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PZG > SEC Filings for PZG > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for PARAMOUNT GOLD & SILVER CORP.



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes (included elsewhere in this report) and (ii) our consolidated financial statements, related notes and management's discussion and analysis of financial condition and results of operations included in our June 30, 2012 annual report filed on Form 10-K with the Securities and Exchange Commission on September 11, 2012.

We are an exploratory stage mining company that currently has mining concessions in Mexico and mining claims in Nevada, USA. We have no proven reserves at our San Miguel project in Mexico or at our Sleeper Gold project in Nevada but are currently exploring both projects. The following discussion updates our planned operations for this fiscal year. It also analyzes our financial condition and summarizes the results of operations for the three month period ended September 30, 2012 and compares those results to the three month period ended September 30, 2011.

Plan of Operation:


Our total company exploration budget for the current fiscal year has been set to $14.0 million. We plan to allocate $6.2 million to our Sleeper Gold Project in Nevada and $7.8 million to our San Miguel Project in Mexico.

Our work at both the San Miguel Project and Sleeper Gold Project is consistent with Paramount's strategy of expanding and upgrading known, large-scale precious metal occurrences in established mining camps, defining their economic potential and then partnering them with nearby producers.


Our plan for the next twelve months in Nevada is to primarily focus on our Sleeper Gold Project. Our budget for this period is approximately $6.2 million. We will assess the results and recommendations of the Preliminary Economic Assessment prepared by SEWC and determine the next steps for the Sleeper Gold Project. We will continue drilling to follow up on open zones with gold anomalies or hidden geophysical targets. Additionally, a drill program is planned to test several targets within the recently staked Mimi claim block south of the original Sleeper Gold Mine claim block.


At our San Miguel Project we continue to conduct exploration drilling by testing new areas or expanding resources on known zones such La Bavisa, Don Ese Sur and el Ojito, which are part of the Temoris group of concessions. Additionally, we plan to conduct geological reconnaissance to identify new targets areas and drill them on geological merit. The Company expects to complete a Preliminary Economic Assessment on San Miguel project by calendar year end 2012. This will be based on our updated material estimate prepared by Mine Development Associates, and metallurgical testing by McClelland Laboratories, both of Reno, Nevada USA. Our budget for the program is approximately $7.8 million.

During the three-month period ended September 30, 2012, the Company exercised two options to acquire 11 mining concessions located in Mexico and related to its San Miguel project. In consideration for the mining concessions, the Company made cash payments totaling $1,693,000. Included in the payment is a refundable value added tax amount of $233,000 from the Mexican Government which the Company has recorded as an amounts receivable on its Balance Sheet at September 30, 2012.


Liquidity and Capital Resources

At September 30, 2012, we had cash and cash equivalents and short-term investments balances of $12,984,842 compared to $20,000,708 as at June 30, 2012. The decrease of $7,015,866 was the result of the funding of our exploration programs and corporate overhead and to make option payments for previously purchased mineral concessions.

At September 30, 2012, we had a net working capital, excluding the non-cash warrant liability, of $15,330,313. We anticipate our cash expenditures to fund exploration programs and general corporate expenses to be approximately $1.25 million per month for three month period ending December 31, 2012. Anticipated cash outlays will be funded by our available cash reserves and future issuances of shares of our common stock.

During the three month period ended September 30, 2012, the company received $52,000 pursuant to the exercise of stock options.

At September 30, 2012, the Company had 7,700,000 "in-the-money" purchase warrants outstanding. All the warrants are held by the Company's largest shareholder FCMI Financial Corporation. If all the issued outstanding warrants are exercised, the Company's cash balances will increase by approximately $8.2 million. These warrants expire March 2013.

At September 30, 2012, the amounts receivable amount of $1,963,629 primarily consisted of value added tax due from the Mexican government.

Historically, we have funded our exploration and development activities through equity financing arrangements. We continue to assess our needs for additional capital to ensure sufficient financial resources are available to fund our exploration and working capital needs. We believe that our access to additional capital, together with our existing cash resources will be sufficient to meet our needs for the next twelve months. If, however, we are unable to obtain additional capital or financing, our exploration and development activities will be significantly affected.

Comparison of Operating Results for the three month period ended September 30, 2012 to the three month period ended September 30, 2011.

Net Loss

Our net loss before other items for the three month period ended September 30, 2012 was $4,327,343 compared to a loss of $4,698,364 in the comparable period in the prior year. The decrease in net loss of $371,021 or 8% mainly reflects lower exploration expenditures at both the Sleeper Gold Project and the San Miguel Project. We will continue to incur losses for the foreseeable future as we continue with our planned explorations programs at both projects.


Our exploration expenses for the three month period ended September 30, 2012 compared to the comparable prior period decreased by 12% or by $483,869. The decrease is mainly driven by the reduced number of holes and total cumulative length of feet drilled by the Company in both Nevada and Mexico from the prior year comparable period.


The following table summarizes our drilling activities at both projects for the three month period ended September 30, 2012 and 2011:

                                                         Three month period ended September 30,               Three month period ended September 30,
                                                                          2012                                                 2011
                                                                                   Cumulative                                           Cumulative
                                                        Holes                    Length in Feet              Holes                    Length in Feet
San Miguel Project, Mexico                                     17                             19,414                22                             24,898
Sleeper Gold Project, USA                                      14                             16,357                12                             10,802
                                            Total              31                             35,771                34                             35,700

Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $507,118 for the three month period ended September 30, 2012. This is a 1% decrease over the comparable three month period in the 2012.

During the three month period ended September 30, 2012, the Company's warrant liability increased by $1,532,120. The increase was recorded as a gain on the Consolidated Statement of Operations. The increase in warrant liability is primarily due to an increase in the Company's share price from $2.40 at June 30, 2012 to $2.66 at September 30, 2012.

Critical Accounting Policies

Management considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company's consolidated financial statements and the uncertainties that could impact the results of operations, financial condition and cash flows. Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. Management believes the Company's critical accounting policies are those related to mineral property acquisition costs, exploration and development cost, stock based compensation, derivative accounting and foreign currency translation.


The Company prepares its consolidated financial statements and notes in conformity to U.S. GAAP and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and long-lived assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Mineral property acquisition costs

The Company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts of the specific mineral property at the time the payments are made.

The amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves.


Exploration expenses

The company expenses exploration costs as incurred. When it is determined that precious metal resource deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration expenses related to such reserves incurred after such a determination will be capitalized. To date, the Company has not established any proven or probable reserves and will continue to expense exploration expenses as incurred.


The Company has adopted the amended provisions of ASC 815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock. The Company has issued stock purchase warrants with exercise prices denominated in a currency other than its functional currency of U.S. dollars. As a result, these warrants are no longer considered indexed to our stock and must be accounted for as a derivative.

Warrants that are issued with exercise prices other than the Company's functional currency of the U.S. dollar are accounted for as liabilities. The fair value of the outstanding warrants liabilities is determined at each reporting date with any change to the liability from a previous period recorded in the Statement of Operations. We record changes in fair value of the warrant liabilities as a component of other income and expense as we believe the amounts recorded relate to financing activities and not as a result of our operations. If a stock purchase warrant is exercised, the Company is only obligated to issue shares in its common stock.

If the Company were to issue stock purchase warrants with exercise prices in its functional currency, the warrants would be considered indexed to our stock and the fair value at date of issue recorded as equity. There would be no requirement under U.S. GAAP to report changes in its fair value from period to period.

Foreign Currency Translation

The functional currency of the Company is the U.S. dollar. Transactions involving foreign currencies for items included in operations are translated into U.S. dollars using the exchange rate prevailing at the date of transaction and monetary assets and liabilities are translated at the exchange rate prevailing at the consolidated balance sheet date and all other consolidated balance sheet items are translated at historical rates applicable to the transactions that comprise the amounts. Translation gains and losses are included in the determination of other comprehensive loss and gains in the Statement of Operations.


Certain comparative figures have been reclassified to conform to the current quarter presentation.

Off-Balance Sheet Arrangements

We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.

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