Junior mining companies tend to be
heavily leveraged to news flow. The release of good news can be the catalyst that
powers a stock to make a large percentage gain during a short time, but the
other hand, long intervals of limited activity will often have the effect of
causing a slow and steady decline in the trading of a stock. With any
speculative play, time literally is money. So there is an obvious bias that
investors need to be aware of, towards companies where an aggressive schedule
of activity will ensure that news will be issued at regular intervals and keep
the market interested.
If it is action you want, then look
no further than Paramount Gold Mining. The company has just completed a major
equity offering to raise more than US $21 million, sufficient to provide
funding for an aggressive exploration program to continue at its flagship San
Miguel project in
It should be noted that western
Chihuahua is considered by many to be ‘elephant country’ in terms
of the discovery prospects for large new deposits, and quite a few projects are
on the go by a variety of players within close proximity to San Miguel. While
the region itself is somewhat challenging to operate in due to the mountainous
terrain, San Miguel is relatively flat. There is adequate road access to the
property, and nearby access to both hydroelectric power transmission and water
resources.
Historical records indicate that
mining activity has been ongoing within the property area since 1620 on a small
scale, and modern mining continued up until about 1968. Some exploration work
was completed on an intermittent basis thereafter, but it was not until
Paramount Gold gained control of the project in early 2006 that a comprehensive
exploration program was launched with a systematic approach to the entire
property area.
Project geologists have already
achieved some notable success. A compliant technical report was recently filed
for the project, documenting a silver equivalent resource in the range of 38
million ounces. This was based on the results of a drilling program completed
last year, targeting the upper levels of the major vein system on the property.
The early indications are very encouraging however, frequently encountering
wide zones with very high grades of gold and silver hosted within quartz vein
structures, associated breccia zones, and stockwork mineralization.
Most of the work completed so far
has not probed below depths of 120 meters, but the exploration model projects
that these vein systems may actually extend continuously to far greater depths.
At the San Luis Mine, a historic mine located roughly in the center of the
property, records indicate high-grade zones had been encountered below a depth
of 200 meters. It should also be noted that the dominant hydrothermal vein
system on the property has been mapped at surface over a strike length of more
than 8 kilometers, and less than a third of that extension has been tested so
far. So there is certainly reason to be optimistic about the promise of
additional resource discovery both to depth and along strike.
San Miguel is located centrally
within a wide corridor of heavy alteration that has produced a number of large
deposits in the area, and several other very promising exploration targets.
Immediately to west lies the
late-stage Palmarejo-Trogan project controlled by Palmarejo Gold, and a short distance to the south, the El Sauzel deposit is under development by Goldcorp Inc. Each
of these projects bears striking geologic similarities with San Miguel in the
style of mineralization, and each have resources defined amounting to several
million gold equivalent ounces. There is a very real potential that the entire
area could develop into a significant silver district.
With the cash now in hand from the
last financing,
Up to four drills will be engaged in
this effort, and a great volume of assay data will be generated as the core
samples are analyzed. A consulting firm has already been retained to develop a
three-dimensional resource model and prepare an updated compliant resource
estimate for the project.
Investors should await the results
with eager anticipation. Last year, the company released several extremely high
grade assays from the initial drilling work, including one interval of 35.5
g/t gold with 17 g/t silver over 4.0 meters. That zone represents a gross metal
value of about US$775 per tonne at current spot prices. The combined metals
amount to an equally gross 1.15 ounces of gold equivalent resource per tonne,
which is outstanding. Several other exceptional drill cores were pulled during
that program. And the company expects to continue to encounter similar grades
as it launches the current round.
Paramount Gold represents the first
and only company with an OTC listing that I have presented for the Mexico Mike
Portfolio, but the company is actively pursuing a listing on a more senior
exchange and management expects to confirm a move sometime this year. I believe
that will certainly contribute additional upside for the share price and expand
the shareholder base to include a much larger group of potential investors.
With a capital structure approaching 54 million shares on a fully diluted basis, the market capitalization for Paramount Gold should not be considered cheap. However, the share price has consolidated at a level well below the highs of last year and I believe this represents an opportunity for new investors to begin accumulating the stock. I expect that there is significant upside yet to come, as the aggressive exploration work may yield exciting results and the total resources on the property may increase to the range of its immediate neighbors in the district. This is not a company where management is going to sit on its hands and the corporate strategy is to rapidly build a world-class resource that could generate an asset value that justifies a much higher trading range. I buy $10,000 for the portfolio.