A New Discovery of Paramount Importance

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From Ferdinand Magellan to Neil Armstrong, the sagas of legendary explorers are routinely condensed into a timeline of fateful achievements. For small-cap gold explorer Paramount Gold (AMEX: PZG  ) , this is one of those defining moments.

Within the same Sierra Madre Occidental silver and gold belt in Mexico that hosts some of the industry's most exciting discoveries, Paramount Gold has delivered on its niche strategy of developing prospective properties in the vicinity of proven lodes that support existing mines. With a fresh new discovery at its San Miguel property, Paramount has not only created the promise of substantial resource expansion right in Coeur d'Alene Mines' (NYSE: CDE  ) backyard, but it claims to have struck a direct extension of the Palmarejo geological structure that hosts Coeur's world-class mine of the same name.

Before we delve into the particulars, we need to establish some context. San Miguel is located within a concentration of gold and silver mines that include Goldcorp's (NYSE: GG  ) El Sauzal mine to the south, and Minefinders (AMEX: MFN  ) Dolores mine well to the north. Gammon Gold (NYSE: GRS  ) , which I recently highlighted as a turnaround story in the making, continues to make exciting new discoveries at its nearby Ocampo mine. But all the while, it's the adjacent location of Coeur's Palmarejo mine -- with reserves of 90.5 million ounces of silver and 1.1 million ounces of gold -- that rendered San Miguel such a striking opportunity for Paramount.

You see, Paramount seeks to inhabit a "sweet spot" of shareholder value creation by expanding known deposits, proposing mine plans, and seeking joint ventures with established producers to advance into production. It's likely that Coeur was already paying close attention to Paramount's prior exploration success at San Miguel, but this discovery of an extension of the Palmarejo deposit itself moves the project squarely into Coeur's sphere of strategic growth opportunities. Coeur itself has touted recent exploration success on what appears to be the same vein structure, and has thus far identified a 2.4 kilometer strike length. If Paramount is correct, then Coeur's Guadalupe target is geologically contiguous with Paramount's Don Ese vein.

Delineation drilling will be required to better understand the scale of this discovery, but these first indications appear promising indeed. Paramount has identified an impressive strike length of 550 meters already, while the feature is considered likely to extend deeper and continue longitudinally for another 200 meters or more. Several early intercepts have yielded gold and silver grades well in excess of Palmarejo's average gold grade of 1.86 grams per ton. One drill hole in particular returned a 13.4-meter interval grading 6.53 grams of gold per ton, and 590.4 grams of silver per ton.

Fools seeking the clearest prospects for organic resource growth may wish to give ample consideration to Paramount Gold. The Don Ese vein is but one of several high-quality discoveries made within the San Miguel project to date, and ongoing exploration at the company's Sleeper project in Nevada offers another locus of compelling opportunities.

To keep a Foolish eye on Paramount Gold, add the stock to your watchlist by clicking here. Additionally, bookmarking this link will provide easy, ongoing access to all my musings on the sector.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Coeur d'Alene Mines, Gammon Gold, Minefinders, and Paramount Gold. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (13) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 09, 2010, at 10:41 PM, jesusfreakinco wrote:

    Long time holder of PZG. Waiting for the buyer to come along and snatch these resources at bargain levels...

  • Report this Comment On December 13, 2010, at 5:03 AM, silvermind wrote:


    40% in one day! What is the 2P for Paramount if you know?


  • Report this Comment On December 13, 2010, at 5:54 AM, silvermind wrote:

    Hey Chris,

    Any idea of PZG's 2P?

  • Report this Comment On December 13, 2010, at 9:14 AM, XMFSinchiruna wrote:

    For the record, notjoesilver above is referring to proven and probable reserves, which I consider better abbreviated as PPR or P&P Reserves.

    Exploration companies like Paramount will frequently have no P&P Reserves, which is a category applied once project economics have been introduced to the equation. Upgrading resources will likely be a gradual process, and 2011-2012 looks to be a key period for converting San Miguel's multiple finds into expanding the scale and upgrading the category of resource estimates.

    At last check, San Miguel carried a combined resource of 2.6 million GEOs (Gold Equivalent Ounces), with most of those belonging to the inferred category. The site's true potential is likely much larger, as per the company's target potential of about 3 million ounces of gold plus 150 million ounces of silver or more.

    The company possesses additional resources at the Sleeper project in Nevada, including an estimated 714,000 ounces already above-ground in tailings and leach pad remnants from the abandoned mining operation.

  • Report this Comment On December 13, 2010, at 11:56 AM, silvermind wrote:


    With a market cap of $350M+-, and reserves of maybe 3.3M GEOs, and just being is the explore stage, what would you expect the market cap to be at with the latest news? It doesn't look like the valuation is as good as SLW at this point?


  • Report this Comment On December 13, 2010, at 4:13 PM, silverminer wrote:


    You just can't compare apples to oranges in quite that way. It's extremely difficult to pin down a precise valuation for a company like Paramount because so much is unknown about potential resource expansion. SLW, on the other hand, is perhaps the easiest company in the industry to value. I am not particularly uncomfortable with the market's response to the news thus far, though I could envision some erosion of the move if shorter-term players book profits. Then again, suitors may not waste much time making a play for the shares, and speculation of same may buoy the share price. As for me, I am standing long and strong with my PZG shares.

  • Report this Comment On December 13, 2010, at 5:51 PM, silvermind wrote:


    Cool. Did you buy in on 12/9/10? I noticed you put it on your caps picks on the 9th. I think it could go to 4 and stay at around 3.50 on this news.

  • Report this Comment On December 14, 2010, at 11:12 AM, silverminer wrote:


    No, I've owned Paramount for quite some time. Due to trading restrictions, when I bring Fools a timely tip like the above article, I am not able to immediately participate.

    I disagree that substantial additional upside remains from this news alone. I think it would take further developments to drive shares to the $4 mark. I think a 60% surge is more than reasonable for a discovery of this nature, and that to anticipate more is likely to lead to disappointment.

  • Report this Comment On December 14, 2010, at 7:46 PM, hatch23 wrote:

    This is a post from another newsletter from someone else:

    I have seen a copy of an updated Dahlman Rose report (dated9-Dec-2010). The report provides an updated price target for Paramountof $14.27. The new report does not take into account the new discovery announced yesterday.

    The target is based on NAV of Paramount being $14.27 and the P/NAV being 1.0x. The NAV is broken down as follows:

    - San Miguel, San Luis, Temoris, $6.11/share

    - San Francisco & Monte Cristo $2.85 / share

    - Sleeper Mine $5.26 / share.

    - Total $14.22

    - Total – Debt $14.27 / share

    Regardless,of how much weight you put into such estimates, the recent discoveryhas obviously lit a fire under PZG’s stock price. I would expect thatthe following factors will help to maintain interest in PZG’s stockprice:

    - results from the ongoing Sleeper exploration program

    - the drilling of the four new targets at San Miguel project in Q1 2011 (as per Dahlman Rose Report)

    - an updated 43-101 report for San Miguel, also due in Q1 2011 (as per Dahlman Rose Report).

    When PZG releases their resource estimate report in the 1st quarter the stock should get a nice pop. Plus in their news release from friday, they said they have identified 4 more targets to drill, so we could get more news releases like friday before the resouce estimate is released.

  • Report this Comment On December 15, 2010, at 2:23 AM, silvermind wrote:

    Hey hatchjcp,

    Thanks for the info. Looks like Chris might be right about maybe it not going up for now, even if it should by valuation --- people really don't like to pay alot for an exploration-only company. Do you own any GRPLF or SLW? Does PZG really have $14.27/share of debt?

  • Report this Comment On December 15, 2010, at 4:47 PM, silverminer wrote:

    notjoe, don't forget to remain appropriately circumspect about unlinked newsletter citations from anonymous sources. A $14+ valuation for PZG has appears beyond fantastical to me, and I am extremely skeptical that such a report exists.

  • Report this Comment On December 16, 2010, at 2:59 AM, silvermind wrote:


    cool - right on.

  • Report this Comment On December 16, 2010, at 1:42 PM, EllenBrandtPhD wrote:

    Whether you play CDE from the Long side or the Short side, knowing Dennis Wheeler's reputation and listening to his comments last week, it is pretty much imperative that all CDE holders pick up some PZG now.

    Let me emphasize that: Imperative!

    Those drilling results were just too important to be ignored.

    Either CDE buys it, or somebody else buys it as a sort of taunt to CDE.

    In fact, with their Shorts in CDE itself working so badly now because of the macro silver situation, CDE Shorts may need to buy PZG from the Long side as a hedge against their CDE Short positions - even more than CDE Longs need to buy it.

    Both PZG and PZG.TO have been bashed down the past couple of days on general sector bashing.

    But the move up isn't over in the least.

    Nowhere near everyone in CDE needing it as a hedge is in yet - and the bigger factors in CDE haven't even made a small dent in their required buying.

    We all know what happened with Red Back and Andean.

    This one isn't as large nor as attractive as those were.

    And word of it leaked out way too early.

    But it's pretty much a cinch as a takeout. And how many of those are left?

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