Analyst Day at Paramount Gold and Silver Corporation's San Miguel Project

We recently toured the projects of several companies in the southeast corner of the State of Chihuahua, Mexico. One of our favorites was Paramount Gold and Silver Corp. (PZG). This was due to the combination of management, the project(s) potential and location with two name brand mines, and the fact that Paramount’s aggressive exploration activities are relatively unknown. The Company’s exploration program provides both near-term catalysts for appreciation and their project’s an opportunity for sustained growth over the longer term. A complete report discussing the project and our visit is available on our website (large pdf warning).

Paramount reports having completed over 27,000 meters of core drilling, totaling 157 drill holes on the project, with results pending on 43 of these holes. In April of 2007, Paramount commenced a 50,000 meter drill program, of which 20,000 meters have been completed to date.

Paramount should soon receive a large number of assays which may be very positive. We anticipate that upcoming drill results on the Company’s San Miguel target (one of many targets in the San Miguel Project) may resemble other better known names in the area which should resonate with investors (Fig. 1). Paramount has a very large and very prospective land position between two well known projects, Palmarejo Silver and Gold Corporation’s (TSX Venture: PJO) Trogan project, hosting a 3.1 million ounce gold resource to the west, and Goldcorp Inc’s (NYSE: GG) El Sauzal mine, with a 2.5 million ounce gold resource to the southeast.

Figure 1—San Miguel Project Map

Paramount’s projects include the 70% owned San Miguel project, the wholly owned Andrea project, and the joint venture on the Garibaldi project. Unfortunately, we lacked the time to visit the adjacent wholly owned Andrea project and the Paramount/Garibaldi JV, to the south and east of the San Miguel project (Fig. 2), which dwarfs the San Miguel project, and may eventually prove to have an even greater number of promising targets.

Figure 2—San Miguel, Paramount/Garibaldi JV, and Andrea Concessions

The primary group of analysts had only one day at the San Miguel project (Fig. 3), which included the San Antonio deposit plus the Montecristo target to the north. We were fortunate to spend an additional day at the San Miguel project while the group went on to visit other companies. This consisted of both the San Miguel target to the northeast, and the area south of San Antonio, including the area along strike from the historic San Luis mine south to La Union. The additional day allowed us to grasp a clearer vision of the potential of the entire San Miguel project.

Figure 3—San Miguel Project Map

San Miguel Project Targets

The most significant historic mining activity in the area focused on the San Luis mine. The Alaska-Juneau Mining Company operated mine at San Luis from 1959 to 1968 reaching a depth of 800 feet. The mine has since filled with water up to 300 feet from the top of the shaft. Production records record historic average grades of 12 g/t gold and 350 g/t silver, with more than 10% lead and zinc. Operations at the San Luis mine were discontinued due to operating issues at Alaska-Juneau stopping production in mineralized zones. It would appear that the veins trailing to the south to the La Union target may host significant gold mineralization. We don’t expect Paramount to dewater and restart the mine, but they are likely to use information from the mine to locate other similar high-grade occurrences near surface along strike between the historic San Luis mine and the La Union target to the south.

Initial Resource Established

In January of 2007 Paramount established an initial Inferred resource of 4 million tonnes of 273 g/t silver equivalent (35 million oz. silver equivalent), based on 39 drill holes. Since April of 2007 the company has drilled an additional 118 holes at the San Miguel project, including in-fill and step-out drill holes, many of which are still pending. Overall, it would appear that the current drill program is confirming mineralization along strike. Paramount is scheduled to complete a resource upgrade by the end of 2Q08.

Drill results since establishing a resource generally demonstrate consistency of the zone of mineralization at good grades. Stepping out to the La Veronica target included a 10.2 meter intersection of 468 g/t silver with 0.81% lead and zinc (including 5,370 g/t silver across 0.4 meters). The Montecristo target to the north of San Antonio is a bulk tonnage gold-silver target.

The San Miguel target, situated in the northeast portion of the San Miguel project, is a gold rich silver vein open for two kilometers and at depth. The mineralization appears concentrated in a thick zone at the contact of andesites and rhyolites. We believe that drilling through this zone of structural change may elevate San Miguel to primary area of interest for Paramount and offer a potential catalyst should results provide some resemblance to the nearby Palmarejo project acquired by Coeur D’Alene Mines Corp. for about $1.1 billion.

Figure 4—Drilling from Tracked Drill Rig at San Miguel Target

Paramount has conducted a sampling of historic workings and a trenching program in this mineralized zone at the San Miguel target. Results of initial programs included 1.09 g/t gold and 330 g/t silver across 12 meters. Surface samples across the vein average 9 meters at 0.85 g/t gold and 202 g/t silver. The Company is currently drilling at San Miguel and is anticipating results of a 25 hole drill program.

Other Projects (Andrea)

The Andrea project is 100% owned by Paramount and contains an 86,300 hectare concession. Andrea dominates the area between the Company’s San Miguel project and Goldcorp’s El Sauzal gold mine. Paramount has conducted an aggressive pre-drilling exploration campaign at Andrea including regional geochemistry, satellite imagery analysis and follow-up work. This includes an extensive stream sediment sampling program (308 drainage basins-including stream sediment and heavy mineral concentrate samples at each site). While early in the exploration of Andrea, the Company has exposed several prospective targets to be followed up on in 2008.

Corporate Comments

We were quite impressed with management we met on site. The activities and organization at the project reflected management’s “large company” background. In addition, we were impressed with the manner in which we observed the drill program in process and the organization of the core shack in Temoris. We understand Paramount has about 60 employees, 17 of which are geologists. Paramount reported cash of $13.2 million on its balance sheet as of the end of September 30, 2007. Currently there are 47.4 million shares outstanding (57.6 million diluted).

Conclusion

The visit to the project provided an opportunity to witness a significant level of activity and progress which should lead to additional resources for Paramount. We would expect that assays from San Miguel target in the near future should illuminate potential comparisons with Palmarejo’s Trogan project to the west. The Company is scheduled to produce a resources update in the first half of 2008 leading to commencement of a Scoping Study later in the year. In our opinion, Paramount’s exploration and development activities with ample targets appear to provide more upside than is readily apparent in their identified resources.

Disclosure: The author has no position in any stocks mentioned in this report. An affiliate of the author’s employer may in the future provide corporate advisory services to PZG.