San Gold Corporation

San Gold Reports 2014 Second Quarter Results
(All amounts in Canadian dollars unless otherwise stated)

WINNIPEG, MANITOBA--(Marketwired - Aug. 11, 2014) - San Gold Corporation (TSX:SGR)(OTCQX:SGRCF) today reported 2014 second quarter financial and operating results.
During the quarter, the Company produced 11,375 ounces of gold and recognized a quarterly loss from operations of $4.2 million and a total and comprehensive loss of $8.5 million. Exploration expenses decreased by $5.6 million and depletion expense decreased by $3.0 million. Additionally, capital expenditures were reduced by $8.6 million or 51% compared with Q2 2013. These savings were offset by a total reduction in revenues of $10.4 million or 34% compared with last year.
The Company implemented a number of new operating principles during the quarter, including stricter grade control, better cost control, reduced capital expenditures and lower overall overheads. A new mine plan was also developed that optimizes the mining rate to better match the geometry of the Rice Lake ore bodies. Accordingly, 2014 production guidance has been updated to between 50,000 and 55,000 ounces of gold. Cost savings associated with this new production target are expected to result in a significant reduction in cash costs through the remainder of the year, achieving cash costs by year end of between $700 and $800.
"The Company has made tremendous progress in reshaping itself over the past four months. We have a new mine plan in place that provides us with clear, achievable targets and a direct path to profitability. We also have a significant opportunity ahead of us, with multiple high- grade gold projects in mining friendly jurisdictions in need of this kind of turnaround. The Kerr transaction in particular would allow us to leverage the knowledge and skills already developed at Rice Lake to restart the high-grade Copperstone mine with little capital requirements," said Greg Gibson, San Gold's Chief Executive Officer.
2014 Second Quarter Highlights:

-- Completed a comprehensive overhaul of mine site operations and

implemented a revised mine plan.

-- Achieved a mill head grade of 4.18 grams per tonne - a 14% improvement

from Q1 2014.

-- Produced 11,375 ounces of gold.

-- Milled ore at a throughput of 1,273 tons per day.

-- Mined ore at a rate of approximately 1,231 tons per day.

-- Recognized revenue of $20.0 million on gold sales of 14,248 ounces at a

realized price of $1,402 per ounce and total cash costs of $1,336 per

ounce of gold sold.

-- Cash flow used by operating activities before changes in non-cash

working capital of $1.0 million - a substantial improvement from a use

of $5.6 million in Q1 2014.

-- Recognized loss from operations of $4.2 million and a total and

comprehensive loss of $8.5 million.

-- Had cash and short term investments of $10.4 million as at June 30,

2014.

-- Appointed Mr. Greg Gibson as CEO effective June 10, 2014.
Review of 2014 Second Quarter Results
During the quarter, the Company's technical committee performed a detailed review of operations to ensure it is well-positioned to take advantage of recent improvements in its cost structure as it shifts production activities to the recently discovered high-grade zones at the eastern extent of the Rice Lake mine. Significant progress was made in the quarter and the Company expects costs to decline going forward and grade to improve significantly as the year progresses. Mill head grade has improved by approximately 14% since the first quarter of 2014 showing that the changes being implemented by the committee have started to be realized at the Rice Lake operations.
The Company produced 11,375 ounces of gold during the quarter compared with 22,526 ounces in the second quarter of 2013. Lower gold production in the second quarter of 2014 relative to the same period of 2013 was primarily the result of the Company's revised mine plan. This resulted in a 29% decrease in tons of material processed by the mill. A 17% decrease in milled head grade was also experienced during the quarter as the Company completed mining operations in previously developed, lower grade districts. Mill recovery was consistent with the second quarter of 2013 despite the lower head grade.
During the second quarter of 2014, the Rice Lake mill processed 115,802 tons of ore at an average grade of 4.18 grams of gold per tonne of ore. The Company achieved a quarterly mill throughput rate of 1,273 tons per day in the second quarter of 2014, a 29% decrease compared to throughput of 1,784 tons per day in the second quarter of 2013. The decrease in mill throughput relative to the prior period was mainly the result of decreased tonnage delivered from the mine. During the second quarter of 2014, the Company mined ore at a quarterly rate of approximately 1,231 tons per day for a total of 112,018 tons, a decrease of 35% compared to the rate of 1,905 tons per day in the same period of 2013. The Company has intentionally reduced its mining rate compared with last year to ensure sufficient development work can be completed to facilitate improved decision making ahead of mining operations.
The Company reports quarterly loss from operations of $4.2 million and a total and comprehensive loss of $8.5 million, compared to income from operations of $3.4 million and a total and comprehensive loss of $3.6 million in the second quarter of 2013. The change in loss from operations is primarily due to reduced gold production and gold sales in the second quarter of 2014. The increase in loss from operations was partially offset by a $4.8 million decrease in depletion expense. The decrease in depletion expense is due to the reduced carrying value of mineral properties resulting from the non-cash impairment charge recognized in the fourth quarter of 2013 and due to the decrease in gold production.
Gold sales revenue in the second quarter of 2014 of $20.0 million was 34% lower than revenues of $30.4 million recognized in the second quarter of 2013. The decrease in gold sales revenue in the second quarter of 2014 is a result of a 35% decrease in the number of ounces sold. The average realized gold price was relatively consistent compared to the second quarter of 2013. The Company sold 14,248 ounces of gold compared with 21,796 ounces of gold in the previous quarter. The Company realized $1,402 per ounce of gold sold, compared to the $1,394 in the previous quarter.
The Company used $1.0 million of cash flow from operating activities before changes in non-cash working capital in the second quarter of 2013, compared with cash flow from operations of $5.0 million in the previous period. After changes in non-cash working capital, operating activities generated $3.9 million in the second quarter of 2014, compared to $5.1 million in the second quarter of 2013.
Capital spending in the second quarter of 2014 was focused on increasing mining capability, improving key infrastructure, and sustaining capital. For the quarter ended June 30, 2014, the Company invested $8.4 million in operating and development capital compared with expenditures of $17.0 million in the same quarter of the prior year.
In the second quarter of 2014, the Company invested $6.6 million in mine development activities and recognized related depletion of $3.1 million, compared to an investment of $12.9 million and depletion of $7.8 million in the same period of the prior year. The Company capitalized $1.8 million of property, plant, and equipment during the second quarter of 2014 compared to $4.1 million in the same quarter of the prior year.
Outlook
The Company made a number of significant changes across the board at its Rice Lake Complex during the second quarter, including the implementation of a new mine plan. The Company is also continuing its comprehensive review of all operating, capital, corporate overhead, and exploration costs as well as evaluating investments that do not directly contribute to the Company's core operations. The focus continues to be on optimizing margins per ounce and finding the most direct path to achieving free cash flows.
The Company is in the process of shifting its mining operations to the newly discovered, high- grade 710/711 district of the Rice Lake mine, with less dependence on the Hinge and 007 mines than in recent years. Mining operations in the Rice Lake mine will continue alongside ongoing capital development projects to accelerate operational access to the down dip extensions of the 007 and Hinge mines. The Company expects recent changes to result in improved grade for the balance of the year and a further decrease in capital development and property, plant and equipment spending requirements.
The objective of the Company's exploration program is to develop a mine complex that can be exploited through existing infrastructure. Exploration activities for the remainder of the year will continue to focus on underground definition and extension drilling targets within the Company's mineral lease for both production planning and exploration purposes. The primary target of this program is the mineralized extensions of the recent 710 and 711 zone discoveries located within a newly discovered hanging wall mining horizon located between the San Antonio and Shoreline Basalt mining units. The 710 and 711 zones have a combined strike length of 500 metres and vertical continuity of approximately 280 metres. The newly discovered mining horizon remains open to surface and to depth and is located very close to existing Rice Lake mine infrastructure. Underground drill bays constructed earlier this year continue providing better access for definition drilling of these and other targets at depth.
The Company is currently reviewing every aspect of its operation, including mining methods, grade control initiatives, mill recovery and supply chain management. As part of this review, the Company is also considering strategic alternatives aimed at growing the Company through new discoveries and potential acquisitions or joint venture opportunities.
Proposed Transaction with Kerr Mines Inc.
The Company has entered into a non-binding Letter of Intent with Kerr Mines Inc. ("Kerr Mines") to merge their respective businesses pursuant to a plan of arrangement.
The proposed transaction would allow the Company to utilize the knowledge, skills, and equipment developed at its Rice Lake mine across multiple projects, most notably at Kerr Mines' 100 per cent owned Copperstone mine. The high grade Copperstone mine will be similar in size to the Rice Lake mine and can be restarted quickly with low capital requirements under a combined management team. This would increase the Company's overall gold production, improve operating and administrative efficiencies and reduce all-in costs. Kerr Mines also owns a number of other highly prospective properties and claims in the Kirkland-Larder Lake-Timmins region including the historic Kerr-Addison mine and a number of adjacent properties. This combination reflects the Company's new strategy of operating multiple, efficient high-grade gold mines that are located in mining friendly jurisdictions. The Company's operating principles of strict grade control, better cost control, lower overheads and operating the mines at the optimum mining rate to properly match the geometry of the ore bodies are paying off at Rice Lake and will be applied to other projects.
2014 Q2 Financial Results Conference Call
The Company's senior management plans to host a conference call on August 12, 2014 at 11 am Eastern Time to discuss the Q2 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 August 26, 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 9786131. The archived audio webcast will also be available on the Company's website at www.sangold.ca.