In an inhospitable junior resource market it is not enough to have a potentially valuable mineral deposit, a company has to have a plan to mine and process that deposit at low cost with good margins. For Paramount Gold and Silver (T.PZG, NYSE: PZG) working through the numbers at its 100%-owned San Miguel gold and silver project located in Chihuahua State Mexico, has been an ongoing process.
An initial Preliminary Economic assessment was issued by the company February 28, 2013. It was an attractive proposition but the initial CAPEX for the project was 232 million dollars. While it might not have been impossible to raise that sort of money in the negative environment of 2013, it would have been difficult. So Paramount reconceived the project and, for the last year and a half, has been moving towards a different plan.
On August 25, 2014 Paramount released a new PEA. In the release, CEO Christopher Crupi stated, “This new PEA incorporates a much more mature and efficient design than the one from last year. The additional drilling and metallurgical testing since the first iteration have allowed us to capture a sizeable, near surface, mid-to-lower grade resource in a heap leach operation which generates a substantial economic improvement over last year.”
The new mining concept has one feature critical for success in a tight money world: its initial CAPEX is 69 million dollars: just over one third of the sum required by the 2013 PEA.
The big difference is that the new plan looks at the near surface mid to lower grade rock as the kick starter for the project as a whole. Crupi explained that the near surface deposit can be heap leached and that this fact led to the changes in the most recent PEA.
The re-conception of the deposit at San Miguel which led to the revised PEA was pre-figured in a July 8, 2014 press release. Effectively the mineralization on the property was now seen as two distinct zones. The first is the large, bulk-mineable San Francisco gold-silver deposit was re-modeled following successful metallurgical testing of its heap leach potential; measured plus indicated contained metal now stands at 126,000 ounces of gold and 3.4 million ounces of silver, plus a further 566,000 ounces of gold and 14.7 million ounces of silver in the inferred category. The second is the deeper, higher grade, Don Ese deposit located several hundred meters east of Coeur d’Alene’s Guadalupe deposit, which it closely resembles, and they probably sit within the same structure.
Mining the property in two stages with the bulk deposit being taken off first keeps the CAPEX down and provides the cash necessary to finance the more expensive underground mining of the higher grade Don Ese deposit.
The PEA is the trigger for Paramount to begin the preparations required to mine the property. A permit needs to be secured, additional drilling to further define the near surface deposit needs to take place and then, permit in hand, Crupi estimates it will take roughly a year to build the leach pad and bring the mine into production. The single San Francisco near surface deposit contains over 50,000,000 tons of measured and inferred resources grading 2-10 gpt silver with significant gold credits. “That one pit will run for years.” says Crupi.
The higher grade gold and silver deposits which need to be mined underground offer an intriguing addition to the project. “Coeur d’Alene paid a billion dollars for its adjacent property and then spent another $600 million to build a mill. A mill which is running under capacity.” explained Crupi.
Running a large mill at less than full capacity is expensive. Coeur d’Alene could be very interested in milling the underground, high grade rock from the San Miguel project. Crupi would not be drawn into speculating as to how Coeur d’Alene might get that rock but he did indicate that Coeur d’Alene was not the only company interested in Paramount’s progress.
Crupi is looking forward to deploying more drills to the project to delineate the near surface mineralization and obtaining the required permits. Paramount will be deploying four drills to the site as per the recommendations in the PEA to move towards a Pre-Feasibility Study. The company wants to improve the confidence level of the inferred resources to the measured & indicated confidence level so that they could be included as reserves in a PFS. It also is looking forward to testing additional high priority targets on the property.
On the financing side Crupi is very confident. “We’re a New York listed company. US investors are less wary than Canadian junior resource investors. We’ll be able to raise the money.”
At the time of writing Paramount was trading at 1.13 on the TSX with 161 million shares outstanding and a market cap of $182.1 million.
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