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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2008

[   ]  TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE EXCHANGE ACT

For the transition period from _______ to _______

Commission File Number: 001-12974

SANTA FE GOLD CORPORATION(Exact Name of Small Business Issuer as Specified in its
Charter)

|Delaware                        | 84-1094315         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

1128 Pennsylvania NE, Suite 200, Albuquerque, NM
87110(Address of Principal Executive Offices)

Registrant's telephone number including area code: (505)
255-4852

N/AFormer name, former address, and former
fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]   No
[   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

|Larger accelerated filer [   ] | Accelerated
      filer                     [  
      ]
|------------------------------ | -------------------------------------------------------
|Non-accelerated filer    [  
] | Smaller reporting company  
  [X]                      

Indicate by check mark whether registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [   ]  
No [X]

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date:
75,904,760 shares outstanding as of February 16, 2009.

---

SANTA FE GOLD CORPORATIONINDEX TO FORM
10-QFOR THE QUARTER ENDED DECEMBER 31, 2008

TABLE OF CONTENTS



|           |                                                                                                                       | **Page**
|---------- | --------------------------------------------------------------------------------------------------------------------- | --------
|           |                                                                                                                       |         
|           | **PART I 
      FINANCIAL INFORMATION**                                                                               |         
|           |                                                                                                                       |         
|Item 1.    | Financial Statements                                                                                                  | 3       
|           |                                                                                                                       |         
|           | Consolidated Balance Sheets, December 31, 2008 (Unaudited)
      and June 30, 2008                                    | 3       
|           | Consolidated Statements of Operations for the Three and Six
      Months Ended December 31, 2008 and 2007 (Unaudited) | 4       
|           | Consolidated Statements of Cash Flows for the Six Months
      Ended December 31, 2008 and 2007 (Unaudited)           | 5       
|           | Notes to the Unaudited Consolidated Financial Statements                                                              | 7       
|           |                                                                                                                       |         
|Item 2.    | Managements Discussion and Analysis and Plan of Operations                                                           | 14      
|           |                                                                                                                       |         
|Item 4.    | Controls and Procedures                                                                                               | 18      
|           | **PART II****OTHER INFORMATION**                                                                                      |         
|           |                                                                                                                       |         
|Item 1.    | Legal Proceedings                                                                                                     | 18      
|           |                                                                                                                       |         
|Item 1A.   | Risk factors                                                                                                          | 18      
|           |                                                                                                                       |         
|Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                                           | 18      
|           |                                                                                                                       |         
|Item 3.    | Defaults Upon Senior Securities                                                                                       | 18      
|           |                                                                                                                       |         
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                                   | 18      
|           |                                                                                                                       |         
|Item 5.    | Other Information                                                                                                     | 19      
|           |                                                                                                                       |         
|Item 6.    | Exhibits                                                                                                              | 19      
|           |                                                                                                                       |         
|SIGNATURES | 19                                                                                                                   

2

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PARTIFINANCIALINFORMATION

ITEM1. FINANCIALSTATEMENTS

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SANTA FE GOLD CORPORATIONCONSOLIDATED BALANCE
SHEETS

|                                                                                |   | December 31, |   |   | June 30,    |  
|------------------------------------------------------------------------------- | - | ------------ | - | - | ----------- | -
|                                                                                |   | 2008         |   |   | 2008        |  
|ASSETS                                                                          |   | (Unaudited)  |   |   |             |  
|CURRENT ASSETS:                                                                 |   |              |   |   |             |  
|Cash and cash equivalents                                                       | $ | 5,765,266    |   | $ | 3,255,754   |  
|Accounts receivable                                                             |   | 4,066        |   |   | -           |  
|Interest receivable                                                             |   | -            |   |   | 1,424       |  
|Prepaid expenses                                                                |   | 46,652       |   |   | 101,103     |  
|Equipment deposits                                                              |   | 301,000      |   |   | -           |  
|Deposits                                                                        |   | 11,878       |   |   | -           |  
|Total
      Current Assets                                                      |   | 6,128,862    |   |   | 3,358,281   |  
|MINERAL PROPERTIES                                                              |   | 579,000      |   |   | 579,000     |  
|                                                                                |   |              |   |   |             |  
|PROPERTY, PLANT AND EQUIPMENT, net                                              |   | 9,186,853    |   |   | 3,137,329   |  
|OTHER ASSETS:                                                                   |   |              |   |   |             |  
|Idle equipment,
      net                                                       |   | 1,311,500    |   |   | 1,311,500   |  
|Restricted cash                                                                 |   | 203,903      |   |   | 182,548     |  
|Deferred financing
      costs                                                  |   | 244,620      |   |   | 275,197     |  
|Deposit                                                                         |   | 1,342        |   |   | 1,342       |  
|Total Other Assets                                                              |   | 1,761,365    |   |   | 1,770,587   |  
|                                                                                | $ | 17,656,080   |   | $ | 8,845,197   |  
|                                                                                |   |              |   |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                  |   |              |   |   |             |  
|CURRENT LIABILITIES:                                                            |   |              |   |   |             |  
|Accounts payable                                                                | $ | 1,618,981    |   | $ | 873,434     |  
|Accrued liabilities                                                             |   | 76,999       |   |   | 96,172      |  
|Line of credit                                                                  |   | -            |   |   | 11,400      |  
|Derivative instrument
      liabilities                                         |   | 1,423,445    |   |   | 2,884,189   |  
|Current portion, notes payable                                                  |   | 80,110       |   |   | 50,000      |  
|Current portion,
      capital leases                                           |   | 127,556      |   |   | -           |  
|Current portion senior secured convertible
      notes payable, net of discount |   |              |   |   |             |  
|of $414,424 and $491,603, respectively                                          |   | 48,472       |   |   | 10,925      |  
|Accrued interest payable                                                        |   | 587,025      |   |   | 154,666     |  
|Total Current Liabilities                                                       |   | 3,962,588    |   |   | 4,080,786   |  
|LONG TERM LIABILITIES:                                                          |   |              |   |   |             |  
|Senior secured convertible
      notes payable, net of discount of              |   |              |   |   |             |  
|$5,011,631
      and $2,637,191, respectively                                   |   | 9,175,512    |   |   | 3,541,038   |  
|Derivative instrument
      liabilities                                         |   | 3,082,796    |   |   | 2,173,865   |  
|Notes payable, net of current portion                                           |   | 204,787      |   |   | 200,000     |  
|Capital leases,
      net of current portion                                    |   | 328,731      |   |   | -           |  
|Asset retirement obligation                                                     |   | 82,809       |   |   | 80,309      |  
|Total Liabilities                                                               |   | 16,837,223   |   |   | 10,075,998  |  
|STOCKHOLDERS' EQUITY (DEFICIT):                                                 |   |              |   |   |             |  
|Common stock, $.002
      par value, 200,000,000 shares authorized;             |   |              |   |   |             |  
|75,904,760
      and 75,473,510 shares issued and outstanding, respectively     |   | 151,810      |   |   | 150,948     |  
|Additional paid
      in capital                                                |   | 47,058,169   |   |   | 46,304,115  |  
|Deferred stock compensation                                                     |   | -            |   |   | (448,000    | )
|Accumulated (deficit)                                                           |   | (46,391,122  | ) |   | (47,237,864 | )
|Total
      Stockholders' Equity (Deficit)                                      |   | 818,857      |   |   | (1,230,801  | )
|                                                                                | $ | 17,656,080   |   | $ | 8,845,197   |  

The accompanying notes are an integral part of the consolidated
financial statements.

3

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF OPERATIONS(Unaudited)

|                                                      |   | Three Months Ended |   |   | Six Months Ended |  
|----------------------------------------------------- | - | ------------------ | - | - | ---------------- | -
|                                                      |   | December 31,       |   |   | December 31,     |  
|                                                      |   | 2008               |   |   | 2007             |  
|SALES                                                 | $ | 6,367              |   | $ | -                |  
|                                                      |   |                    |   |   |                  |  
|OPERATING COSTS AND EXPENSES:                         |   |                    |   |   |                  |  
|Costs applicable to sales                             |   | 23,606             |   |   | -                |  
|Exploration and
      mining costs                    |   | 133,671            |   |   | 89,782           |  
|General and administrative                            |   | 242,882            |   |   | 236,064          |  
|General and administrative
      - stock compensation |   | 308,593            |   |   | 18,385           |  
|Depreciation and amortization                         |   | 45,774             |   |   | 1,366            |  
|Accretion of asset
      retirement obligation        |   | 1,250              |   |   | 1,250            |  
|                                                      |   | 755,776            |   |   | 346,847          |  
|                                                      |   |                    |   |   |                  |  
|(LOSS) FROM OPERATIONS                                |   | (749,409           | ) |   | (346,847         | )
|                                                      |   |                    |   |   |                  |  
|OTHER INCOME (EXPENSE):                               |   |                    |   |   |                  |  
|Interest income                                       |   | 27,413             |   |   | 4,448            |  
|Miscellaneous income                                  |   | 500                |   |   | -                |  
|Foreign currency
      translation gain (loss)        |   | 5,347              |   |   | (359             | )
|Gain on derivative instrument liabilities             |   | 1,415,856          |   |   | (929,109         | )
|Relief of debt                                        |   | -                  |   |   | -                |  
|Accretion of discounts on notes
      payable         |   | (329,969           | ) |   | (312,479         | )
|Interest expense                                      |   | (90,591            | ) |   | (274,296         | )
|                                                      |   | 1,028,556          |   |   | (1,511,795       | )
|                                                      |   |                    |   |   |                  |  
|INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES       |   | 279,147            |   |   | (1,858,642       | )
|                                                      |   |                    |   |   |                  |  
|PROVISION FOR INCOME TAXES                            |   | -                  |   |   | -                |  
|                                                      |   |                    |   |   |                  |  
|NET INCOME (LOSS)                                     | $ | 279,147            |   | $ | (1,858,642       | )
|                                                      |   |                    |   |   |                  |  
|Income (Loss) per Share:                              |   |                    |   |   |                  |  
|Basic                                                 | $ | 0.00               |   | $ | (0.02            | )
|                                                      |   |                    |   |   |                  |  
|Diluted                                               | $ | 0.00               |   | $ | (0.02            | )
|                                                      |   |                    |   |   |                  |  
|Weighted Average Common Shares Outstanding:           |   |                    |   |   |                  |  
|Basic                                                 |   | 75,904,760         |   |   | 74,754,204       |  
|                                                      |   |                    |   |   |                  |  
|Diluted                                               |   | 75,904,760         |   |   | 74,754,204       |  

The accompanying notes are an integral part of the consolidated
financial statements.

4

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Unaudited)

|                                                             |   | Six Months Ended |  
|------------------------------------------------------------ | - | ---------------- | -
|                                                             |   | December 31,     |  
|                                                             |   | 2008             |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |   |                  |  
|Net income (loss)                                            | $ | 846,742          |  
|Adjustments to reconcile
      net income (loss) to net cash |   |                  |  
|provided by (used in) operating
      activities:            |   |                  |  
|Depreciation                                                 |   | 63,739           |  
|Stock
      compensation                                     |   | 613,395          |  
|Stock issued for interest                                    |   | -                |  
|Accretion
      of discount on notes payable                 |   | 525,526          |  
|Accretion of asset retirement obligation                     |   | 2,500            |  
|Relief
      of debt                                         |   | (48,872          | )
|Foreign currency translation (gain) loss                     |   | (8,446           | )
|(Gain)
      loss on derivative instrument liabilities       |   | (2,785,079       | )
|Amortization of deferred financing costs                     |   | 30,577           |  
|Net change in operating assets and
      liabilities:        |   |                  |  
|Accounts receivable                                          |   | (4,066           | )
|Interest
      receivable                                    |   | 1,424            |  
|Prepaid expenses                                             |   | 54,451           |  
|Deferred
      financing costs                               |   | -                |  
|Deposits                                                     |   | (312,878         | )
|Accounts
      payable                                       |   | 794,419          |  
|Accrued liabilities                                          |   | (10,727          | )
|Accrued
      interest payable                               |   | 432,359          |  
|Net Cash Provided by (Used in) Operating Activities          |   | 195,064          |  
|                                                             |   |                  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |   |                  |  
|Increase to restricted cash                                  |   | (21,355          | )
|Purchase of property,
      plant and equipment              |   | (1,189,168       | )
|Construction in progress                                     |   | (4,352,502       | )
|Net Cash (Used in) Investing Activities                      |   | (5,563,025       | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |   |                  |  
|Proceeds from convertible
      notes payable                |   | 8,150,000        |  
|Payments on notes payable                                    |   | (59,716          | )
|Payments on capital
      leases                             |   | (20,693          | )
|Payments on line of credit                                   |   | (11,400          | )
|Payments on convertible
      debenture notes                |   | (180,718         | )
|Net
      Cash Provided by (Used in) Financing Activities    |   | 7,877,473        |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             |   | 2,509,512        |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               |   | 3,255,754        |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                     | $ | 5,765,266        |  

5

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Unaudited) (Continued)

|                                                                      |   | Six Months Ended | 
|--------------------------------------------------------------------- | - | ---------------- | 
|                                                                      |   | December 31,     | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                   |   | 2008             | 
|Cash paid for interest                                                | $ | 20,986           | 
|                                                                      |   |                  | 
|Cash paid for income taxes                                            | $ | -                | 
|                                                                      |   |                  | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND                     |   |                  | 
|FINANCING ACTIVITIES:                                                 |   |                  | 
|Stock issued for conversion of accrued
      interest                 | $ | -                | 
|                                                                      |   |                  | 
|Stock issued for conversion of senior
      secured convertible notes |   |                  | 
|and notes payablepayable,
      related parties                       | $ | -                | 
|                                                                      |   |                  | 
|Equipment purchased
      with note payable                           | $ | 94,613           | 
|                                                                      |   |                  | 
|Equipment purchased
      with capital leases                         | $ | 476,980          | 

The accompanying notes are an integral part of the consolidated
financial statements.

6

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SANTA FE GOLD CORPORATIONNOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008

NOTE 1 NATURE OF OPERATIONS

Santa
Fe Gold Corporation (the Company) is a U.S. mining company incorporated in
Delaware in August 1991. Its general business strategy is to acquire, explore
and develop mineral properties. The Companys principal assets are the 100%
owned Summit silver-gold project in New Mexico, the leased Ortiz gold property
in New Mexico, the 100% owned Black Canyon mica project in Arizona and the 100%
owned Planet micaceous iron oxide property in Arizona.

The
unaudited interim consolidated financial statements of the Company included
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions for Form 10-Q under Article 8.03 of Regulation S-X. These
statements do not include all of the information and notes to the financial
statements required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended December 31,
2008, are not necessarily indicative of the results that may be expected for the
year ending June 30, 2009. The unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the fiscal year ended June 30, 2008, included in the
Companys Annual Report on Form 10-KSB, as filed with Securities and Exchange
Commission.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

The
financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities and
commitments in the normal course of business. Should the Company be unable to
continue as a going concern, it may be unable to realize the carrying value of
its assets and to meet its liabilities as they become due.

The
Company had net income of $846,742 for the six months ended December 31, 2008,
has working capital of $2,166,274 and has a total accumulated (deficit) of
$(46,391,122) at December 31, 2008. In addition, the Company had only nominal
revenue-generating operations in the six months ended December 31, 2008. To
continue as a going concern, the Company is dependent on continued fund raising
for project development and for administrative operating expenses. In December
2007, the Company entered into a definitive agreement with an investor for the
private placement of a $13.5 million financing facility to be advanced in
multiple tranches. As of December 31, 2008, the Company has received funding
advances for the entire $13.5 million (see NOTE 4).

The
Companys financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
in existence.

Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
under different assumptions or conditions.

Derivative Financial Instruments

7

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The
Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.

The
Company reviews the terms of convertible debt, equity instruments and other
financing arrangements to determine whether there are embedded derivative
instruments, including embedded conversion options that are required to be
bifurcated and accounted for separately as a derivative financial instrument.
Also, in connection with the issuance of financing instruments, the Company may
issue freestanding options or warrants that may, depending on their terms, be
accounted for as derivative instrument liabilities, rather than as equity. The
Company may also issue options or warrants to non-employees in connection with
consulting or other services.

Derivative
financial instruments are initially measured at their fair value. For derivative
financial instruments that are accounted for as liabilities, the derivative
instruments are initially recorded at their fair values and are then re-valued
at each reporting date, with changes in the fair values reported as charges or
credits to income. For option-based derivative financial instruments, the
Company uses the Black-Scholes option pricing model to value the derivative
instruments. To the extent that the initial fair values of the freestanding
and/or bifurcated derivative instrument liabilities exceed the total proceeds
received, an immediate charge to income is recognized, in order to initially
record the derivative instrument liabilities at their fair value.

The
discount from the face value of a convertible debt or equity instrument
resulting from allocating some or all of the proceeds to the derivative
instrument, together with the stated interest on the instrument, is amortized
over the life of the instrument through periodic charges to income, usually
using the effective interest method.

The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is reassessed at the end of each
reporting period. If reclassification is required, the fair value of the
derivative instrument, as of the determination date, is reclassified. Any
previous charges or credits to income for changes in the fair value of the
derivative instrument are not reversed. Derivative instrument liabilities are
classified in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be required within 12
months of the balance sheet date.

Restricted Cash

Restricted
cash of $203,903 is maintained in connection with requirements for reclamation
of projects as well as weighmaster activities. As part of the reclamation
deposits, the Company has restricted cash of $202,903, comprised of $50,000 held
on deposit for the Arizona State Treasurer in a one-year automatically renewable
short-term investment; $128,658 held as collateral against an irrevocable letter
of credit of the same amount to the U.S. Bureau of Land Management (BLM); and
$24,245 posted as a financial guarantee with the New Mexico Energy Minerals and
Natural Resources Department. The Company also maintains a certificate of
deposit in the amount of $1,000 for the New Mexico Department of Agriculture in
accordance with bonding requirements for a weighmaster.

Net Earnings (Loss) per Common Share

The
Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock equivalents
outstanding. During the periods when they are anti-dilutive, common stock
equivalents, if any, are not considered in the computation. When computing
diluted earnings per share, the consideration of the effect of the derivatives
results in an adjusted net (loss) for the three months and six months ended
December 31, 2008. Therefore the impact of outstanding stock equivalents has not
been included as they would be anti-dilutive.

NOTE 3 - DERIVATIVE INSTRUMENT LIABILITIES

8

---

On
July 15, 2008, under the terms of 7% Senior Secured Convertible Debenture dated
December 21, 2007, the Company received the fourth advance under the agreement
of $3,500,000 and issued 1,750,000 warrants relating to the advance. The fair
value of the derivative instruments liability for these warrants issued under
the placements at the time of issuance was determined to be $1,184,521 with the
following assumptions: (1) risk free interest rate of 3.43%, (2) an expected
life of 6.5 years, (3) expected stock price volatility of 103.613%, and (4)
expected dividend yield of zero.

The
convertible debenture was determined to have a beneficial conversion feature of
$589,521 based upon the effective computed conversion price, which was charged
to the note discount and credited to Additional Paid In Capital. The beneficial
conversion feature in conjunction with the derivative instruments liability for
the warrants resulted in an aggregated note discount of $1,774,042.

On
October 15, 2008, under the terms of the 7% Senior Secured Convertible Debenture
dated December 21, 2007; the Company received the fifth advance under the
agreement for $3,500,000 and issued 1,750,000 warrants relating to the advance.
The fair value of the derivative instruments liability for these warrants issued
under the placements at the time of issuance was determined to be $811,917 with
the following assumptions: (1) risk free interest rate of 2.98%, (2) an expected
life of 6.2 years, (3) expected stock price volatility of 91.534%, and (4)
expected dividend yield of zero.

On
December 22, 2008, under the terms of the 7% Senior Secured Convertible
Debenture dated December 21, 2007; the Company received the sixth and final
advance under the agreement for $1,150,000 and issued 575,000 warrants relating
to the advance. The fair value of the derivative instruments liability for these
warrants issued under the placements at the time of issuance was determined to
be $236,828 with the following assumptions: (1) risk free interest rate of
1.55%, (2) an expected life of 6.0 years, (3) expected stock price volatility of
88.659%, and (4) expected dividend yield of zero.

The
fair market value of the derivative instruments liability at December 31, 2008,
was determined to be $4,506,241 with the following assumptions: (1) risk free
interest rate of 0.27% to 1.55%, (2) remaining contractual life between 0.50 to
6.01 years, (3) expected stock price volatility of 88.659%, and (4) expected
dividend yield of zero. Based upon the change in fair value, the Company has
recorded a non-cash gain on derivative instruments for the six months ended
December 31, 2008, of $2,785,079 and a corresponding decrease in the derivative
instruments liability. The impact of EITF 00-19 on the financial statements as
of and through December 31, 2008, was as follows:

|                                                                              |   | Derivative      |  |   | Derivative        |           |   | Derivative Gain   |  
|----------------------------------------------------------------------------- | - | --------------- |  | - | ----------------- | --------- | - | ----------------- | -
|                                                                              |   | Liability as of |  |   | Liability as of   |           |   | (Loss) Through    |  
|                                                                              |   | June 30, 2008   |  |   | December 31, 2008 |           |   | December 31, 2008 |  
|Convertible Debentures:                                                       |   |                 |  |   |                   |           |   |                   |  
|Compound Embedded Derivatives                                                 | $ | 236,662         |  | $ | 54,745            |           | $ | 181,917           |  
|Additional Investment Rights                                                  |   | 204,471         |  |   | -                 |           |   | 204,471           |  
|Purchase Agreement Warrants                                                   |   | 3,337,285       |  |   | 3,752,738         |           |   | (415,453          | )
|Amendment 2 Warrants                                                          |   | 1,279,636       |  |   | 698,758           |           |   | 580,878           |  
|Totals                                                                        | $ | 5,058,054       |  | $ | 4,506,241         |           |   | 551,813           |  
|                                                                              |   |                 |  |   |                   |           |   |                   |  
|Amount allocated to convertible note discounts
      at transaction inception |   |                 |  |   |                   | 2,233,266 |  
|                                                                              |   |                 |  |   |                   |           | $ | 2,785,079         |  

NOTE 4  CONVERTIBLE DEBENTURE NOTES PAYABLE

On
December 21, 2007, the Company entered into a definitive agreement for the
placement with a single investor of a 7% Senior Secured Convertible Debenture in
the amount of $13,500,000. The agreement provides that proceeds from the
debenture shall be issued in accordance with a pre-determined funding schedule
related to the Summit projects anticipated construction requirements during
2008. The term of the debenture is 60 months, at the

9

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end of which time all remaining principal and interest shall
become due. The debenture bears interest at the rate of 7% per annum. Interest
will be accrued until June 30, 2009. Interest on the outstanding principal
balance will then be payable in quarterly installments commencing on July 1,
2009. Interest may be paid in cash or stock at the investors election. If paid
in stock, the number of shares will be calculated using the average of the daily
volume weighted average sales prices of the common stock for the twenty (20)
trading days immediately preceding the payment date. The entire amount of
principal and any unpaid interest will become due December 31, 2012, subject to
the investors right to require the Company after 36 and 48 months to apply up
to 30% of the Summit projects positive cash flow toward retirement of the
debenture. The debenture is secured by a mortgage on the Summit real property
and a security interest in Summit personal property. The investor may at any
time convert unpaid principal and interest into shares of the Companys common
stock at the rate of $1.00 per share. The debenture will be automatically
converted into common stock if the weighted average closing sales price of the
stock exceeds $2.50 per share for 10 consecutive trading days. Beginning January
1, 2011, the Company may redeem the entire outstanding amount of the debenture,
including principal and outstanding interest, subject to the investors right to
convert the debenture into shares of common stock. In connection with the
transaction, for every $2.00 of the original principal amount of the debenture,
the Company will issue to the investor a warrant to purchase one share of common
stock at a price of $1.00. The warrants are exercisable from July 1, 2010 to
December 31, 2014. As of December 31, 2008, the Company has received funding
advances for the entire $13.5 million and has issued 6,750,000 warrants under
the financing facility terms.

The
current and long-term portions of the convertible debenture notes payable and
related discounts at December 31, 2008 are as follows:

Date
      
      Notes Payable
      
      
      Discountsof Note
      
      Current
      
      
      Long-Term
      
      
      Current
      
      
      Long-Term10/30/07
      $
      -
      
      $
      150,000
      
      $
      -
      
      $
      16,17210/30/07
      
      -
      
      
      150,000
      
      
      -
      
      
      16,17211/28/07
      
      -
      
      
      150,000
      
      
      -
      
      
      18,33012/21/07
      
      -
      
      
      13,500,000
      
      
      -
      
      
      4,910,97001/09/08
      
      100,000
      
      
      -
      
      
      98,258
      
      
      -01/10/08
      
      12,500
      
      
      -
      
      
      12,313
      
      
      -02/01/08
      
      -
      
      
      237,143
      
      
      -
      
      
      49,98704/30/08
      
      150,000
      
      
      -
      
      
      133,951
      
      
      -06/02/08
      
      200,396
      
      
      -
      
      
      169,902
      
      
      -$
      462,896
      
      $
      14,187,143
      
      $
      414,424
      
      $
      5,011,631


NOTE 5  NOTES PAYABLE

On
June 5, 2008, the Company agreed to exercise the option to purchase the Planet
MIO property, consisting of thirty-one patented mining claims totaling 523 acres
in La Paz County, Arizona. The Company originally leased the property in 2000
from New Planet Copper Mining Company under the terms of a Lease with Option to
Purchase. The Company agreed to exercise the purchase option in connection with
settlement of an action the Company commenced in March 2007 seeking to confirm
that the lease remained in good standing. The purchase price was $250,000. The
Company signed a promissory note for $200,000 with interest payable at 10% per
annum from the date of closing of the transaction. The provisions of the note
call for a $50,000 payment at the signing of the note, which occurred in August
2008, and $50,000 annual principal and interest payments on the four subsequent
anniversary dates of the note. The agreement also provides for a 5% royalty to
be paid on any future production from the property.

On
July 25, 2008, the Company entered into an installment sales contract for
$94,613 to purchase certain equipment. The term of the agreement is for 36
months at an interest rate of 6.75%, with the equipment securing the loan.

The
following summarizes notes payable at December 31, 2008 and June 30, 2008:

| |                                   |   | December 31, 2008 |  |   | June 30, 2008 | 
| | --------------------------------- | - | ----------------- |  | - | ------------- | 
| | Note payable for mineral property | $ | 200,000           |  | $ | 250,000       | 

| | Installment sales contract on equipment |   | 84,897  |   |   | -       |  
| | --------------------------------------- | - | ------- | - | - | ------- | -
| | Total outstanding notes payable         |   | 284,897 |   |   | 250,000 |  
| | Less: Current portion                   |   | (80,110 | ) |   | (50,000 | )
| | Long term portion                       | $ | 204,787 |   | $ | 200,000 |  

10

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The aggregate maturities of notes payable as of December 31,
2008, is as follows:

|Year ending June 30, |  |  |  |   |         | 
|-------------------- |  |  |  | - | ------- | 
|2009                 |  |  |  | $ | 14,802  | 
|2010                 |  |  |  |   | 81,141  | 
|2011                 |  |  |  |   | 83,309  | 
|2012                 |  |  |  |   | 55,645  | 
|2013                 |  |  |  |   | 50,000  | 
|Total notes payable  |  |  |  | $ | 284,897 | 

NOTE 6  CAPITAL LEASES

During
the six months ended December 31, 2008, the Company utilized capital leases for
the purchase of equipment. Lease terms and interest rates for the equipment are
60 months at 6.25%, 36 months at 5.34%, and 36 months at 5.78% . The assets and
liabilities under capital leases are recorded at the lower of the present value
of the minimum lease payments or the fair value of the asset. The assets are
amortized or depreciated over the lower of their related lease terms or their
estimated productive lives.

Minimum
future lease payments under capital leases, as of December 31, 2008, for each of
the following years and in aggregate, are as follows:

Year ending June 30,
      
      2009
      
      $
      74,1542010
      
      
      148,3082011
      
      
      148,3082012
      
      
      86,5162013
      
      
      43,0412014
      
      
      3,573Total minimum lease payments
      
      
      
      
      503,900Amount representing interest
      
      
      
      
      (47,613
      )Present value of future minimum lease
        payments
      
      
      
      
      456,287Current portion of capital lease obligations
      
      
      
      
      (127,556
      )Obligations of capital leases due after one year
      
      
      
      $
      328,731


NOTE 7 - STOCKHOLDERS EQUITY

Issuances of Common Stock

On
September 30, 2008, a director exercised an option to purchase 500,000 shares of
common stock at $0.11 per share on a cashless basis. Under the cashless basis
exercise, 431,250 shares were issued.

Issuances of Options and Shares

On
December 3, 2008, the Company cancelled and re-issued several outstanding
options to four employees. The new options grant each employee a five (5) year
option to purchase 100,000 shares of common stock at an option exercise price of
$0.60 per share, the closing price on the date of grant, and the options will
vest on June 30,

11

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2009. Each option was valued at $30,101 using the Black-Scholes
  option pricing model. The options were valued using a volatility of 80.172%,
  a risk free interest rate of 0.76%, an expected life of 2.8 years and zero quarterly
  dividends. General and administrative stock compensation of $4,300 each for
  the four employees, or $17,200 in the aggregate was recognized during the six
  months ended December 31, 2008. The following describes the options that were
  cancelled:

- On July 22, 2008, the Company granted a five (5) year option to purchase
  100,000 shares of common stock to an employee. The option exercise price is
  $0.83 per share, the closing price on the date of grant and the options have a
  vesting period of six months from the date of grant. The options were valued
  at $64,247 using the Black-Scholes option pricing model. The options were
  valued using a volatility of 103.613%, a risk free interest rate of 3.48%, an
  expected life of 5.0 years and zero quarterly dividends. On December 3, 2008,
  the options were cancelled and re-issued, with any further amortization of the
  options ceasing on that date. General and administrative stock compensation of
  $42,832 was recognized during the six months ended December 31, 2008.
- On May 1, 2008, the Company granted a five (5) year option to purchase
  100,000 shares of common stock to an employee. The option exercise price is
  $0.79 per share, the closing price on the date of grant. The options were
  valued at $61,724 using the Black-Scholes option pricing model. On December 3,
  2008, the options were cancelled and re-issued. The options were fully vested
  and amortized at the time of the cancellation. General and administrative
  stock compensation expense of $41,149 was recognized for the six months ended
  December 31, 2008.
- On March 24, 2008, the Company granted a five (5) year option to purchase
  100,000 shares of common stock to an employee. The option exercise price is
  $0.73 per share, the closing price on the date of grant, and the options have
  a vesting period of six months from the date of grant. The options were valued
  at $57,048 using the Black-Scholes option pricing model. On December 3, 2008
  the options were cancelled and re-issued. The options were fully vested and
  amortized at the time of the cancellation. General and administrative stock
  compensation expense of $28,524 was recognized for the six months ended
  December 31, 2008.
- On May 2, 2006, the Company granted a five (5) year option to purchase
  50,000 shares of common stock to an employee, who is the son of the Companys
  President and Chief Executive Officer, in connection with an employment
  agreement. The option exercise price is $1.24 per share, the closing price on
  the date of grant and the options vested on the date of grant. The options
  were valued at $50,971 using the Black-Scholes option pricing model. On
  December 3, 2008, the options were cancelled and re-issued. The options were
  fully vested and amortized at the time of cancellation.
- On April 25, 2007, the Company granted a five (5) year option to purchase
  50,000 shares of common stock to an employee, who is the son of the Companys
  President and Chief Executive Officer. The option exercise price is $0.74 per
  share, the closing price on the date of grant and the options vested on the
  date of grant. The options were valued at $30,505 using the Black-Scholes
  option pricing model and are expensed in the period granted. On December 3,
  2008, the options were cancelled and re-issued. The options were fully vested
  and amortized at the time of cancellation.

On
December 3, 2008, the Company granted a five (5) year option to twenty-three
employees and two board members to purchase 830,000 shares of common stock at an
option exercise price of $0.60 per share, the closing price on the date of
grant, and the options will vest on June 30, 2009. The options were valued at
$249,838 using the Black-Scholes option pricing model. The options were valued
using a volatility of 80.172%, a risk free interest rate of 0.76%, an expected
life of 2.8 years and zero quarterly dividends. General and administrative stock
compensation of $35,690 was recognized during the six months ended December 31,
2008.

On
June 25, 2008, the Board of Directors granted awards of 500,000 shares of
restricted stock to an officer and 200,000 shares of restricted stock to an
employee. The shares will vest on December 31, 2008, and are subject to

12

---

forfeiture contingent on attainment of certain performance
objectives related to construction of the Summit project. The stock grants were
valued at $448,000 using the closing price on the date of grant and were
recorded as deferred stock compensation as equity reduction. General and
administrative stock compensation expense of $448,000 was recognized for the six
months ended December 31, 2008.

Issuances of Warrants

On
December 22, 2008, in connection with a scheduled advance of $1,150,000 under
the 7% Senior Secured Convertible Debenture, the Company issued 575,000
warrants, each warrant giving the note holder the right to purchase one share of
common stock at a price of $1.00 per share. The warrants are exercisable from
July 1, 2010 to December 31, 2014.

On
October 15, 2008, in connection with a scheduled advance of $3,500,000 under the
7% Senior Secured Convertible Debenture, the Company issued 1,750,000 warrants,
each warrant giving the note holder the right to purchase one share of common
stock at a price of $1.00 per share. The warrants are exercisable from July 1,
2010 to December 31, 2014.

On
July 15, 2008, in connection with a scheduled advance of $3,500,000 under the 7%
Senior Secured Convertible Debenture, the Company issued 1,750,000 warrants,
each warrant giving the note holder the right to purchase one share of common
stock at a price of $1.00 per share. The warrants are exercisable from July 1,
2010 to December 31, 2014.

Stock
option and warrant activity, both within the 1989 Stock Option Plan and 2007 EIP
and outside of these plans, for the six months ended December 31, 2008, are as
follows:

|                                 | Stock Options |          | Stock Warrants
|-------------------------------- | ------------- | -------- | --------------
|                                 |               | Weighted |               
|                                 |               | Average  |               
|                                 | Shares        | Price    |               
|Outstanding at June 30, 2008     | 10,150,000    | $0.14    |               
|Granted                          | 1,330,000     | $0.62    |               
|Canceled                         | (400,000)     | $0.84    |               
|Expired                          | ---           | ---      |               
|Exercised                        | (500,000)     | $0.11    |               
|Outstanding at December 31, 2008 | 10,580,000    | $0.18    |               

Stock options and warrants outstanding and exercisable at December
  31, 2008, are as follows:

|Outstanding and Exercisable Options |             | Outstanding and Exercisable Warrants
|----------------------------------- | ----------- | ------------------------------------
|                                    |             |                                     
|                                    |             |                                     
|                                    |             |                                     
|                                    |             |                                     
|Exercise                            |             |                                     
|Price                               | Outstanding | Exercisable                         
|Range                               | Number      | Number                              
|                                    |             |                                     
|$0.10                               | 5,000,000   | 5,000,000                           
|                                    |             |                                     
|$0.11                               | 4,000,000   | 4,000,000                           
|                                    |             |                                     
|$0.46                               | 100,000     | 100,000                             
|                                    |             |                                     
|$0.55                               | 250,000     | 250,000                             
|                                    |             |                                     
|$0.60                               | 1,230,000   | -                                   
|                                    |             |                                     
|                                    | 10,580,000  | 9,350,000                           
|                                    |             |                                     
|Outstanding Options                 | 2.70        | $ 0.18                              
|Exercisable Options                 | 2.40        | $ 0.12                              

13

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NOTE 8  OTHER INCOME

In
August 2008, the Company received $60,762 that is included in miscellaneous
income for full restitution of an amount it was defrauded in a financing
transaction several years earlier. Additionally, in September 2008, the Company
negotiated a settlement with a governmental agency on outstanding amounts owed
for property taxes. In connection with the settlement, the Company made a
payment in cash to settle the account in full and recognized relief of debt of
$48,872 for the remaining unpaid amount.

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF
OPERATION

THIS FORM 10-Q MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS
AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
AND BY THE SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND
RELEASES, WHICH REPRESENT THE COMPANYS EXPECTATIONS OR BELIEFS, INCLUDING BUT
NOT LIMITED TO, STATEMENTS CONCERNING THE COMPANYS OPERATIONS, ECONOMIC
PERFORMANCE, FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES,
INVESTMENTS, AND FUTURE OPERATIONAL PLANS. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
WORDS SUCH AS MAY, WILL, EXPECT, BELIEVE, ANTICIPATE, INTENT,
COULD, ESTIMATE, MIGHT, PLAN, PREDICT OR CONTINUE OR THE NEGATIVE OR
OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANYS CONTROL, AND
ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION,
MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS
SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS
AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
COMPANY DOES NOT INTEND TO UNDERTAKE TO UPDATE THE INFORMATION IN THIS FORM 10-Q
IF ANY FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. THE FOLLOWING
SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION PRESENTED IN THE COMPANYS
ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 2008.

General

Santa
Fe Gold Corporation (the Company, our or we) is a U.S. mining company,
incorporated in August 1991 in the state of Delaware, with a general business
strategy to acquire and develop mining properties amenable to low cost
production. We currently are focused on: (1) developing our Summit silver-gold
property located in New Mexico and placing the property into production, (2)
conducting further studies on our Ortiz gold project located in New Mexico, (3)
funding the re-opening and enhancement of our Black Canyon mica project located
in Arizona or alternatively selling the project, (4) raising working capital for
general operating and administrative expenses, and (5) acquiring high quality
gold, silver and/or copper properties.

Basis of Presentation and Going Concern

The
financial statements have been prepared on a going concern basis, which
contemplates the realization of

14

---

assets and satisfaction of liabilities and commitments in the
normal course of business. Should we be unable to continue as a going concern,
we may be unable to realize the carrying value of our assets and to meet our
liabilities as they become due. We had net income of $846,742 for the six months
ended December 31, 2008, and have a total accumulated (deficit) of $(46,391,122)
at December 31, 2008. To continue as a going concern, we are dependent on
continued fund raising for project development, execution of our business
strategy and payment of general and administrative operating expenses.

In
December 2007, we entered into a definitive agreement with a single investor for
the private placement of a 7% Senior Secured Convertible Debenture in the amount
of $13.5 million. Advances under this agreement were issued in accordance with a
pre-determined funding schedule related to the Summit projects anticipated
construction requirements during 2008. As of December 31, 2008 the Company has
received funding advances for the entire $13.5 million.

We
will need to continue to raise additional working capital to deploy other
segments of our business plan and for corporate general and administrative
operating expenses. There is no assurance that such funding will be available
when needed, or if available, that its terms will be favorable or acceptable to
the Company. As of December 31, 2008, we have cash on hand of $5,765,266. We
will be required to raise additional working capital in equity or financing
transactions in order to satisfy our expected cash expenditures and continue to
deploy our current business strategies.

The
Companys financial statements do not include any adjustment relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should we be unable to continue in
existence.

Derivative Financial Instruments

In
connection with the issuance of debt or equity instruments, we may issue options
or warrants to purchase our common stock. In certain circumstances, these
options or warrants may be classified as derivative liabilities, rather than as
equity. Additionally, the debt or equity instruments may contain embedded
derivative instruments, such as conversion options, which in certain
circumstances, may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument liability.

The
identification of, and accounting for, derivative instruments is complex. Our
derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in the fair value of the derivative liability recorded as
charges or credits to income, in the period in which the changes occur. For
warrants that are accounted for as derivative instrument liability, we
determined the fair value of these warrants using the Black-Scholes option
pricing model. That model requires assumptions related to the remaining term of
the instruments and risk-free rates of return, our current common stock price
and expected dividend yield, and the expected volatility of our common stock
price over the life of the warrants. The identification of, and accounting for,
derivative instruments and the assumptions used to value them can significantly
affect our financial statements.

RESULTS OF OPERATIONS

Operating Results for the Three Months Ended December 31,
2008 and 2007

***Sales***

We
had revenues of $6,367 for the three months ended December 31, 2008, and $-0-
for the three months ended December 31, 2007. The increase of $6,367 is due to
the sales of aggregate products.

***Operating
Costs and Expenses***

Costs
applicable to sales were incurred aggregating $23,606 for the three months ended
December 31, 2008, and $-0- for the three months ended December 31, 2007, as the
Company began allocating costs to the business segment in the current
measurement period.

15

---

Exploration
and mining costs were $133,671 for the three months ended December 31, 2008, and
$89,782 for the three months ended December 31, 2007, an increase of $43,889.
The increase is mainly attributable to property and casualty liability insurance
of $15,072 and equipment leases aggregating $29,007.

General
and administrative stock compensation increased to $308,593 for the three months
ended December 31, 2008, from $18,385 for the comparative three months ended
December 31, 2007, an increase of $290,208. The increase is attributable to
amortized costs associated with deferred stock compensation for an officer and
another key employee, as well as incentive stock options issued to employees
during the current three month period.

***Other
Income and Expenses***

Other
income and (expenses) for the three months ended December 31, 2008, were
$1,028,556 as compared to $(1,511,795) for the comparable three months ended
December 31, 2007. The increase of $2,540,351 is attributable to an increase in
the gain recognized on derivative instruments liability of $2,344,965; a
decrease in interest expense of $183,705 due primarily to two factors: the
capitalization of $159,784 in interest commencing with construction on the
Summit Project, and the recognition of interest on the conversion of senior
secured convertible debt in the prior comparable period; an increase in interest
income of $22,965 and an increase in accretion of discounts on notes payable of
$17,490.

***Gain
on Derivative Financial Instruments***

We
recognized a gain on derivative financial instruments of $1,415,856 for the
three months ended December 31, 2008, as compared to a (loss) of ($929,109) for
the prior year comparable period, an increase of $2,344,965. The non-cash income
arises from adjustments to record the derivative financial instruments at fair
values in accordance with current accounting standards. The derivative financial
instruments arose in connection with senior secured convertible notes.
Otherwise, we generally do not use derivative financial instruments for other
purposes, such as hedging cash flow or fair-value risks. The increase in the
derivative income in the three months ended December 31, 2008, is attributable
mainly to changes in the market price of our common stock, which is a component
of the calculation model and offset by the issuance of additional warrants
resulting in derivative treatment. We use the Black-Scholes option pricing model
to estimate the fair value of this derivative. Because Black-Scholes uses our
stock price, changes in the stock price will result in volatility in the
earnings in future periods as we continue to reflect the derivative financial
instruments at fair values.

Operating Results for the Six Months Ended December 31, 2008
and 2007

***Sales***

We
had revenues of $23,143 for the six months ended December 31, 2008, and $-0- for
the six months ended December 31, 2007. The increase of $23,143 is due to the
sales of aggregate products.

***Operating
Costs and Expenses***

Costs
applicable to sales were incurred aggregating $23,606 for the six months ended
December 31, 2008, and $-0- for the three months ended December 31, 2007, as the
Company began allocating costs to the business segment in the in the quarter
ended December 31, 2008.

Exploration
and mining costs were $240,815 for the six months ended December 31, 2008, and
$150,103 for the three months ended December 31, 2007, an increase of $90,712.
The increase is mainly attributable to property and casualty liability insurance
of $15,072, equipment leases aggregating $43,819, workmens compensation of
$12,293, property taxes and mine claim fees of $7,920 and shop operating
supplies and general mine expenses aggregating $54,087. These increases were
offset by a decrease in outside mine consulting cost of $43,303.

General
and administrative stock compensation increased to $613,395 for the six months
ended December 31, 2008, from $36,693 for the comparative six months ended
December 31, 2007, an increase of $576,702. The

16

---

increase is attributable to amortized costs associated with
deferred stock compensation for an officer and another key employee, as well as
incentive stock options issued to numerous employees during the period.

***Other
Income and Expenses***

Other
income and (expenses) for the six months ended December 31, 2008, were
$2,304,906 as compared to $(2,672,974) for the comparable six months ended
December 31, 2007. The increase of $4,977,880 is attributable to an increase in
the gain recognized on derivative instruments liability of $3,503,620; a
decrease in interest expense of $843,460 due primarily to two factors: the
capitalization of $299,841 in interest commencing with the construction of the
Summit Project, and the recognition of interest on the conversion of senior
secured convertible debt in the prior comparable period; a decrease in accretion
of discounts on notes payable of $465,483 resulting from an early payoff in 2007
on a convertible note; an increase in interest income of $43,572; an increase in
miscellaneous income of $61,262 and relief of debt of $48,872.

***Gain
on Derivative Financial Instruments***

We
recognized a gain on derivative financial instruments of $2,785,079 for the six
months ended December 31, 2008, as compared to a (loss) of ($718,541) for the
prior year comparable period, an increase of $3,503,620. The non-cash income
arises from adjustments to record the derivative financial instruments at fair
values in accordance with current accounting standards. The derivative financial
instruments arose in connection with senior secured convertible notes.
Otherwise, we generally do not use derivative financial instruments for other
purposes, such as hedging cash flow or fair-value risks. The increase in the
derivative income in the six months ended December 31, 2008, is attributable
mainly to changes in the market price of our common stock, which is a component
of the calculation model and offset by the issuance of additional warrants
resulting in derivative treatment. We use the Black-Scholes option pricing model
to estimate the fair value of this derivative. Because Black-Scholes uses our
stock price, changes in the stock price will result in volatility in the
earnings in future periods as we continue to reflect the derivative financial
instruments at fair values.

PLAN OF OPERATIONS

Liquidity and Capital Resources

To
continue with the deployment of our business strategies, we will require
significant additional working capital. We also will require additional working
capital for employment of necessary corporate personnel, and related general and
administrative expenses.

As
of December 31, 2008, we had cash on hand of $5,765,266, a working capital of
$2,166,274 and an accumulated (deficit) of $(46,391,122).

We
are continuing to pursue a joint venture or sale of the Black Canyon mica
project. Management has determined to deploy its resources in the area of
precious metals based upon the current and projected market trends in this area.

We
  continue to seek funding to advance our business plan and strategies. We require
  funding to meet our corporate general and administrative commitments, to continue
  feasibility studies on our mineral properties and to initiate exploration programs.
  We project the need for a minimum of $5,500,000 working capital during the next
  36 months, estimated as exploration programs and feasibility studies of $2,500,000
  and corporate overhead and related expenses of $3,000,000. We anticipate going
  into production in the second quarter of 2009 and that our operations for the
  remaining fiscal year 2009 will be funded from our current financing facilities,
  the sale of our securities and possibly through the exercise of certain options
  and warrants. While we believe we will be able to finance our continuing activities,
  there are no assurances of success in this regard or in our ability to obtain
  continued financing through capital markets, joint ventures, or other acceptable
  arrangements. If our plans are not successful, operations and liquidity may
  be adversely impacted. In the event that we are unable to obtain additional
  required capital, we may be forced to reduce our exploration and operating expenditures
  or to cease development operations altogether.

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On
December 21, 2007, we entered into a definitive agreement for the placement with
a single investor of a 7% Senior Secured Convertible Debenture in the amount of
$13,500,000. Advances from the debenture were issued in accordance with a
pre-determined funding schedule and the term of the debenture is 60 months. As
of December 31, 2008, the Company has received funding advances for the entire
$13.5 million and has issued 6,750,000 warrants under the financing facility
terms.

Factors Affecting Future Operating Results

We
have deployed our plan to place the Company on an improved financial footing. In
addition to the significant capital raisings already achieved, important
elements of the plan include maintaining currency in the filing of our annual
and quarterly financial reports and continuing to raise interim funding to
provide for operations on our various property sites. If we are able to continue
to secure required financing on acceptable terms, we believe we will be in a
position to execute our business plan on our property sites.

Off-Balance Sheet Arrangements

During
the six months ended December 31, 2008, we did not engage in any off-balance
sheet arrangements defined in Item 303(a)(4) of the SECs Regulation S-K.

ITEM 4  CONTROLS AND PROCEDURES

We
maintain disclosure controls and procedures as defined in Rules 13a-15(e) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
Exchange Act) that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms, and is accumulated
and communicated to our management as appropriate to allow timely decisions
regarding required disclosure. Under the supervision of, and the participation
of, our management, including our Chief Executive Officer, we have conducted an
evaluation of our disclosure controls and procedures as of December 31, 2008.
Based on this evaluation, our Chief Executive Officer has concluded that our
disclosure controls and procedures are effective.

During
the quarter ended December 31, 2008, there were no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

PART IIOTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

Not Applicable

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a)      The
following exhibits are filed as part of this report:

| | 31.1 | Certification
        of Chief Executive Officer and Chief Accounting Officer of Periodic Report
        pursuant to Rule 13a-14a and Rule 15d-14(a).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                      
| | 32.1 | Certification
        of Chief Executive Officer and Chief Accounting Officer pursuant to 18
        U.S.C.  Section 1350.                          

SIGNATURES:

In
accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|Dated: February 16, 2009 | SANTA FE GOLD CORPORATION
|------------------------ | -------------------------
|                         |                          
|                         | By:                      
|                         |                          
|                         |                          
|                         |                          

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