GOLD STOCK NEWS - Gold stocks, as measured by the GDX (Market Vectors Gold Mining ETF), are up $0.14 to $44.85 today on news of the earnings beat from Barrick Gold (ABX) - the largest component of the GDX. Other GDX components moving higher on the day include Yamana Gold (AUY) - up 1.2% to %10.79 - and Agnico-Eagle Mines (AEM) - higher by 2.0% to $60.26. While gold stocks, as represented by the GDX, have posted large gains over the past year, the GDX has materially underperformed many individual gold stocks - including San Gold (SGR.TSXV). San Gold is not a component of the GDX gold stock ETF, but is included in the newly created Market Vectors Junior Gold Mining ETF (GDXJ). Over the past 52 weeks, the GDX has risen 23.5%, but has significantly lagged the 118% rise in shares of San Gold. The leverage to the gold price offered by many small-cap gold mining companies - such as San Gold - is one of the chief attractions of investors to gold stocks.

Although the GDX provides exposure to a basket of gold stocks, it is heavily weighted toward the world’s largest gold mining equities, including Barrick Gold (ABX), Newmont Mining (NEM), and Goldcorp (GG). Many of these large-cap gold stocks have not provided the gold price leverage expected by investors. Since the inception of the GDX in May of 2006, while gold has appreciated 66.1%, the basket of gold stocks that comprise the GDX has advanced a mere 16.4%. Meanwhile, over the same time frame, the shares of San Gold have climbed 115%. San Gold’s stock has risen from an all-time low of C$0.07 in 2003 to its most recent closing price of C$3.74 per share - a gain of 5,243%.

Based in Bissett, Manitoba, Canada, San Gold is an emerging gold company focused on gold mining and exploration in the Rice Lake Greenstone Belt, where it controls nearly 15,000 hectares of prospective land. San Gold acquired its primary asset, the Rice Lake Gold Project, in 2004 and since then has nearly tripled its audited gold resource ounces. San Gold began gold production in 2009 from the original Rice Lake Mine and has begun to blend ore from the recently discovered Hinge zone, one of Canada’s highest-grade gold discoveries in years. The company’s earnings are expected to rise in the first half of 2010 as higher-grade ore is processed.

The drivers behind San Gold’s considerable outperformance versus the GDX include not just the gold price leverage it provides, but also the company’s proven track record of geologic success. Chief Executive Officer, Dale Ginn, and his team have generated multiple high-grade gold discoveries near the company’s existing mining infrastructure, drawing comparisons to the early days of Goldcorp’s (GG) Red Lake gold mine.

While the price of gold has climbed to new record highs, demand for gold companies which control high-grade gold deposits has risen significantly. This demand has arisen from not only investors, but also from large gold mining companies looking to enhance their future production profile and boost their earnings by acquiring smaller competitors who control high-grade gold operations, which are generally the most profitable gold mines.

San Gold’s relative strength versus gold ETFs such as the GDX has widened as the company has continued to discover new high-grade gold zones. The company’s most recent discovery, the 007 Zone, was highlighted by an intersection from drill hole # CD-09-111, which yielded 52.5 grams per tonne (g/t) of gold over 2.0 meters. These results are the latest in a series of high-grade gold intercepts within several ore discoveries by San Gold’s geological team. The 007 zone follows a series of high-grade discoveries that also include the Hinge #4, Cohiba, and L-13. Importantly, due to the fact that San Gold is already mining ore from Rice Lake, the company’s ability to rapidly and profitably exploit these new discoveries should be very efficient as well as require a relatively small amount of CAPEX.

Dale Ginn and the exploration team at San Gold have continued to deliver for shareholders, generating numerous new high-grade gold discoveries by virtue of their successful geological interpretation of the Rice Lake district. San Gold maintains an ongoing drilling program aimed at further defining this new gold district and boosting its gold production and bottom line earnings. The company’s track record of consistently discovering high-grade gold within a prospective land package has attracted a broad range of institutional investors to San Gold.

Going forward, if gold is on its way to new highs and the bull market continues, gold stocks such as San Gold should provide returns that may far surpass the appreciation of gold ETFs such as the GDX. While containing greater risk than the GDX - which offers diversification to a group of gold stocks - the shares of San Gold, if history is any guide, provide a superior level of gold price leverage and the potential for out-sized investment gains.