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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
  SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

[]
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
  ACT

For the transition period from _____________to
_______________

Commission File Number: 0-20430____________________

SANTA FE GOLD
CORPORATION(Exact name of Registrant as specified in its
charter)

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

1128 Pennsylvania NE, Suite 200 Albuquerque, NM
87110(Address of principal executive offices)

(505) 255-4852(Issuers telephone
number)

Check whether the issuer (1) filed all reports required to be
  filed by Section 13 or 15(d) of the Exchange Act 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 shell company
  (as referred in Rule 12b-2 of the Exchange Act).
  Yes []
  No [ x ]

The number of shares outstanding of each of the issuers classes
of common equity was 74,773,510 shares of common stock, par value $0.002, as of
May 19, 2008.

Transitional Small Business Disclosure Format (check one):
  Yes []
  No [ x ]

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|SANTA FE GOLD CORPORATION           
|------------------------------------
|INDEX TO FORM 10-QSB                
|FOR THE QUARTER ENDED MARCH 31, 2008
|                                    
|                                    
|TABLE OF CONTENTS                   
|                                    
|PART I                              
|FINANCIAL INFORMATION               

|                  | Page                                                                                                                      
|----------------- | --------------------------------------------------------------------------------------------------------------------------
|Item 1.           | Financial Statements                                                                                                      
|                  | Consolidated Balance Sheet, March 31, 2008 (Unaudited)                                                                    
|                  | Consolidated Statements of Operations For the Three Months
      and Nine Months Ended March 31, 2008 and 2007 (Unaudited)
|                  | Consolidated Statements of Cash Flows For the Nine Months
      Ended March 31, 2008 and 2007 (Unaudited)                 
|                  | Notes to the Unaudited Consolidated Financial Statements                                                                  
|Item 2.           | Managements Discussion
      and Analysis and Plan of Operations                                                         
|Item 3.           | Controls and
      Procedures                                                                                             
|PART II          
|OTHER INFORMATION
|Item 2.           | Unregistered Sales of Equity
      Securities and Use of Proceeds                                                         
|Item 3.           | Defaults Upon
      Senior Securities                                                                                     
|Item 4.           | Submission of Matters to a Vote
      of Security Holders                                                                 
|Item 6.           | Exhibits                                                                                                                  
|SIGNATURES        | 18                                                                                                                        

2

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PARTI

FINANCIALINFORMATIONITEM1. FINANCIALSTATEMENTS

|SANTA FE GOLD CORPORATION 
|--------------------------
|CONSOLIDATED BALANCE SHEET
|March 31, 2008            
|(Unaudited)               

|ASSETS                                                        |  
|------------------------------------------------------------- | -
|CURRENT ASSETS:                                               |  
|Cash and cash equivalents                                     | $
|Interest receivable                                           |  
|Prepaid expenses                                              |  
|Total Current Assets                                          |  
|                                                              |  
|PROPERTY, PLANT AND EQUIPMENT, net                            |  
|                                                              |  
|OTHER ASSETS:                                                 |  
|Idle plant and equipment,
      net                           |  
|Deferred finance costs                                        |  
|Restricted cash                                               |  
|Deposit                                                       |  
|                                                              |  
|                                                              |  
|Total
        Assets                                          | $
|                                                              |  
|LIABILITIES AND STOCKHOLDERS'
      (DEFICIT)                 |  
|CURRENT LIABILITIES:                                          |  
|Accounts payable                                              | $
|Accrued liabilities                                           |  
|Line of credit                                                |  
|Accrued interest payable                                      |  
|Derivative instrument
      liabilities                       |  
|Total Current Liabilities                                     |  
|                                                              |  
|LONG TERM LIABILITIES:                                        |  
|Convertible notes
      payable, less discounts of $1,097,791 |  
|Derivative instrument liabilities                             |  
|Asset retirement
      obligation                             |  
|Total Liabilities                                             |  
|                                                              |  
|COMMITMENTS AND CONTINGENCIES                                 |  
|                                                              |  
|STOCKHOLDERS' (Deficit):                                      |  
|Common stock, $.002
      par value, 200,000,000 shares       |  
|authorized;
      74,773,510 shares issued and outstanding    |  
|Additional paid
      in capital                              |  
|Accumulated (deficit)                                         |  
|Total Stockholders'
      (Deficit)                           |  
|Total Liabilities and Stockholder's (Deficit)                 | $

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

3

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|SANTA FE GOLD CORPORATION            
|-------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(Unaudited)                          

|                                                       |   | Three Months Ended |   |   | Nine Months Ended |  
|------------------------------------------------------ | - | ------------------ | - | - | ----------------- | -
|                                                       |   | March 31,          |   |   | March 31,         |  
|                                                       |   | 2008               |   |   | 2007              |  
|SALES                                                  | $ | -                  |   | $ | -                 |  
|                                                       |   |                    |   |   |                   |  
|OPERATING COSTS AND EXPENSES:                          |   |                    |   |   |                   |  
|Exploration and mine related costs                     |   | 42,277             |   |   | 105,995           |  
|General and administrative                             |   | 330,101            |   |   | 348,415           |  
|General and administration stock
      compensation    |   | 65,312             |   |   | 8,846             |  
|Depreciation and
      amortization                    |   | 1,395              |   |   | 1,969             |  
|Accretion of asset retirement obligation               |   | 1,250              |   |   | 1,250             |  
|                                                       |   | 440,335            |   |   | 466,475           |  
|                                                       |   |                    |   |   |                   |  
|(LOSS) FROM OPERATIONS                                 |   | (440,335           | ) |   | (466,475          | )
|                                                       |   |                    |   |   |                   |  
|OTHER INCOME (EXPENSE):                                |   |                    |   |   |                   |  
|Interest income                                        |   | 1,230              |   |   | 13,086            |  
|Miscellaneous income                                   |   | 11,155             |   |   | 4,735             |  
|Gain on settlement of financing
      lease liability  |   | -                  |   |   | (12,911           | )
|Relief of debt                                         |   | -                  |   |   | -                 |  
|(Loss) on sale of asset                                |   | -                  |   |   | -                 |  
|Foreign currency
      translation (loss) gain         |   | 1,806              |   |   | (377              | )
|Gain (loss) on derivative instrument
      liabilities |   | 618,511            |   |   | 1,042,098         |  
|Accretion of discounts
      on notes payable          |   |                    |   |   |                   |  
|and
      financing lease liability                    |   | (22,882            | ) |   | (1,093,730        | )
|Interest expense                                       |   | (20,067            | ) |   | (223,798          | )
|                                                       |   | 589,753            |   |   | (270,897          | )
|                                                       |   |                    |   |   |                   |  
|INCOME (LOSS) BEFORE PROVISION                         |   |                    |   |   |                   |  
|FOR INCOME TAXES                                       |   | 149,418            |   |   | (737,372          | )
|                                                       |   |                    |   |   |                   |  
|PROVISION FOR INCOME TAXES                             |   | -                  |   |   | -                 |  
|                                                       |   |                    |   |   |                   |  
|NET INCOME (LOSS)                                      | $ | 149,418            |   | $ | (737,372          | )
|                                                       |   |                    |   |   |                   |  
|Basic and Diluted Income (Loss) per Share              | $ | 0.00               |   | $ | (0.01             | )
|                                                       |   |                    |   |   |                   |  
|Weighted Average Common Shares                         |   |                    |   |   |                   |  
|Outstanding - Basic and diluted                        |   | 74,773,510         |   |   | 68,783,331        |  

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

4

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|SANTA FE GOLD CORPORATION            
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(Unaudited)                          

|                                                                           |   | Nine Months Ended |  
|-------------------------------------------------------------------------- | - | ----------------- | -
|                                                                           |   | March 31,         |  
|                                                                           |   | 2008              |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                      |   |                   |  
|Net (loss)                                                                 | $ | (3,251,870        | )
|Adjustments to reconcile net (loss) to                                     |   |                   |  
|net cash (used in) operating
      activities:                             |   |                   |  
|Gain on settlement
      of financing lease liability                      |   | -                 |  
|Depreciation
      and amortization                                        |   | 3,098             |  
|Stock compensation                                                         |   | 102,005           |  
|Interest
      expense paid with issuance of stock                         |   | 948,389           |  
|Accretion of discount
      on notes payable and financing lease liability |   | 1,013,891         |  
|Accretion
      of asset retirement obligation                             |   | 3,750             |  
|Loss on sale
      of assets                                               |   | -                 |  
|Foreign
      currency translation loss (gain)                             |   | 1,359             |  
|Relief of debt                                                             |   | -                 |  
|Loss
      on derivative instrument liabilities                            |   | 100,030           |  
|Amortization
      of deferred finance costs                               |   | 87,883            |  
|Net change in operating
      assets and liabilities:                      |   |                   |  
|Interest receivable                                                        |   | (8,377            | )
|Prepaid
      expenses                                                     |   | (49,842           | )
|Deposit                                                                    |   | -                 |  
|Accounts
      payable                                                     |   | 138,156           |  
|Accrued liabilities                                                        |   | (5,770            | )
|Accrued
      interest payable                                             |   | 54,930            |  
|Accrued lease
      payments                                               |   | -                 |  
|Net Cash (Used
      in) Operating Activities                              |   | (862,368          | )
|                                                                           |   |                   |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                      |   |                   |  
|Proceeds from asset disposition                                            |   | -                 |  
|Purchase of property, plant
      and equipment                            |   | (167,168          | )
|Net Cash (Used in) Investing
      Activities                              |   | (167,168          | )
|                                                                           |   |                   |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                      |   |                   |  
|Proceeds from convertible
      notes                                      |   | 2,762,143         |  
|Payments on letter of credit                                               |   | (19,800           | )
|Payments on convertible
      notes                                        |   | (945,411          | )
|Deferred finance costs                                                     |   | (270,000          | )
|Net Cash Provided
      by Financing Activities                            |   | 1,526,932         |  
|                                                                           |   |                   |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           |   | 497,396           |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                             |   | 639,852           |  
|                                                                           |   |                   |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                   | $ | 1,137,248         |  

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

5

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|SANTA FE GOLD CORPORATION                                     
|--------------------------------------------------------------
|NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS
|March 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 leased Ortiz gold project in New Mexico,
the 100% owned Black Canyon mica project in Arizona, and the 100% owned Summit
silver-gold property located in New Mexico.

At the Annual Meeting held on July
  24, 2007, the Companys stockholders approved proposals to amend the Companys
  Certificate of Incorporation, as amended, to change its name, from Azco Mining
  Inc., to Santa Fe Gold Corporation, and to increase its authorized common stock
  from 100,000,000 to 200,000,000 shares.

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-QSB
under the Security Exchange Act of 1934. 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 nine-month period ended March 31, 2008, are not necessarily
indicative of the results that may be expected for the year ending June 30,
2008. 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, 2007, included in the Companys Annual Report
on Form 10-KSB, as filed with Securities and Exchange Commission.

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 incurred a net (loss)
  of ($3,251,870) for the nine months ended March 31, 2008, has a working capital
  of $250,954 and has a total accumulated (deficit) of ($46,233,642) at March
  31, 2008. In addition, the Company has had no revenue-generating operations.
  To continue as a going concern, the Company is dependent on continued fund raising
  for project development and deployment and administrative operating expenses.
  In late October 2007, the Company completed a private placement of senior subordinated
  convertible notes for an aggregate purchase price of $450,000 to three accredited
  investors and an additional investment of $237,143 from an investor in February
  2008 under the same terms and conditions. In December 2007, the Company entered
  into a definitive agreement for the private placement from another investor
  of an additional $13.5 million under similar terms and received advances of
  $350,000 and $1,500,000 in December 2007, and January 2008, respectively (see
  NOTE 4) In January 2008, the Company received $225,000 from the exercise of
  Additional Investment Rights by two institutional investors (see NOTE 4) . In
  addition to these funds, the Company will need to continue to raise additional
  working capital to meet general operating expenses.

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.

NOTE 2-SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Derivative Financial Instruments

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

6

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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 they provide.

Derivative financial instruments
are initially measured at their fair value. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value 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 the convertible debt or equity instruments resulting from allocating some or
all of the proceeds to the derivative instruments, 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.

Net (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 ended March 31, 2008. Therefore the impact
  of outstanding stock options and warrants has not been included as it would
  be anti-dilutive.

NOTE 3 - DERIVATIVE INSTRUMENT LIABILITIES

On March 20, 2006, the Company
completed a private placement of senior secured convertible notes, additional
investment rights and warrants to institutional investors for an aggregate
purchase price of $2,500,000. These notes were evaluated using Emerging Issues
Task Force (EITF) issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF
00-19) and it was determined that the warrants, embedded conversion and
interest components and additional investment rights should be accounted for as
derivative instrument liabilities. Accordingly, they are to be marked to market
each reporting period, with the corresponding non-cash gain or loss reflected in
the Companys current period statement of operations.

On September 6, 2006, the Company
amended the terms of the private placement of the senior secured convertible
notes that were issued on March 20, 2006. The common stock warrants and
additional investment rights held by the investors were also amended. In
connection with the amendment, the investors agreed to purchase in the aggregate
an additional $1,000,000 of notes under the amended terms, bringing the total
outstanding principal, including interest and liquidated damages, due under the
notes to $3,781,662. This principal amount plus interest was repaid in full in
December 2007.

The Company uses the
Black-Scholes option pricing model to value options, warrants, imbedded
conversion option components and additional investment rights that are recorded
as derivative liabilities. The fair values calculated on the original placement
of senior secured convertible notes were re-computed for the amended terms of
the placement agreement for the increased principal amount of the convertible
notes and the cost of reducing the conversion price of the existing convertible

7

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notes, warrants and additional investment rights from $1.58 to
$1.00. The aggregate fair values exceeded the additional proceeds received and
$2,400,000 was recognized as a charge to loss on derivative liabilities in the
period ended September 30, 2006. The initial convertible notes had no carrying
value and the modifications made to the notes resulted in no additional carrying
value, as the fair value of the derivative instruments issued exceeded the
proceeds received. As of the date of the amendment, the Company re-computed the
effective interest rate on the convertible notes to accrete the carrying value
of the notes to their redemption dates, based on the revised repayment schedule
and amounts.

On February 23, 2007, the Company
agreed with the institutional investors to amend the terms of the private
placement of senior secured convertible notes, additional investment rights and
warrants issued March 20, 2006 and September 6, 2006. Under terms of this
Amendment 2, the date by which the Company was required to file a registration
statement with the Securities and Exchange Commission was extended from November
5, 2006, until April 30, 2007 (filed March 23, 2007), and the date by which such
registration statement was required to be declared effective, was extended from
February 4, 2007, until July 31, 2007. The investors agreed to forgo all
liquidated damages and penalties related to the previous deadlines. The Company
agreed to seek stockholder approval for an increase in the Companys authorized
capital, from the authorized limit of 100 million shares, to 200 million shares,
and, if necessary, to file additional registration statements. In connection
with the amendment, the Company issued 1,750,000 warrants, giving note holders
the right to purchase common stock at a price of $1.25 per share for a period of
five years. The fair value of the derivative instruments liability for these
warrants at the time of issuance was determined to be $1,773,013 with the
following assumptions: (1) risk free interest rate of 4.67%, (2) remaining
contractual life of 5 years, (3) expected stock price volatility of 115.5%, and
(4) expected dividend yield of zero.

On December 21, 2007, the warrant
exercise price of $1.25 per share on the 1,750,000 warrants was reduced to $1.00
under the terms and conditions of the warrant with the reduction resulting from
the placement of a 7% Senior Secured Convertible Debenture with attached
warrants at an exercise price of $1.00 per share. The original warrant also
contained an anti-dilution provision and the warrants were increased by 437,500
to 2,187,500. The fair value of the derivative instruments liability for these
warrants was recalculated at the time of the price reduction and warrant
increase which is further described below.

On October 30, 2007, the Company
completed the placement of 10% Convertible Senior Subordinated Notes in the
amount of $450,000. The notes were placed with three accredited investors in the
amount of $150,000 each. The notes have a term of 60 months and bear interest at
10% per annum. In connection with the transaction, the Company issued a five
year warrant for each $2.50 invested, each warrant giving the note holder the
right to purchase common stock at a price of $1.25 per share. An aggregate of
180,000 warrants were issued under the notes.

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. Proceeds
from the debenture will be issued in accordance with a pre-determined funding
schedule and the term of the debenture is 60 months. In connection with the
transaction, for every $2.00 of the original principal amount of the debenture,
the investor will receive 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. On December 27, 2007, the Company received the initial advance under the
agreement of $350,000 and issued 175,000 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 in the October 2007, and December 2007, transactions was determined
to be $163,627 with the following assumptions: (1) risk free interest rate of
3.50% to 4.05%, (2) remaining contractual life of 5 and 7 years, (3) expected
stock price volatility of 113.889% to 118.299%, and (4) expected dividend yield
of zero. This derivative instruments liability was recorded as a discount to the
convertible notes at the time of the transaction.

On January 9, 2008 and January
10, 2008, the Company completed the placement of Additional Investment Rights
aggregating $225,000 with two institutional investors. The notes have a term of
17 months and bear interest at 7% per annum. In connection with the transaction,
the Company issued a five year warrant for each $2.00 invested, each warrant
giving the note holder the right to purchase common stock at a price of $1.00
per share. An aggregate of 112,500 warrants were issued under the notes. The
notes also have an embedded convertible option for principal and interest.

On January 15, 2008, the Company
received the second advance of $1,500,000 and issued 750,000 warrants relating
to the advance as provided for under the terms and conditions of the $13,500,000
7% Senior Secured Convertible Debenture entered into on December 21, 2007.

8

---

On February 1, 2008, the Company
completed the private placement of a 10% Convertible Senior subordinated Note of
$237,143 with an accredited investor and issued a note and related warrants
under terms and conditions the same as for the private placements completed
October 31, 2007. In connection with the transaction, the Company issued a five
year warrant for each $2.50 invested, for a total of 94,858 warrants, each
warrant giving the note holder the right to purchase one share of common stock
at a price of $1.25 per share.

The fair value of the derivative
instruments liability for these warrants and embedded convertible options issued
under the placements at the time of issuance in the January 2008, and February
2008, transactions was determined to be $771,323 with the following assumptions:
(1) risk free interest rate of 2.46% to 3.3%, (2) remaining contractual life of
1.5 and 7 years, (3) expected stock price volatility of 112.428% to 112.737%,
and (4) expected dividend yield of zero. This derivative instruments liability
was recorded as a discount to the convertible notes at the time of the
transaction.

The fair value of the derivative
instruments liability at June 30, 2007, was determined to be $2,402,970 with the
following assumptions: (1) risk free interest rate of 4.91% to 4.93%, (2)
remaining contractual life between 0.50 to 4.65 years, (3) expected stock price
volatility of 115.602%, and (4) expected dividend yield of zero. The fair market
value of the derivative instruments liability at March 31, 2008, was determined
to be $3,437,950 with the following assumptions: (1) risk free interest rate of
1.57% to 2.88%, (2) remaining contractual life between 0 .44 to 6.8 years, (3)
expected stock price volatility of 106.552%, and (4) expected dividend yield of
zero. Based upon the change in fair value, the Company has recorded a non-cash
loss on derivative instruments for the nine months ended March 31, 2008, of
$100,030 and a corresponding increase in the derivative instruments liability.
The impact of EITF 00-19 on the financial statements as of and through March 31,
2008, was as follows:

|                                                                              |   | Derivative      |         |   | Derivative      |  |   | Derivative Gain |  
|----------------------------------------------------------------------------- | - | --------------- | ------- | - | --------------- |  | - | --------------- | -
|                                                                              |   | Liability as of |         |   | Liability as of |  |   | (Loss) Through  |  
|                                                                              |   | June 30, 2007   |         |   | March 31, 2008  |  |   | March 31, 2008  |  
|Convertible Debentures:                                                       |   |                 |         |   |                 |  |   |                 |  
|Compound Embedded Derivatives                                                 | $ | 353,534         |         | $ | 74,914          |  | $ | 278,620         |  
|Additional Investment Rights                                                  |   | 552,996         |         |   | 427,232         |  |   | 125,764         |  
|Purchase Agreement Warrants                                                   |   | 775,120         |         |   | 1,767,852       |  |   | (992,732        | )
|Amendment 2 Warrants                                                          |   | 721,320         |         |   | 1,167,952       |  |   | (446,632        | )
|Totals                                                                        | $ | 2,402,970       |         | $ | 3,437,950       |  |   | (1,034,980      | )
|                                                                              |   |                 |         |   |                 |  |   |                 |  
|Amount allocated to
      convertible note discounts at transaction inception |   |                 | 934,950 |  
|                                                                              |   |                 |         |   |                 |  | $ | (100,030        | )

NOTE 4  CONVERTIBLE DEBENTURE NOTES PAYABLE

During the period July 1, 2007 to
December 31, 2007, the Company paid on the convertible debenture notes,
principal installments aggregating $1,890,831, with the issuance of 945,420
shares of the Companys common stock at a value of $945,420 and cash payments of
$945,411. Interest payments aggregating $988,505 were paid with the issuance of
2,745,804 shares of the Companys common stock and cash aggregating $11,341.

On October 31, 2007, the Company completed the placement of 10%
Convertible Senior Subordinated Notes of $450,000.

The notes were placed with three
accredited investors for $150,000 each. The notes have a term of 60 months, and
at such time all remaining principal and interest shall be due. The notes bear
interest at 10% per annum. Interest will accrue for 18 months from the date of
closing. Interest on the outstanding principal balance will then be payable in
quarterly installments commencing on the first day of the 19th month following
closing. In connection with the transaction, the Company issued a five year
warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant
giving the note holder the right to purchase one share of common stock at a
price of $1.25 per share. At the option of the holders of the convertible notes,
the outstanding principal and interest is convertible at any time into shares of
the Companys common stock at conversion price of $1.25 per share. The notes
will be automatically converted into common stock if the weighted average
closing sales price of the stock exceeds $2.50 per share for ten consecutive
trading days. The shares underlying the notes and warrants will be registered on
request of the note holders, provided the weighted average closing price of the
stock exceeds $1.50 per share for ten consecutive trading days.

9

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In connection with the October
30, 2007, placement, the Company received an additional $237,143 from an
accredited investor and issued a note and related warrants under the same terms
and conditions on February 1, 2008. In connection with the transaction, the
Company issued a five year warrant for each $2.50 invested, for a total of
94,858 warrants, each warrant giving the note holder the right to purchase one
share of common stock at a price of $1.25 per share.

On December 21, 2007, the Company
entered into definitive agreements for the placement with a single investor of a
7% Senior Secured Convertible Debenture in the amount of $13,500,000. Proceeds
from the debenture will 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 end of which time
all remaining principal and interest shall be 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 be 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 our 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 investor will receive 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. On December 27, 2007, the Company received
the initial scheduled advance under the agreement of $350,000 and issued 175,000
warrants relating to the advance.

On January 15, 2008, under the
terms of the 7% Senior Secured Convertible Debenture dated December 31, 2007,
the Company received the second advance under the agreement of $1,500,000 and
issued 750,000 warrants relating to the advance. The convertible debenture was
determined to have a beneficial conversion feature based upon the effective
computed conversion price, which resulted in a $173,441 charge to the note
discount and a credit to Additional Paid In Capital.

The Company paid an account
management fee of 2% ($270,000) in connection with the transaction in January
2008, after the second advance under the agreement was received.

On January 9, 2008, and January
10, 2008, the Company issued convertible notes aggregating $225,000 to two
institutional investors that exercised Additional Investment Rights. The notes
have a term of 17 months and bear interest at 7% per annum. In connection with
the transaction, the Company issued a five year warrant for each $2.00 invested,
each warrant giving the note holder the right to purchase common stock at a
price of $1.00 per share. An aggregate of 112,500 warrants were issued under the
notes. The notes also have an embedded convertible option for principal and
interest. The convertible debentures were determined to have beneficial
conversion features based upon the effective computed conversion price, which
resulted in a $14,469 charge to the note discounts and a credit to Additional
Paid In Capital.

NOTE 5  COMMITMENTS AND CONTINGENCIES

On December 13, 2007, the Board
of Directors granted an award of 500,000 shares of restricted stock to the
President and Chief Executive Officer that will vest on December 31, 2008. The
shares are subject to forfeiture contingent on attainment of certain performance
objectives related to the Summit project. As of the date of this filing, the
shares have not been issued.

NOTE 6 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

During the period July 1, 2007,
to December 31, 2007, the Company paid on the convertible debenture notes,
principal installments aggregating $945,420, with the issuance of 945,420 shares
of the Companys common stock and interest payments aggregating $977,164 with
the issuance of 2,745,804 shares of the Companys common stock.

10

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2007 Equity Incentive Plan

At the Companys Annual Meeting
on July 24, 2007, the stockholders approved the 2007 Equity Incentive Plan
("2007 EIP"). The 2007 EIP became effective on July 25, 2007, and will terminate
on July 24, 2017. A maximum of 8,000,000 shares of common stock are reserved for
the grant of non-qualified stock options, incentive stock options, restricted
stock awards and other stock awards under the 2007 EIP. The 2007 EIP replaces
the Companys 1989 Stock Option Plan, which terminated on April 30, 2007.

The purpose of the 2007 EIP is to
provide the employees, non-employee directors, and consultants who are selected
for participation in the 2007 EIP with added incentives to continue in the
long-term service of the Company and to create in such persons a more direct
interest in the future success of the Companys operations by relating increases
in compensation to increases in stockholder value, so that the income of the
participants in the 2007 EIP is more closely aligned with the financial
interests of the Companys stockholders. The 2007 EIP is also intended to
provide a financial incentive that will enable the Company to attract, retain
and motivate the most qualified directors, employees, and consultants. As of
March 31, 2008, one executive officer, two non-employee board members and
approximately four other employees and consultants are eligible to receive
grants under the 2007 EIP.

In July 2007, the Company granted
  a five (5) year option to purchase 100,000 shares of common stock to a director.
  The option exercise price is $0.46 per share, the closing price on the date
  of grant and the options have a vesting period of one year from the date of
  grant. The options were valued at $37,849 using the Black-Scholes option pricing
  model and will be expensed over the vesting period. The options were valued
  using a volatility of 114.622%, a risk free interest rate of 4.8%, an expected
  life of 5.0 years and zero quarterly dividends. During the nine months ended
  March 31, 2008, $28,503 was ecognized as stock compensation expense.

On December 13, 2007, the Board
of Directors granted an award of 500,000 shares of restricted stock to the
President and Chief Executive Officer that will vest on December 31, 2008. The
shares are subject to forfeiture contingent on attainment of certain performance
objectives related to the Summit project. As of the date of this filing, the
shares have not been issued. The Board also granted pursuant to the Companys
compensation policy pertaining to outside directors, five year options to
purchase 75,000 shares of common stock to each of two directors, and also
granted 100,000 five year options to an employee who is the son the President
and Chief Executive Officer. The options are exercisable at $0.55, the closing
price on the date of the grant and vest on June 30, 2008. The options were
valued at $111,619 using the Black-Scholes option pricing model and will be
expensed over the vesting period beginning January 1, 2008. The options were
valued using a volatility of 113.286%, a risk free interest rate of 3.45%, an
expected life of 5.0 years and zero quarterly dividends. During the nine months
ended March 31, 2008, $55,810 was recognized as stock compensation expense.

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 and will be expensed over the vesting period. The options were
valued using a volatility of 106.552%, a risk free interest rate of 2.64%, an
expected life of 5.0 years and zero quarterly dividends. No stock compensation
expense was recorded for the three months ended March 31, 2008.

In addition to options under the
1989 Stock Option Plan and 2007 EIP, the Company previously issued options
outside of these plans, exercisable over various terms up to a maximum of ten
years.

Issuances of Warrants

On October 31, 2007, in
connection with the issuance of 10% Convertible Senior Subordinated Notes
aggregating $450,000, the Company issued a five year warrant for each $2.50
invested, for a total of 180,000 warrants, each warrant giving the note holder
the right to purchase one share of common stock at a price of $1.25 per
share.

On December 21, 2007, the warrant
exercise price of $1.25 per share on 1,750,000 warrants was reduced to $1.00
under the terms and conditions of the warrant with the reduction resulting from
the placement of a 7% Senior Secured Convertible Debenture with attached
warrants at an exercise price of $1.00 per share. The original warrant contained
an anti-dilution provision and the warrants were increased by 437,500 to
2,187,500.

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On December 27, 2007, in
connection with a scheduled advance of $350,000 on the 7% Senior Secured
Convertible Debenture, the Company issued 175,000 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 January 9, 2008, and January
10, 2008, in connection with the exercise of Additional Investment Rights, the
Company issued 112,500 five year warrants giving the right to purchase common
stock at a price of $1.00 per share.

On January 15, 2008, in
connection with a scheduled advance of $1,500,000 on the 7% Senior Secured
Convertible Debenture, the Company issued 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 February 1, 2008, in
connection with the issuance of a 10% Convertible Senior Subordinated Note for
$237,143, the Company issued a five year warrant for each $2.50 invested, for a
total of 94,858 warrants, each warrant giving the note holder the right to
purchase one share of common stock at a price of $1.25 per share.

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

|                              |  | Stock Options |  |  | Stock Warrants | 
|----------------------------- |  | ------------- |  |  | -------------- | 
|                              |  |               |  |  | Weighted       | 
|                              |  |               |  |  | Average        | 
|                              |  | Shares        |  |  | Price          | 
|Outstanding at June 30, 2007  |  | 9,600,000     |  |  | $0.11          | 
|Granted                       |  | 450,000       |  |  | $0.57          | 
|Canceled                      |  | ---           |  |  | ---            | 
|Expired                       |  | ---           |  |  | ---            | 
|Exercised                     |  | ---           |  |  | ---            | 
|Outstanding at March 31, 2008 |  | 10,050,000    |  |  | $0.14          | 

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

|Outstanding
      and Exercisable Options |  |           | Outstanding and Exercisable Warrants | 
|----------------------------------------- |  | --------- | ------------------------------------ | 
|                                          |  |           |                                      | 
|Exercise                                  |  |           |                                      | 
|Price                                     |  |           |                                      | 
|Range                                     |  | Number    |                                      | 
|$0.10                                     |  | 5,000,000 |                                      | 
|$0.11                                     |  | 4,500,000 |                                      | 
|$0.74                                     |  | 50,000    |                                      | 
|$1.24                                     |  | 50,000    |                                      | 
|                                          |  | 9,600,000 |                                      | 

The weighted average exercise
price for outstanding warrants has changed from the prior reporting due to
warrant price change and quantity referred to above on December 21, 2007.

NOTE 7  SUBSEQUENT EVENTS

Subsequent to March 31, 2008, the
Company received cash proceeds aggregating $3,500,000 from the third scheduled
advance under the December 21, 2007, 7% Senior Secured Convertible Debenture,
and issued 1,750,000 warrants relating to the advance.

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Subsequent to March 31, 2008, the
Company received cash proceeds of $200,000 pursuant to exercise of Additional
Investment Rights by an institutional investor, and issued 100,000 warrants in
connection with the transaction.

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

THIS FORM 10-QSB 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-QSB 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, 2007.

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 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
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 incurred a net (loss) of ($3,251,870) for the nine months ended
March 31, 2008, and have a total accumulated (deficit) of ($46,233,642) at March
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 October 2007, the Company
completed a private placement of senior subordinated convertible notes for an
aggregate purchase price of $450,000 to three accredited investors. In February
2008, we completed an additional private placement of $237,143 under the same
terms and conditions. In December 2007, the Company entered into a definitive
agreement for the private placement from another investor of an additional $13.5
million under similar terms and received advances of $350,000 and $1,500,000 in
December 2007, and January 2008, respectively. Advances under this debenture
were issued in accordance with a pre-determined funding schedule related to the
Summit projects anticipated construction requirements during 2008. In January
2008, the Company received $225,000 from the exercise of Additional Investment
Rights by two institutional investors (see NOTE 4 in the accompanying notes to
the Unaudited Consolidated Financial Statements).

13

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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. We have $1,137,248 cash on hand
at March 31, 2008. 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. Subsequent
to March 31, 2008, we received $3,500,000, which constitutes the third advance
under the December 21, 2007, 7% Senior Secured Convertible Debenture, and
$200,000 from the exercise of Additional Investment rights.

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. Company 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 March 31, 2008
and 2007

Sales

We had revenues of $-0- for the three months ended March 31,
2008, and March 31, 2007.

Operating Costs and Expenses

General and administrative
decreased to $330,101 for the quarter ended March 31, 2008, from $348,415 for
the comparative quarter ended March 31, 2007, a decrease of $18,314. The
decrease in the current quarter is mainly attributable to decreases in investor
relations expense of $10,037; consulting fees of $67,275 and per diem costs of
$15,045. These decreases were mainly offset by increases in relocation costs of
$34,147; travel related costs of $6,772; director fees of $4,000; rent of
$10,705; accounting and legal fees aggregating $7,893; payroll burden of $8,967
and office operating costs of $9,170.

General and administrative stock
compensation increased to $65,312 for the quarter ended March 31, 2008, from
$8,846 for the comparative quarter ended March 31, 2007, an increase of $56,466.
The increase is attributable to amortized costs associated with options issued
to directors and an employee that are being amortized over the vesting period of
six months.

Other Income and Expenses

Other income and (expenses) for
the quarter ended March 31, 2008, were $589,753 as compared to $(270,897) for
the comparable quarter ended March 31, 2007. The decrease in other expenses
incurred in the current quarter of $860,650 is mainly attributable to increases
in miscellaneous income of $6,420; decreased interest expense of $203,731,
consisting mainly of interest recognized on debt conversion of the senior
secured convertible debt and a decrease in accretion of discounts on notes
payable and financing lease liability of $1,070,848. These increases in the
current period were mainly offset by a decrease of

14

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income recognized on derivative instruments liability of
$423,587 and a decrease of interest income of $11,856.

(Loss) on Derivative Financial Instruments

We recognized a gain on
derivative financial instruments of $618,511 for the quarter ended March 31,
2008, as compared to a gain of $1,042,098 for the prior year comparable period.
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 a financing lease and
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 decrease in the derivative income in the quarter ended
March 31, 2008, is mainly attributable 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 the Companys stock price, changes in the
stock price will result in volatility in the earnings in future periods as the
Company continues to reflect the derivative financial instruments at fair
values.

Operating Results for the Nine Months Ended March 31, 2008
and 2007

Sales

We had revenues of $-0- for the
nine months ended March 31, 2008, as compared to $7,201 for the comparable
period ended March 31, 2007. The sales in the prior comparable period consisted
of Mica sales from inventory on hand.

Operating Costs and Expenses

General and administrative
decreased to $867,416 for the nine months ended March 31, 2008, from $995,669
for the comparative nine months ended March 31, 2007, a decrease of $128,253.
The decrease in the current nine months is mainly attributable to decreases in
rent expense of $152,000; accounting and legal fees of $20,026; financing costs
of $14,896; consulting of $74,882 and per diem costs of $45,135. These decreases
were mainly offset by increases in relocation costs aggregating $34,147; travel
and related costs of $14,390; investor relations of $27,824; costs associated
with the corporate annual shareholder meeting of $33,234; payroll burden of
$13,902; office operating costs aggregating $11,758; corporate filing costs of
$8,577, attributable to bringing our reporting requirements current and director
fees of $16,000.

General and administrative stock
compensation increased to $102,005 for the nine months ended March 31, 2008,
from $28,858 for the comparative nine months ended March 31, 2007, an increase
of $73,147. The increase is attributable to amortized costs aggregating $84,312
associated with options issued to directors and an employee that are being
amortized over the vesting period.

Other Income and Expenses

Other income and (expenses) for
the nine months ended March 31, 2008, were $(2,083,221) as compared to
$(699,679) for the comparable nine months ended March 31, 2007. The increase in
other expenses incurred in the current nine month period of $1,383,542 is mainly
attributable to decreases from a gain on settlement of financing lease and
interest income aggregating $2,906,019 and increased interest expense of
$560,280, consisting mainly of interest recognized on debt conversion of the
senior secured convertible debt. This decrease in income for the current nine
month period was mainly offset by a decreased loss recognized on derivative
instruments liability of $1,125,887; and a decrease in accretion of discounts on
notes payable and financing lease liability of $946,381.

(Loss) on Derivative Financial Instruments

We recognized a (loss) on derivative
  instruments liability of $(100,030) for the nine months ended March 31, 2008,
  as compared to a (loss) of $(1,225,917) for the prior year comparable nine month
  period. The non-cash (loss) arose 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 a financing lease
  and 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 decrease in the derivative (loss) in the nine months ending March
  31, 2008, is mainly attributable 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

15

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in derivative treatment. We use the Black-Scholes option
pricing model to estimate the fair value of this derivative. Because
Black-Scholes uses the Companys stock price, changes in the stock price will
result in volatility in the earnings in future periods as the Company continues
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 March 31, 2008, we had cash
on hand of $1,137,248, a working capital of $250,954 and an accumulated
(deficit) of $(46,233,642). Subsequent to March 31, 2008, the Company received
cash proceeds of $3,500,000 from the third scheduled advance under the December
21, 2007, 7% Senior Secured Convertible Debenture, and $200,000 from exercise of
Additional Investment Rights.

We are continuing to pursue a
joint venture or sale of the Black Canyon mica project. Management has
determined that it would be significantly more beneficial for the Company 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
anticipate that our operations for the remaining quarters in calendar 2008 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.

On October 31, 2007, the Company
completed the private placement of 10% Convertible Senior Subordinated Notes in
the amount of $450,000. The notes were placed with three accredited investors in
the amount of $150,000 each. The notes have a term of 60 months, at the end of
which time all remaining principal and interest shall be due. The notes bear
interest at 10% per annum. Interest will accrue for 18 months from the date of
closing. Interest on the outstanding principal balance will then be payable in
quarterly installments commencing on the first day of the 19th month following
closing. In connection with the transaction, the Company issued a five year
warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant
giving the note holder the right to purchase one share of common stock at a
price of $1.25 per share. At the option of the holders of the convertible notes
the outstanding principal and interest is convertible at any time into shares of
the Companys common stock at a conversion price of $1.25 per share. The notes
will be automatically converted into common stock if the weighted average
closing sales price of the stock exceeds $2.50 per share for ten consecutive
trading days. The shares underlying the notes and warrants will be registered on
request of the note holders, provided the weighted average closing price of the
stock exceeds $1.50 per share for ten consecutive trading days.

On February 1, 2008, the Company
  completed a private placement of an additional 10% Convertible Senior Subordinated
  Note in the amount of $237,143 and issued a note and related warrants under
  terms and conditions the same as for the private placements completed October
  31, 2007. In connection with the transaction, the Company issued a five year
  warrant for each $2.50 invested, for a total of 94,858 warrants, each warrant
  giving the note holder the right to purchase one share of common stock at a
  price of $1.25 per share.

On December 21, 2007, the Company
entered into definitive agreements for the placement with a single investor of a
7% Senior Secured Convertible Debenture in the amount of $13,500,000. Proceeds
from the debenture will 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 end of which time
all remaining principal and interest shall be

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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 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 be 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 our 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 investor
will receive 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. On
December 27, 2007, the Company received the initial scheduled advance under the
agreement of $350,000 and issued 175,000 warrants relating to the advance. On
January 15, 2008, the Company received the second scheduled advance under the
agreement of $1,500,000 and issued 750,000 warrants relating to the advance.

The Company was obligated to an
account management fee of 2% ($270,000) in connection with the transaction and
was paid in January 2008 after the second advance under the agreement was
received.

On January 9, 2008, and January
10, 2008, the Company received cash proceeds aggregating $225,000 from exercise
of Additional Investment Rights by two institutional investors and issued
convertible notes aggregating $225,000. The notes have a term of 17 months and
bear interest at 7% per annum. In connection with the transaction, the Company
issued a five year warrant for each $2.00 invested, each warrant giving the note
holder the right to purchase common stock at a price of $1.00 per share. An
aggregate of 112,500 warrants were issued under the notes.

Factors Affecting Future Operating Results

We have deployed our plan to
place the Company on an improved financial footing. Additional important
elements of the plan include maintaining current 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 additional interim financing on acceptable terms and obtain the
additional required project financing, we believe we will be in a position to
execute our business plan on our property sites.

Off-Balance Sheet Arrangements

During the three months ended
March 31, 2008, we did not engage in any off-balance sheet arrangements defined
in Item 303(c) of the SECs Regulation S-B.

ITEM 3  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 March 31, 2008. Based on this
evaluation, our Chief Executive Officer has concluded that our disclosure
controls and procedures are effective.

During the quarter ended March
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.

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PART IIOTHER INFORMATION

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

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: May 19, 2008 | SANTA FE GOLD
      CORPORATION
|------------------- | -------------------------------
|                    |                                
|                    | By:                            
|                    |                                
|                    |                                
|                    |                                

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