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San Gold Reports 2014 First Quarter Results

WINNIPEG, MANITOBA -- (Marketwired) -- 05/12/14 -- San Gold Corporation (TSX:SGR)(OTCQX:SGRCF) today reported 2014 first quarter financial and operating results (all amounts in Canadian dollars unless otherwise stated).

During the quarter, the Company produced 12,083 ounces of gold and recognized a quarterly loss from operations of $2.8 million and a total and comprehensive loss of $7.7 million. Exploration expenses decreased by $4.6 million and general and administrative expenses decreased by $2.2 million. Additionally, capital expenditures were reduced by $7.0 million or 37% compared with Q1 2013. These savings, however, were offset by a total reduction in revenues of $9.4 million or 39% compared with last year.

In March, the Company initiated a comprehensive technical review of operations which has already identified a number of opportunities to improve the financial performance of the Company. Key areas identified include reducing costs related to inventory, overhead and surface drilling, improving grade control initiatives, and revising mining methods with smaller stope sizes to promote access to higher grade areas with less dilution. A new initiative is also underway to improve mill recoveries.

"We understand the urgency to become profitable and we are aggressively pursuing a number of strategies to achieve this. We have already revised the mine plan to target the most profitable ounces and have eliminated significant capital expenditures in the process. We expect the cost savings associated with these changes to have an immediate impact on our financial performance with incremental improvements going forward," said Gestur Kristjansson, San Gold's President and Chief Executive Officer.

2014 First Quarter Highlights:


--  Announced an updated mineral reserve and resource estimate with a 60%
    increase in proven and probable mineral reserves. 
    
--  Closed a US$23.8 million debt financing. 
    
--  Produced 12,083 ounces of gold. 
    
--  Recognized quarterly revenue of $14.9 million on gold sales of 10,375
    ounces at a realized price of $1,440 per ounce and had total cash costs
    of $1,226 per ounce of gold sold. 
    
--  Had a cash and cash equivalents balance of $16.1 million as at March 31,
    2014. 
    
--  Achieved average mill throughput of 1,333 tons per day for the quarter. 
    
--  Recognized quarterly loss from operations of $2.8 million and a
    quarterly total and comprehensive loss of $7.7 million 
    
--  Cash flow used by operating activities before changes in non-cash
    working capital of $5.6 million. 
    
--  Completed approximately 14,000 metres of definition and exploration
    diamond drilling. 
    
--  Formed a technical committee to evaluate all aspects of the Rice Lake
    operations with a mandate to create a clear path toward profitability. 
    
--  Appointed Gestur Kristjansson as President and CEO and Mandeep Rai as
    CFO effective March 18, 2014. 

Review of 2014 First Quarter Results

The Company produced 12,083 ounces of gold during the quarter compared with 17,354 ounces in the first quarter of 2013. The decrease in the number of ounces of gold produced was a result of a 12% decrease in milled head grade and a 23% decrease in tons of material processed by the mill. The decrease in mill head grade in the first quarter of 2014 is primarily a result of lower than planned grade from the Hinge and 007 mines due to mining of lower grade material and the sequencing of stoping activities. As a result of the changes initiated by the technical review committee during the subsequent period, the Company anticipates that grade will improve substantially as the year progresses.

During the quarter, the Company milled 119,996 tons of ore at an average grade of 3.67 grams of gold per tonne of ore. The Company achieved a quarterly mill throughput rate of 1,333 tons per day in the first quarter of 2014, a 23% decrease compared to throughput of 1,733 tons per day in the first quarter of 2013. The Company mined ore at a quarterly rate of approximately 1,376 tons per day for a total of 123,868 tons, a decrease of 14% compared to the rate of 1,598 tons per day in the same period of 2013. The decrease in tonnage relative to the prior period was due to short-term challenges related to the transition from mechanical cut and fill to long-hole mining as the Company's primary mining method and the implementation of new grade control initiatives.

The Company reports quarterly loss from operations of $2.8 million and a total and comprehensive loss of $7.7 million, compared to a loss from operations of $0.04 million and a total and comprehensive loss of $9.7 million in the first quarter of 2013. The increase in loss from operations is primarily due to reduced gold production and gold sales in the first quarter of 2014. The increase in loss from operations was partially offset by a $2.5 million decrease in depletion expense. The decrease in depletion expense is due to the fact that the carrying value of mineral properties was significantly less as a result of the non-cash impairment charge recognized in the fourth quarter of 2013 and since gold production decreased by 30% compared as a result of lower than expected realized mill head grades.

Gold sales revenue in the first quarter of 2014 of $14.9 million was 39% lower than revenues of $24.3 million recognized in the first quarter of 2013. The decrease in gold sales revenue in the first quarter of 2014 is a result of a 32% decrease in the number of ounces sold and a 9% decrease in the average realized gold price compared to the first quarter of 2013. The Company sold 10,375 ounces of gold compared with 15,353 ounces of gold in the previous quarter. The Company realized $1,440 per ounce of gold sold, compared to the $1,584 in the previous quarter.

The Company used $5.6 million of cash flow from operating activities before changes in non-cash working capital in the first quarter of 2013, compared with a use of $2.2 million in the previous quarter. After changes in non-cash working capital, operating activities used $5.2 million in the first quarter of 2014, compared to $6.5 million used in the first quarter of 2013.

Capital spending in the first quarter of 2014 was focused on increasing mining capability, improving key infrastructure, and sustaining capital. For the quarter ended March 31, 2014, the Company invested $11.9 million in operating and development capital compared with expenditures of $18.9 million in the same quarter of the prior year.

In the first quarter of 2014, the Company invested $11.3 million in mine development activities and recognized related depletion of $3.0 million, compared to an investment of $15.6 million and depletion of $5.5 million in the same period of the prior year. The Company capitalized $0.6 million of property, plant, and equipment during the first quarter of 2014 compared to $3.3 million in the same quarter of the prior year.

Significant projects undertaken, planned or in progress during the first quarter of 2014 include:


--  Procurement and installation of a main mine fan and heater. 
--  Development of a new tailings management area. 
--  Rehabilitation of A-Shaft including the installation of additional
    blocking and replacement of guides. 
--  Enhancement of haulage ways on 16 and 26 levels. 

Outlook

The Company is transitioning to long-hole mining as its principal mining method in the Hinge, 007 and Rice Lake mines while incorporating a small amount of conventional mining in targeted regions in order to add supplemental high-grade ore. The Company is continuing to invest in improved operational access on 16 Level of the Rice Lake Mine. Ventilation raises are being constructed to connect 16 Level with Hinge mine infrastructure while lateral development is underway toward the 007 deposit. Definition drilling has commenced from this newly constructed 16 Level infrastructure into the L10 and 08 deposits and will target the down-dip projections of the L13 and 6163 zones later this year. The Company will also continue to pursue prospective hanging wall regions identified as part of the Company's recent geologic structural analysis of its mineral lease area.

The Company is encouraged by the preliminary results generated by the technical committee to date as it builds on the efficiencies achieved in 2013 and determines the necessary steps to profitability. This process is ongoing with additional efficiencies expected through the remainder of the second quarter. Any changes to the Company's production, cash cost, and capital expenditure guidance resulting from this review will be disclosed when they become available.

2014 Q1 Financial Results Conference Call

The Company's senior management plans to host a conference call on May 13, 2014 at 11 am Eastern Time to discuss the Q1 2014 financial results, and to provide an update of the Company's operating, exploration, and development activities.

Participants may join the conference call by dialing 1 (866) 225-0198 or 1 (416) 340-8061 for participants outside of Canada and the United States. The conference call will also be available by webcast on the Company's website at www.sangold.ca.

A recorded playback of the conference call can be accessed after the event until May 29, 2014 by dialing 1 (800) 408-3053 or 1 (905) 694-9451 for calls outside Canada and the United States. The pass code for the conference call playback is 4796296. The archived audio webcast will also be available on the Company's website at www.sangold.ca.

About San Gold

San Gold is an established Canadian gold producer, explorer, and developer that owns and operates the Rice Lake Mining Complex near Bissett, Manitoba. San Gold is on the Toronto Stock Exchange under the symbol "SGR" and on the OTCQX under the symbol "SGRCF".

This press release should be read in conjunction with the Company's consolidated financial statements for the quarter ended March 31, 2014 and associated Management's Discussion and Analysis ("MD&A"), which are available from the Company's website (www.sangold.ca), in the "News & Reports" section under "Financial Statements", and on SEDAR (www.sedar.com).

Cautionary Non-IFRS Statements

The Company believes that investors use certain indicators to assess gold mining companies. They are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared with International Financial Reporting Standards ("IFRS"). "Total cash operating costs" as used in this analysis is a non-IFRS term typically used by gold mining companies to assess the level of gross margin available to the Company per ounce of gold by subtracting these costs from the unit price realized during the period. This non-IFRS term is also used to assess the ability of a mining company to generate cash flow from operations. There may be some variation in the method of computation of "total cash operating costs" as determined by the Company compared with other mining companies. In this context, "total cash operating costs" reflects the per ounce cash costs allocated from in-process and dore inventory associated with ounces of gold sold in the period and net royalties. "Total cash operating costs" may vary from one period to another due to operating efficiencies, quantity of ore processed, grade of ore processed, and gold recovery rates.

Cautionary Note Regarding Forward Looking Statements

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. This news release includes certain "forward-looking statements". All statements, other than statements of historical fact included in this release, including, without limitation, statements regarding forecast gold production, gold grades, recoveries, cash operating costs, potential mineralization, mineral resources, mineral reserves, exploration results, and future plans and objectives of the Company, are forward-looking statements that involve various risks and uncertainties. These forward-looking statements include, but are not limited to, statements with respect to mining and processing of mined ore, achieving projected recovery rates, anticipated production rates and mine life, operating efficiencies, costs and expenditures, changes in mineral resources and conversion of mineral resources to proven and probable mineral reserves, and other information that is based on forecasts of future operational or financial results, estimates of amounts not yet determinable and assumptions of management.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be "forward-looking statements." Forward-looking statements are subject to a variety of risks and uncertainties that could cause actual events or results to differ from those reflected in the forward-looking statements.

There can be no assurance that forward-looking statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations include, among others, the actual results of current exploration activities, conclusions of economic evaluations and changes in project parameters as plans continue to be refined as well as future prices of precious metals, as well as those factors discussed in the section entitled "Other MD&A Requirements and Additional Disclosure and Risk Factors" in the Company's most recent quarterly Management's Analysis and Discussion ("MD&A"). Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

Exploration results that include geophysics, sampling, and drill results on wide spacings may not be indicative of the occurrence of a mineral deposit. Such results do not provide assurance that further work will establish sufficient grade, continuity, metallurgical characteristics, and economic potential to be classed as a category of mineral resource. A mineral resource that is classified as "inferred" or "indicated" has a great amount of uncertainty as to its existence and economic and legal feasibility. It cannot be assumed that any or part of an "indicated mineral resource" or "inferred mineral resource" will ever be upgraded to a higher category of resource. Investors are cautioned not to assume that all or any part of mineral deposits in these categories will ever be converted into proven and probable reserves.

Cautionary Note to United States and Other Investors Concerning Estimates of Measured, Indicated and Inferred Mineral Resources:

This press release uses the terms "Measured", "Indicated", and "Inferred" resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. "Inferred Mineral Resources" have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of a Mineral Resource is economically or legally mineable.


Table 1: 2014 First Quarter Income Statement                                
                                                                            
SAN GOLD CORPORATION                                                        
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS
FOR THE THREE MONTH PERIOD ENDED MARCH 31                                   
(Unaudited)                                                                 
----------------------------------------------------------------------------
                                                       2014            2013 
                                               -------------   -------------
REVENUE                                       $  14,936,099   $  24,320,028 
                                                                            
OPERATIONS                                                                  
  Operations (Note 17)                           17,732,481      24,359,074 
                                                                            
LOSS FROM OPERATIONS                              2,796,382          39,046 
                                                                            
  Exploration                                        21,595       4,651,837 
  General and administrative (Note 18)            3,240,649       5,434,601 
                                                                            
LOSS BEFORE OTHER INCOME AND EXPENSES             6,058,626      10,125,484 
                                                                            
OTHER INCOME AND EXPENSES                                                   
  Finance income - net (Note 19)                    289,195        (406,936)
  Finance costs (Note 19)                        (1,929,852)       (623,158)
                                               -------------   -------------
                                                                            
LOSS BEFORE INCOME TAX                            7,699,283      11,155,578 
                                                                            
Income tax recovery on flow-through shares                -       1,487,621 
                                               -------------   -------------
                                                                            
NET LOSS AND COMPREHENSIVE LOSS FOR THE                                     
 PERIOD                                       $   7,699,283   $   9,667,957 
                                               -------------   -------------
                                               -------------   -------------
                                                                            
NET LOSS PER COMMON SHARE: (Note 22)                                        
  Basic                                       $        0.02   $        0.03 
                                               -------------   -------------
                                               -------------   -------------
  Diluted                                     $        0.02   $        0.03 
                                               -------------   -------------
                                               -------------   -------------
                                                                            
                                                                            
                                                                            
Table 2: Financial Summary                                                  
----------------------------------------------------------------------------
                                                            Q1           Q1 
                                                          2014         2013 
----------------------------------------------------------------------------
Total and comprehensive income (loss) (000)            ($7,699)     ($9,668)
Items not affecting cash (000)                          $2,114       $7,476 
----------------------------------------------------------------------------
Cash provided (used) by operating activities                                
 before changes in non-cash working capital (000)      ($5,585)     ($2,191)
                                                                            
Net change in non-cash working capital (000)              $432      ($4,309)
                                                                            
----------------------------------------------------------------------------
Cash provided (used) by operating activities (000)     ($5,153)     ($6,501)
                                                                            
Earnings (loss) per share                                                   
- basic                                                 ($0.02)      ($0.03)
- diluted                                               ($0.02)      ($0.03)
                                                                            
Weighted average number of common shares                                    
 outstanding                                                                
- basic                                            373,390,981  335,230,029 
- diluted                                          373,390,981  335,230,029 
                                                                            
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
Table 3: Production Summary and Statistics                                  
----------------------------------------------------------------------------
                                           Q1        Q1    Change     Change
                                         2014      2013       (#)        (%)
----------------------------------------------------------------------------
Ore milled (tons)                     119,996   156,013   (36,017)      -23%
Head grade (g/tonne Au)                  3.67      4.15     (0.48)      -12%
----------------------------------------------------------------------------
Contained gold (ounces)                12,830    18,884    (6,054)      -32%
                                                                            
Ounces of gold produced                12,083    17,354    (5,271)      -30%
                                                                            
Ore mined (tons)                      123,868   143,859   (19,991)      -14%
                                                                            
Ore milled per day (tons)               1,333     1,733      (400)      -23%
Ore mined per day (tons)                1,376     1,598      (222)      -14%
Mill recovery (%)                         94%       92%      2.3%       2.5%
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
Table 4: Quarterly Production Summary and Statistics                        
----------------------------------------------------------------------------
                  Q1      Q4      Q3      Q2      Q1      Q4      Q3      Q2
                2014    2013    2013    2013    2013    2012    2012    2012
----------------------------------------------------------------------------
Ore milled                                                                  
 (tons)      119,996 148,042 175,311 162,344 156,013 168,088 191,105 116,546
Head grade                                                                  
 (g/tonne                                                                   
 Au)            3.67    3.78    4.24    5.05    4.15    4.22    5.21    5.70
----------------------------------------------------------------------------
Contained                                                                   
 gold                                                                       
 (ounces)     12,830  16,308  21,672  23,964  18,884  20,539  29,029  19,385
                                                                            
Ounces of                                                                   
 gold                                                                       
 produced     12,083  15,118  20,220  22,526  17,354  19,019  27,084  18,241
                                                                            
Ore mined                                                                   
 (tons)      123,868 144,165 167,937 173,350 143,859 171,351 143,949 155,495
                                                                            
Ore milled                                                                  
 per day                                                                    
 (tons)        1,333   1,609   1,906   1,784   1,733   1,827   2,077   1,281
Ore mined                                                                   
 per day                                                                    
 (tons)        1,376   1,567   1,825   1,905   1,598   1,863   1,565   1,709
Mill                                                                        
 recovery                                                                   
 (%)             94%     93%     93%     94%     92%     93%     93%     94%
----------------------------------------------------------------------------
                                                                            
NOTE: Final refinery settlements, or the effects of rounding, may have      
resulted in increases or decreases to reported gold production.             

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