Adding Shareholder Value South Of The Border: Another Look At Paramount Gold And Silver

| About: Paramount Gold (PZG)

On over 142,000 hectares, more than 353,000 acres in the Palmarejo District of northwest Mexico, sits Paramount Gold and Silver Corp's (NYSEMKT:PZG) 100% owned San Miguel project. San Miguel is the rapidly growing precious metals mining camp where Paramount is the largest claim holder in an area that includes miners such as Cour D'Alene (NYSE:CDE), McEwen Mining (NYSE:MUX), Agnico Eagle (NYSE:AEM), Pan American Silver (NASDAQ:PAAS), Goldcorp Inc. (NYSE:GG) and others.

The San Miguel Project, with its Measured and Indicated (M&I) gold and silver resources, looks attractive situated near these well established, well known, low cost mining companies where infrastructure already exists.

Paramount's San Miguel Project consists of six mine zones, the San Miguel, San Francisco, Monte Cristo, La Veronica, San Antonio, La Union and Don Ese. The mine-plan graphic below shows locations of all and a potential mill site centrally located.

Click to enlargeCourtesy Paramount Gold and Silver Corp

By virtue of the company's on-going, fully funded drill program, new discoveries have been made and resources are continuing to grow rapidly. A recently completed Technical Report and Preliminary Economic Assessment (PEA) recommends that both open pit and underground mining methods be used to maximize extraction of resources. Also, Whittle Pit Optimization analysis of individual resource targets indicate economically viable surface mine shapes at the San Miguel, San Francisco, Monte Crisco, La Veronica, San Antonio and La Union resources.

Surface Mining is the conventional drill and blast method of broken rock loaded by front-end loaders into haul trucks and transported to mill.

Completed and announced on February 28, 2013, the San Miguel PEA, done by Metal Mining Consultants of Denver, Colorado, proposes a 4,000 tons per day mill fed by open pits and underground mines, resulting in a projected 14 year operation with a total metal production of 803,000 ounces of gold and 43.2 million ounces of silver (1,637,000 ounces of gold equivalent at the base case gold-to-silver ratio of 51.7 to 1).

Start-up capital costs including working capital are estimated at $243 million. Sustaining capital costs over the project's life are projected to be an additional $227 million. With $70.3 million in contingencies, total life-of-mine capital costs are estimated at $540 million. Projected life-of-mine average cash operating costs are $512 per ounce of equivalent gold recovered. The total cost of production (including cash operating costs and total capital and contingency costs over the life of the mine) is estimated at US$842 per ounce of gold equivalent, which compares favorably with current producers in the region.

Note: estimates above do not include the Don Ese project.

Results of the drill program report on the Don Ese project were not compiled and released until April 25, 2013, and show extremely robust numbers. Drill hole DS-13-030, for example, targeted the Don Ese Vein approximately 100 meters below hole DS-12-025 that was drilled on the same section last year at a different angle. DS-13-030 intercepted two structures: 6.6 meters grading 2.5 grams per ton gold (2.5 g/t Au) and 315 grams per ton silver (315 g/t Ag) in the hanging wall. That's an astounding cut of more than 10 troy ounces of silver per ton of ore.

Also, footwall results showed a further intercept of 19.4 meters grading 2.3 grams per ton gold (2.3 g/t Au) and 246 grams per ton silver (246 g/t Ag). These two intercepts lie within a structural zone 50.6 meters wide giving an average grade of (1.33 g/t Au) and (150 g/t Ag) or (4.1 g/t Au equivalent). Hole DS-13-030 is one of the best drilled to date at Don Ese and represents clear evidence of a structure which is widening at depth while continuing to show exceptional precious metal grades. See diagram below, which shows even more impressive grades at DS-12-025.

Click to enlargeCourtesy Paramount Gold and Silver Corp

Paramount CEO Christopher Crupi commented:

"We have thought for some time that the Don Ese Vein would continue to depth and that widths and grades could increase. This new drill hole, along with additional drilling now in progress, demonstrates that the current resource is wide open to an unknown depth which we intend to define and integrate into an updated resource estimate later this year."

Paramount's knowledge of the mineralizing events in the Palmarejo District has proven one of the key factors behind the extremely high success rates in its drill campaigns. The company has actively explored the district, assembling this remarkable land package since 2005. In 13 years to date, Paramount`s exploration at San Miguel has defined many significant and valuable precious metal bearing structures.


Paramount Gold and Silver's philosophy is to maximize shareholder value and reduce risk by focusing its efforts on the gap between discovery and production. Because prior to hitting a "major discovery," exploration companies are extremely risky investments and difficult to value. On the other side of the coin, for those companies trying to become stand-alone mining producers, success is often fleeting due to additional risks, both technical and financial, always inherent to building and operating mines.

"The 'sweet spot' for building shareholder value in the gold mining business is between discovery and production," according to the Paramount web site.

This is why the company remains focused on growing existing resources, designing economic operations and joint venturing with established producers.

That's the Paramount formula and you can see it at work in its San Miguel project (as well the Sleeper project in Nevada reported on in a previous article.)

In this opinion, the Paramount Formula is going to make Paramount Gold and Silver Corp, and its patient investors, a lot of money one day.

To Examine Paramount and its US Assets Click Here

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PZG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.