Paramount Mining Corporation Ltd (ASX: PCP, Paramount) is an Australian based exploration and development company with a short term focus on the development of high grade gold resources in West Java, Indonesia.
The flagship project is the recently acquired gold, silver and base metal Gunung Rosa Mine, which is a historical producer of high grade gold and silver with base metal credits.
Paramount has just finalised a Share Subscription Agreement by its 85%-owned Indonesian subsidiary PT Paramindo (Paramindo) and PT CKP that registers Paramindo's initial 10% equity interest in the Gunung Rosa gold, silver and base metal mine project in West Java.
This marks the first step of the agreed 85% purchase of the project by Paramindo.
Gunung Rosa is located on the island of Java, Indonesia, and was originally developed by the Dutch as an underground mine. The mine was seized by the Japanese during World War II to produce base and precious metals.
Gunung Rosa Project is a high-grade gold-silver-base metal sulphide project within a granted mining license (exploitation IUP).
Paramount is currently fast tracking the re-evaluation of historic resource estimates that were completed in the 1990's, and has completed both initial drilling and sampling programs that are providing a flow of very positive data from the environs of the historic mining area.
The Company has also committed to a property-wide airborne electromagnetic study, and has expanded its ground based exploration effort to include artisanal gold workings that extend for multi kilometres around the Gunung Rosa Mine.
Share Price: $0.073
Issued Shares: 256.1m
Market Cap: $19m
ANALYSIS
Paramount is focused on a long term strategy of acquiring additional Indonesian precious and base metals projects.
The Company has signed an important agreement with the subsidiary of major Indonesian miner PT Antam, which is capitalised at $4.2 billion, and will seek to develop Indonesian gold resources.
In the short term the company is focused on the redevelopment of the Gunung Rosa Mine, which has potential to become a significant long life producer of high grade gold and silver, with base metal credits.
Gunung Rosa has not reached the development stage where ore output can be calculated but the mine already contains a JORC compliant Resource of 358, 832 ounces of gold that handily compares to the size of the current resource at Kingsrose Mining's (ASX: KRM) Way Linggo mine with Measured, Indicated and Inferred Resources of 710,000 tonnes at a grade of 10.24 g/t Au, and 135.6 g/t Ag for 230,030 ounces of gold and 3,076,800 ounces of silver.
With an aggressive exploration and development effort, Paramount's Gunung Rosa Mine has the potential to meet or exceed an annualised output of 18,000 low cost gold ounces, and attain a similar market valuation to Kingsrose Mining's Way Linggo mine.
It can emulate Way Linggo mine as a narrow vein producer of high grade and low cost gold.
Therein is the opportunity for investors as Paramount Mining's current market valuation of just $19 million does not factor in any upside in development of Gunung Rosa Mine.
The upside in Paramount is quantifiable as Kingsrose Mining has a $359 million Market Cap. Valuation.
Gunung Rosa will also derive additional credits from both silver and base metals.
MANAGEMENT AND SHAREHOLDINGS
Mo Munshi serves as Chairman. He is a geologist with 20 years experience in exploration, development and corporate management and major resource project financing in a global setting and has worked for a number of major resource development and production companies. He is also Chairman of Prosperity Resources Ltd.
Terry Holohan is an experienced executive with over 30 years' experience in metallurgy and operations management and serves as Chief Executive Officer and Managing Director.
He previously held the positions of Head of Exploration and Development, and Chief Operating Officer at Platmin Limited. He was Senior Vice President at Ivanhoe Nickel and Platinum, and has held various positions in metallurgy and operations management at Anglo American Platinum, BHP Minerals Zimbabwe, Impala Platinum and Golden Dumps.
John Arbuckle has been appointed as a Non- Executive Director. He is a Director of Prosperity Resources Ltd. and Maybach Consulting Pty Ltd, which provides specialist corporate advisory services to a number of companies.
Mufti Habriansyah serves as a Non-Executive Director. He is a highly skilled Indonesian attorney who was previously a partner with Freehills' Indonesian affiliate at their Jakarta office and is a specialist in Indonesian natural resources, energy, and corporate law, and has advised a number of major international resource entities with interests in Indonesia. He is a Director of Prosperity Resources Ltd.
Guy Anderson serves as a Non-Executive Director and is a South African chemical engineer and accountant who previously worked for Ivanhoe Nickel and Platinum as CFO and CIBC (UK) on major mergers and acquisitions such as the Anglo-Ashanti deal.
Major shareholders include Resource Global Finance Ltd with 18.74%, JP Morgan Nominees with 15.97%, Surina Investments Ltd with 8.59%, Monex Boom Securities (HK) Ltd with 8.32%.
FUNDING
The Company holds cash and loan facilities of $0.5m and has issued 31m unlisted options with a weighted average exercise price of $0.10 that are exercisable from 30/11/12 to 30/11/14. In October 2011, Paramount raised $2 million at $0.10 per share to fund the current resource evaluation at Gunung Rosa.
GUNUNG ROSA GOLD AND SILVER PROJECT, INDONESIA
Paramount Mining Corporation, through its 85%-owned Indonesian subsidiary PT Paramindo has secured an agreement to acquire 72.25% interest in the Gunung Rosa gold, silver and base-metal project that is located 125 kilometres south east of Jakarta, West Java, Indonesia, and includes the historic Cikondang mine that commenced operations in the early 1900's.
Gunung Rosa is accessible by sealed road and is connected to the State electricity grid. Paramount has agreed to pay USD5 million (equivalent to approximately USD 16/ounce of in situ gold) with staggered settlement terms.
Gunung Rosa is a partially developed gold mine that has a decline and drives developed over a distance that exceed 2.5 kilometres on three levels.
The underground workings expose over 900 metres of mineralised veins, and remain open at depth and along strike.
The mine was previously part of an Indonesian and Australian joint venture headed by Century Mines and Metals that invested over $10 million from 1991 to 1992 on a detailed study of the mine and developing parts of the underground structure.
The work program included 63 diamond drill holes and approximately 2,500 metres of vertical and horizontal development that defined a JORC compliant Proven and Probable Reserve of 400,000 tonnes grading 11.4 g/t Au for 146,690 ounces of gold, and 3.03% Zn for 12,130 tonnes of zinc out of Measured, Indicated and Inferred Resources of 799,348 tonnes at 13.96 g/t Au for 358,832 ounces of gold, and 3.38% Zn for 26,998 tonnes of zinc.
Attempts to fund the continued development of the mine by Century Mines were thwarted by global financial instability and the venture was dissolved.
A second attempt by a Canadian group that completed a feasibility study was also thwarted by the ensuing Bre-X Minerals financial and assaying scandal that deterred resource investment into Indonesia. The mine was then flooded to prevent access by illegal miners.
Low gold prices that continued into the new century added to the general despair for developers of gold mining properties.
The mine area is dominated by moderately deeply eroded sub-volcanic intrusives that are typical of mineralised systems recognised in the porphyry-mesothermal belt of the southern Java coastal zone. This is associated with intrusive breccias and pebble dykes that host emplaced mineralised veins.
These intrusives have undergone pervasive argillic alteration during vein emplacement and the veins sit within a distinct alteration envelope that extends for at least 2.0 to 2.5 kilometres at the main prospect.
The veins are mesothermal in nature, and there is good evidence for multiple phases of metal emplacement with differing mineralogical characteristics, which is not fully understood, and varies locally and regionally.
Gunung Rosa contains a steeply dipping high grade gold and silver and base metal mesothermal vein system that has been exposed by undergrounding development along a 900 meter strike length, which is open along strike and at depth.
The southern extension of these mine workings is known as Cibitung, the central section as Cisudi and the northern extension as Cap Palu and Cap Palu North, with the majority of the horizontal drives found within 100 metres of the surface.
Paramount as part of its purchase due diligence exercise recently completed 13 diamond drill holes that successfully tested for high grade gold mineralisation below the entire length of the historic workings and confirmedthe data generated in the historic JORC reserve and resource estimate.
Highlights at Cibitung include drill hole GRD009 which intersected 5.2 metres at 12.68 g/t Au and 27.6 g/t Ag, and includes 1.3 metres at 33.64 g/t Au and 57.9 g/t Ag. GRD005 intersected 9 metres at 10.59 g/t Au and 37.3 g/t Ag.
Drill hole GRD004 tested the Cisudi section with 3.0 metres at 26.55 g/t Au and 29.6 g/t Ag. Drilling below the Cap Palu section at GRD012 intersected 18.30 metres at 3.57 g/t Au, 4.22 g/t Ag and 0.40% Cu, and includes 3.20 metres at 5.77 g/t Au and 0.94% Cu.
Drilling at Cap Palu North section at GRD001 reported several mineralised intersections at shallow depth that includes a highlight of 2.05 metres at 10.88 g/t Au, 15.65 g/t Ag, 14.88% Zn and 0.19% Cu. GRD002 reported several shallow mineralised intersections that includes a highlight of 3.3 metres at 5.47 g/t Au, 44.10 g/t Ag, 0.33% Zn and 1.08% Cu.
Geological mapping shows a range of physical and alteration characteristics pointing to a relationship of the mineralised mesothermal system to a porphyry intrusive complex.
Rock chip sample analyses demonstrate high grade gold, silver and base metals which extend the strike length of the main vein system to over 2 kilometres.
Significant vein and rock chip results include GNR226 25.7 g/t Au, 226g/t Ag, 0.27% Cu, 22.2% Pb, 26% Zn; GNR054 7.07g/t Au, 22g/t Ag, 0.6% Pb, 0.6% Zn, GNR170 1.5m @ 5.51g/t Au, 22g/t Ag, 0.12% Pb, 0.28% Zn.
Geological mapping and rock chip sampling confirm a belief that economic resources can be greatly expanded. This includes the currently defined veins run in the Cap Palu-Cisudi-Cibitung system and a number of additional veins that lie within a zone that extend up to 1.5 kilometres to the east and northeast of the Cap Palu-Cisudi-Cibitung vein system.
These new areas of identified mineralisation include a significant number of shallow pits and short adits dug by artisanal miners.
Bulk samples are being extracted for metallurgical testing and for resource assessment. The Company has also contracted for a detailed helicopter borne magnetic survey over the IUP to better define drilling targets contained in mineralised vein, intrusive breccias and alteration systems that are hidden by soil and volcanic ash.
All of these efforts are now directed to converting and expanding the historic JORC resource and defining new sources of mineralisation. Paramount has already started collecting data for environmental impact assessment studies which is a prelude to scoping studies, trial mining and full-scale mine feasibility studies once the potential at Gunung Rosa is clearly defined.
BALANCE OF PROJECT PORTFOLIO
A Memorandum of Understanding has been executed with PT Antam to identify further prospective gold mining projects in Indonesia that are suitable for development as strategic alliance joint-venture projects. The MOU will provide the Company with a platform to develop a sustainable business built around the production and development of Indonesian gold and base metal mines.
No field work was completed on the Vlakfontein Diamond Project in South Africa. The project has potential for alluvial and eluvial diamond resources found in scree that has shed from the nearby historic Jagersfontein and Bothas Diamond Mines.
No field work was completed on diamond projects in the Kimberley Region, Escape Creek and Ellendale.
RISKS
The Indonesian Department of Mines and Energy has confirmed that all companies without exception must implement the new policy under which foreigners cannot own more than 49 per cent of a mining project in the country. The divestment must start taking place after a mine has been in production for five years, and be complete after 10 years.
The Indonesian regulation extends a 2009 law mandating local ownership of at least 20 percent in joint ventures by the sixth year of production.
The new law applies to companies with mining business licenses. Miners, including Vale, Freeport-McMoRan Copper & Gold and Newmont, currently operate under contracts of work and need to apply for mining business licenses when their permits expire, according to the literal translation of the rule.
It should be noted that the Paramindo agreement already has a 15% local component in the shareholding of the Gunung Rosa project.
ANALYSIS
The Company maintains a strong management team with over 15 years' experience in Indonesian geology, mining and metallurgy and is progressing quickly on a drilling and exploration program that is re-confirming the JORC compliant historic resource containing 358,832 ounces of gold at 13.96 g/t Au and 3.38% Zn for Resources, and 11.41 g/t Au and 3.03% Zn for Reserves, for a total Resource of 358,832 ounces of gold and 26,998 tonnes of zinc.
The most suitable peer group comparison is the Way Linggo mine in southern Sumatra, operated by Kingsrose Mining. Both mines are narrow vein, high grade gold located within an epithermal gold system with Resource gold grades of 10.24 g/t Au for Way Linggo, and 11.41 g/t (Reserves) and 13.69 g/t Au (Resources) for Gunung Rosa.
Way Linggo produces 400 tonnes of ore per day for processing through a Merrill Crowe plant for an annualised output of approximately 50,000 ounces of gold at cash operating costs of US$150 per ounce, after deduction of silver credits.
The credits at Gunung Rosa will most likely contain more base metals than silver. Gunung Rosa has not reached the development stage where ore output can be calculated but the mine already contains a JORC compliant Resource of 358,832 ounces of gold that handily compares to the size of the current resource at Way Linggo with Measured, Indicated and Inferred Resources of 710,000 tonnes at a grade of 10.24 g/t Au, and 135.6 g/t Ag for 409,000 ounces of gold and 3,076,000 ounces of silver.
Way Linggo is obviously a very advanced project when compared with Gunung Rosa, but an aggressive exploration and development effort has the potential to meet or exceed an annualised output of 50,000 low cost gold ounces, and carry a similar market valuation to Way Linggo.