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PZG > SEC Filings for PZG > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for PARAMOUNT GOLD & SILVER CORP. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for PARAMOUNT GOLD & SILVER CORP.


8-May-2013

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 and nine month period ended March 31, 2013 and compares those results to the three and nine month period ended March 31, 2012.

Plan of Operation:

Exploration

The Company has set its exploration budget to $7.6 million for the 2013 calendar year. We plan to allocate $4.0 million to our Sleeper Gold Project in Nevada and $3.6 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.

Nevada

Our plan in 2013 is to continue focusing on our Sleeper Gold Project. Our budget for this period is approximately $4.0 million. The budget activities will include drilling, modeling and metallurgical testing. The drill plans include drilling to obtain metallurgical samples, infill drilling to increase confidence in mineralized material and exploration drilling in the south Sleeper zone.

We plan to update our mineralized material model with drill hole data that was not included. This will allow us, along with a newly created geo-metallurgical model, to update our Preliminary Economic Assessment (the "PEA") which we completed in 2012. An updated material estimate and PEA is expected by the end of 2013.

During the three month period ended December 31, 2012, the Company sold its Reese River property located in Lander County Nevada to Valor Gold Corp. for $21,000 cash and 6,000,000 shares in Valor Gold Corp.'s common equity.

Mexico

At our San Miguel Project we continue to conduct exploration drilling by testing new areas or expanding on known mineralized zones with infill drilling. The plan is to maintain one core drill rig throughout the year. Over fifty drill holes have been completed since our last material estimate. The Company plans to update this estimate in the second half of 2013. The Company also intends to evaluate silver metallurgical recovery alternatives for the Don Ese Zone. The exploration budget for the 2013 calendar year has been set to $3.6 million.


Index

During the nine-month period ended March 31, 2013, 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 value added tax amount of $233,000 due from the Mexican Government.

Liquidity and Capital Resources

At March 31, 2013, we had cash and cash equivalents and short-term investments balances of $14,303,077 compared to $20,000,708 as at June 30, 2012. The decrease of $5,697,631 was the result of the funding of our exploration programs, corporate overhead and option payments on mineral concessions.

At March 31, 2013, we had working capital in the amount of $18,231,912. We anticipate our cash expenditures to fund exploration programs and general corporate expenses to be approximately $850,000 per month for the remainder of 2013. Anticipated cash outlays will be funded by our available cash reserves.

During the nine month period ended March 31, 2013, the Company received $272,680 pursuant to the exercise of stock options.

During the three month period ended March 31, 2013, the Company's largest shareholder FCMI Financial Corporation exercised 7,700,000 "in-the-money" stock purchase warrants for total proceeds to the Company of $7,869,939.

At March 31, 2013, the amounts receivable amount of $1,371,889 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 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 nine month period ended March 31, 2013 as to the nine month period ended March 31, 2012

Net Loss

Our net loss before other items for the nine month period ended March 31, 2013 was $5,088,720 compared to a loss of $13,502,442 in the comparable period in the prior year. The decrease in net loss of $8,413,722 or 62% was due to the gain on sale of the Reese River property recorded in the period. We will continue to incur losses for the foreseeable future as we continue with our planned explorations programs at both projects.

Expenses

Our level of exploration expenditures for the nine month period ended March 31, 2013 has remained consistent from the prior year period as we continue to advance both the Sleeper Gold and the San Miguel Projects.


Index

The following table summarizes our drilling activities at both projects for the nine month period ended March 31, 2013 and 2012:

                                                  Nine month period ended March 31,             Nine month period ended March 31,
                                                                2013                                           2012
                                                                       Cumulative                                     Cumulative
                                                 Holes               Length in Feet            Holes                Length in Feet
San Miguel Project, Mexico                             30                        43,191              113                       104,024
Sleeper Gold Project, USA                              37                        39,430               77                        18,517
Total                                                  67                        82,621              190                       122,541

Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $1,729,466 for the nine month period ended March 31, 2013. This is a 9% decrease over the comparable nine month period in the 2012. Decreases in expenses in corporate communications and consulting fees were offset by increase in professional fees and office and administration fees.

Comparison of Operating Results for the three month period ended March 31, 2013 to the three month period ended March 31, 2012.

Net Loss

Our net loss before other items for the three month period ended March 31, 2013 was $3,905,246 compared to a loss of $4,935,533 in the comparable period in the prior year. The decrease in net loss of $1,030,287 or 21% was mainly due to a reduction of stock based compensation over the comparable period in the prior year. We expect to incur losses for the foreseeable future as we continue with our planned explorations programs at both projects.

Expenses

Our level of exploration expenditures for the three month period ended March 31,
2013 has remained consistent from the prior year period as we continue to
advance both the Sleeper Gold and the San Miguel Projects.

The following table summarizes our drilling activities at both projects for the
three month period ended March 31, 2013 and 2012:


                                                Three month period ended March 31,            Three month period ended March 31,
                                                               2013                                          2012
                                                                      Cumulative                                    Cumulative
                                                Holes               Length in Feet            Holes               Length in Feet
San Miguel Project, Mexico                             9                        14,478              48                        43,636
Sleeper Gold Project, USA                             10                        10,157               5                           485
Total                                                  9                        24,635              53                        44,121

Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $500,738 for the three month period ended March 31, 2013. This 23% decrease over the comparable three month period in the 2012 was driven by reductions in professional fees, consulting fees and office and administration fees.


Index

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.

Estimates

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 a 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.

Derivatives

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.


Index

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 parent company's functional currency is the United States dollar. The functional currencies of the Company's wholly-owned subsidiaries are the U.S. Dollar and the Canadian Dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the consolidated balance sheet date. Foreign currency transaction gains and losses are included in the statement of operations and comprehensive loss. The financial statements of the subsidiaries are translated to United States dollars in accordance with ASC 830 using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity.

Reclassification

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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