to HOLD (from BUY).

Feel free to contact us for further information.

Regards,

Daniel Earle

Analyst, Metals & Minerals