Mr. Tim Friesen of San Gold reports

SAN GOLD CORP AND KERR MINES INC ENTER INTO LETTER OF INTENT TO MERGE BUSINESSES

San Gold Corp. and Kerr Mines Inc. have entered into a non-binding letter of intent pursuant to which San Gold and Kerr Mines have agreed to merge their respective businesses pursuant to a plan of arrangement.

"This combination reflects our new strategy of operating multiple, efficient high-grade gold mines that are located in mining-friendly jurisdictions. Our 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 orebodies are paying off at Rice Lake and will be applied to other projects, most notably at the Copperstone gold mine in Arizona. The high-grade Copperstone mine will be similar in size to the Rice Lake mine and with the ability to restart quickly with low capital requirements under our combined management team. As well, our large portfolio of advanced gold deposits and projects in the Timmins and Kirkland Lake regions is increased immensely with our ownership in SGX Resources in combination with the current Kerr assets," said Gestur Kristjansson, San Gold's president and vice-president, finance.

"It's important to emphasize the extent to which San Gold has reshaped itself over the past four months. This merger provides an important step toward ensuring the full potential of that effort is realized. With more than one producing mine, San Gold is better positioned to get optimum utilization of the knowledge and skills of the operating team, and better diversified use of equipment and infrastructure, resulting in greater efficiencies and lower overall costs."

"San Gold has made tremendous strides in its turnaround over the past three months. Greg Gibson and the Kerr team have made important contributions to that turnaround. The next step to creating a mid-tier producer will be applying the same principles to the Copperstone property," said Stephen McIntyre, chairman of Kerr Mines.

Under the terms of the letter of intent, each Kerr Mines shareholder will be entitled to receive a number of common shares of San Gold for every common share of Kerr Mines held by such Kerr Mines shareholder based on an exchange ratio to be determined by the parties at a later date. Jennings Capital Inc. has been engaged by Kerr Mines and Primary Capital Inc. by San Gold to provide an opinion to the respective board of directors of Kerr Mines and San Gold to consider whether the consideration to be received by shareholders under the transaction, when determined, is fair, from a financial point of view, to the shareholders of each of Kerr Mines and San Gold.

Currently, San Gold has approximately 373 million San Gold shares outstanding and Kerr Mines has approximately 1.3 billion Kerr Mines shares outstanding.

In addition, each holder of outstanding stock options and common share purchase warrants of Kerr Mines will receive such number of replacement options or warrants of San Gold based upon the exchange ratio. A break fee of $1-million is payable by either San Gold or Kerr Mines in the event that either party proceeds with an alternative transaction during a specified period while the parties pursue completion of the transaction.

Completion of the transaction will be subject to certain conditions, including, without limitation: execution of a definitive agreement by Aug. 31, 2014; completion of satisfactory due diligence by both parties; receipt of all necessary consents, waivers, permits, exemptions, orders and approvals, including court approval of the plan of arrangement and the approval of the Toronto Stock Exchange; receipt of fairness opinions concerning the transaction by both parties; and receipt of shareholder approval of the transaction by the shareholders of San Gold and Kerr Mines.

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