Paramount Gold and Silver Valuation
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By Dennis Boyko
Created on: March 5, 2010
Current version 1.10: October 26, 2011 -- Corrected Garibaldi Resource factors to match July 31, 2011 financial statement.
Price estimates are based on 2012-Feb-07 closing prices.
Projected fair market stock price for Paramount Gold and Silver Corp. at the close of trading on 2012-Feb-07 was C$2.87 versus the actual closing stock price of C$2.72.
This blog also introduced Garibaldi Resources as an additional investment idea for playing Paramount Gold.
At the close of trading, the current and projected Market Capitalization per ounce of Gold Equivalent for Paramount Gold and Silver Corp., were:
current market valuation: US$51.28 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$109.70 per ounce of Au Eq.
Paramount Gold and Silver Corp. in situ metal value is 69.7% from gold and 30.3% from silver. The expected fair market valuation for Paramount Gold and Silver Corp. is set at 100% of the Gold Producer Valuation Line. The company has a higher percentage of its in situ metal value from gold and silver than the reference companies used to construct the Gold Producer Valuation Line.
The average ore value per tonne was US$37.62.
Projected fair market stock price for Paramount Gold and Silver Corp. is derived using the projected fair market valuation at start of production of US$109.70 per ounce of Au Eq (as derived above) and the following assumptions:
Capital Expenditure for mine development: US$336M -- a very rough estimate of the capital costs required to bring the San Miguel deposit into production, namely, a central mill / ore processing area and three separate work centers. Specifically, San Miguel, San Miguel Clavo 99 and San Miguel Clavo 66. An additional US$86M was added to account for capital costs to move the X-Cal Sleeper deposit into production.
If higher CapEx expenditures are required the fair market stock price would be lowered. Conversely, lower CapEx spending would result in a higher stock price. The CapEx figure to be refined once scoping studies or pre feasibility studies are available for San Miguel or Sleeper.
Risk Premium: 15% applied to the capital expenditure,
Discount Factor: 10% -- set to cover a multi year gap between now and a future start of production on the deposit. This value is believed to be optimistic since 58% of the in ground metal is in the Inferred category.
The discounting of the future gold metal prices after the start of production are already fully accounted for in the Gold Producer Valuation Line which is derived from current day market prices and company fundamentals.
The supporting model and the calculations used to produce the projected fair market stock price are detailed in Fair Market Price Calculations.
The discounting applied to Paramount Gold and Silver Corp. is consistent with the discounting the current market applies to the producers Kinross Gold and Agnico-Eagle. This is optimisitic since Paramount Gold and Silver Corp. gets 30.3% of its in ground metal value from silver while both Kinross Gold or Agnico-Eagle get approximately 85% of their in ground metal value from gold.
This blog does not assign any value to potential for organic growth on current Paramount Gold and Silver Corp. properties or future acquisitions by the company. For example, the exceptional drill results reported on March 8, 2010:
Core drilling is currently being used to better define the geometry of this target in advance of aggressive definition drilling. This blind target zone contains bonanza gold grades in the breccia pipe. Surrounding rock represents the collapsed upper part of a volcanic complex and disseminated gold concentrations have been encountered in these rocks.
Drill hole SF-10-05 from the blind zone reports including 7.2 meters with 17.22 g/t gold and 2256.3 g/t silver from 132.5M to 139.7M depth.
An additional factor favoring the valuation on Paramount Gold and Silver Corp. is the size and location of its land holdings.
Paramount owns a 100% interest in the 188,461 hectare (approximately 466,000 acre) San Miguel Project in the Palmarejo District of northwest
Mexico, making it the largest claim holder in this rapidly emerging precious metals mining camp
[source: Paramount Gold and Silver Corp. discovers Second Bulk-Mineable Gold Target at
San Miguel Project in new San Francisco Area as Resource Delineation Continues]
The potential impact of land holdings on share price is discussed in Land Holdings Impact Valuation where the apparent over pricing of Impact Silver is explained in terms of future expectation the market is assigning to their land holdings.
Investors considering Paramount Gold and Silver Corp. as a land holding play should also consider Garibaldi Resources Corp.. Quoting from their website (viewed March 2010):
Garibaldi Resources Corp. is a Canadian junior mining company utilizing the most sophisticated remote sensing technology in the world to explore for new gold silver and base metal deposits in the central and northern parts of Mexico's prolific Sierra Madre. The Company controls seven district scale projects covering more than 2,500 square kilometres of strategically located concessions close to some of the most robust gold and silver mining projects ever discovered in Mexico including El Sauzal, Palmarejo, Mulatos and Ocampo.
One component of Garibaldi's land holdings and technology has already translated into a very significant percentage of Garibaldi's current market capitalization:
Garibaldi Resources Corp. ("Garibaldi"), is pleased to announce that it has closed its sale to
Paramount Gold and Silver Corp. ("Paramount") of Garibaldi's option interest in the 54,000 hectare
Temoris Concessions, in Chihuahua State, Mexico as previously announced in Garibaldi's news release
dated February 17, 2009. In consideration for the option interest, Paramount has paid Garibaldi
US$400,000 in cash and the issued to Garibaldi 6,000,000 shares in Paramount's capital.
The shares are to be released in twelve equal tranches of 500,000 shares.
[Source:
Garibaldi
Closes Temoris Transaction, Receives 6,000,000 Shares of Paramount Gold and Silver Corp.
See Garibaldi Resources Corp. Valuation in this blog for the effective valuation the market is placing on Garibaldi shares after accounting for the valuation of Paramount Gold shares held.
Working assumptions used to compute Garibaldi Resources valuations were (based on closing prices from 2012-Feb-07):
Fully Diluted Share Count: 62,044,000
Closing Share Price: $0.2
Fully Diluted Market Capitalization: $12,408,800
Value of PZG Shares Held: $10,118,400 (3,720,000 held as of July 31, 2011 filings)
Land Only Market Capitalization: $2,290,400
Land Only Effective Stock Price: $0.04
Effective Date: Current as of July 31, 2011 finacial statements available at Sedar.com
Recent Garibaldi Resources news: Garibaldi Sampling Yields High-Grade Silver at its Iris Project, Ocampo District, Chihuahua, Mexico, October 25, 2011.
Garibaldi Resources may be an excellent option for investing in Paramount Gold as well as the green fields future offered by Garibaldi's technology, database of survey results and sizable land holdings. It is also worth noting the strength of the Garibaldi's Advisory board (viewed March 2010):
Dr. Peter K. M. Megaw, Peter is a prime player in MAG Silver and has played a pivotal role in the Mexican mining sector,
Mr. Alain Charest, Alain discovered the world class El Sauzal gold deposit, was involved with the discovery of the Marlin deposit in Guatemala and was VP of Exploration at Chesapeake Gold.
Dr. Hans Von Michaelis, a world expert in gold and silver extraction and recovery.
Dr. Joseph A. Zamudio, a world expert in hyperspectral analysis and is the founder of Applied Spectral Imaging.
Gold Key:
AEM
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Place mouse over each key symbol to read graph values.
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For the chart above, Paramount Gold and Silver Corp. has an average ore value per tonne (y axis) of US$37.62 and a Market Capitalization per ounce of Gold Equivalent of US$51.28.
The Gold Explorer-Producer Valuation Hypothesis is based on the data driven observation that a company's market capitalization per ounce of gold equivalent tends to rise based on the current valuation of the metals contained in an average tonne of ore. For developer/explorers, it is also assumed that the true Explorer-Producer Gap should be large enough (but no larger) to cover the expected future capital expenditures, risk premiums and time discounts.
The original motivation for the Gold Explorer-Producer Valuation Chart was developed in Junior Gold Explorer Valuation Observations. Application steps and the generic factors that need to be considered in applying this valuation method are further described in Gold Explorer-Producer Valuation Exceptions.
This blog is based on the stock fundamentals and current metal prices as documented in the Paramount Gold and Silver Metal Valuation Report.
The Gold Explorer-Producer Valuation chart is updated after the close of trading using closing stock prices, closing spot market metal prices, fully diluted share counts, and NI 43-101 resource and reserve disclosures.
Last update was for the market close on 2012-Feb-07.
This GoldMinerPulse blog is presented for the sole purpose of illustrating how GoldMinerPulse per company metrics may be useful in judging valuation of individual gold and silver mining stocks. This blog should not be considered as investment advise. Anyone using this blog should become familar with the GoldMinerPulse metrics and the underlying assumptions to access their usefulness.
The Major Gold Producer Valuation Line is shown to be linear with respect to increasing ore value. From available data, this assumption appears sound for evaluating Paramount Gold and Silver Corp..
Coeur d'Alene's Palmarejo mine is due west of the three Paramount Gold deposits at San Miguel.
Paramount Gold and Silver web site.
Garibaldi Resouces Corp. web site.
Coeur d'Alene Mines Corporation web site.
NI 43-101 Metal Valuation Reports: Couer d'Alene, Garibaldi Resources, Paramount Gold and Silver and X-Cal Resources
Canadian Insider Reports: Coeur d'Alene Mines, Garibaldi Resources and Paramount Gold and Silver.
Sedar for all TSX regulator filings. Sorry but you'll have to navigate the Sedar site as they do not allow direct links to company specific lists of document filings.
Google News Searches:
I have listed the best of links for anyone interested in researching Paramount Gold and Silver Corp. further. If you have a blog or site withParamount Gold and Silver Corp. specific pages, please send me the link for review and I will include your work in the link section as appropriate.
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