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PZG > SEC Filings for PZG > Form 10-K on 9-Sep-2013All Recent SEC Filings

Show all filings for PARAMOUNT GOLD & SILVER CORP.

Form 10-K for PARAMOUNT GOLD & SILVER CORP.


9-Sep-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

We are an exploratory stage mining company that currently has mining concessions in Mexico and mineral 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 plan of operations for the foreseeable future. It also analyzes our financial condition and summarizes the results of our operations for the years ended June 30, 2013, 2012, and 2011 and compares each year's results to the results of the prior year.

Plan of Operation - Exploration:

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 Company's exploration plan and budget for the San Miguel Project will be managed by its in-house technical staff. It will be funded by the Company's cash on hand, and we have budgeted approximately $2.2 million for the next twelve months.

Our plan for the next twelve months is to continue focusing on our Sleeper Gold Project. Our budget for this period is approximately $2.8 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.

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.

Comparison of Operating Results for the year ended June 30, 2013 as compared to June 30, 2012

Liquidity and Capital Resources

At June 30, 2013, we had a cash and short-term investment balance of $11,524,051 compared to $20,000,708 as at June 30, 2012. The cash used to fund our exploration programs and corporate overhead was partially offset by the warrant exercise completed by FCMI in March 2013.

At June 30, 2013, we had a net working capital in the amount of $13,340,429. We anticipate our cash expenditures to fund exploration programs and general corporate expenses to be approximately $650,000 per month for the next twelve months. Anticipated cash outlays will be funded by our available cash reserves and future issuances of shares of our common stock.

For the year ended June 30, 2013, the company received $564,680 pursuant to the exercise of stock options.

At June 30, 2013, the Company's amounts receivable of $1,207,247 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 adversely affected.


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Net Loss

Our net loss before other items for the year ended June 30, 2013 was $11,925,649 compared to a loss of $18,092,749 in the previous year. The decrease in net loss of $6,167,100 or 34% reflects an overall reduction in exploration programs and corporate expenses along with the gain recorded on the sale of the Reese River mineral property. We will continue to incur losses for the foreseeable future as we continue with our planned exploration programs at both projects.

Expenses

Our exploration expenses for the year ended June 30, 2013 compared to the
previous year decreased by 8% or by $1,075,030.  The decrease is mainly driven
by the decreased number of holes and total cumulative length of feet drilled by
the Company in both Nevada and Mexico.

The following table summarizes our drilling activities at both projects for the
year ended June 30, 2013 and 2012:

                                           For the year ended June 30, 2013      For the year ended June 30, 2012
                                                                Cumulative                            Cumulative
                                                                 Length in                             Length in
                                              Holes                Feet             Holes                Feet
San Miguel Project, Mexico                          33                57,669             149               135,165
Sleeper Gold Project, USA                           38                55,104              79                21,013
                                   Total            71               112,773             228               156,179

Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $2,343,780 for the year ended June 30, 2013. This is an 8% decrease over the previous year ended June 30, 2012. Management believes the decrease was reasonable given the level of business activity that occurred during the year. We believe our cash is adequate to meet our budgeted expenses in the short-term.

For the year ended June 30, 2013, the Company's warrant liability decreased by $10,746,787. The decrease in warrant liability was due to the exercising of stock purchase stock warrants by FCMI, our largest shareholder, in March 2013.

Comparison of Operating Results for the year ended June 30, 2012 as compared to June 30, 2011

Liquidity and Capital Resources

At June 30, 2012, we had a cash and short-term investment balance of $20,000,708 compared to $14,689,241 as at June 30, 2011. The cash used to fund our exploration programs and corporate overhead was offset by the financing we completed in March 2012.

At June 30, 2012, we had a net working capital, excluding non-cash warrant liability, of $20,694,536. We anticipate our cash expenditures to fund exploration programs and general corporate expenses to be approximately $1.3 million per month for the next 6 months. We also anticipate making $1.6 million in option payments for previously purchased mineral concessions in the next 3 months. Anticipated cash outlays will be funded by our available cash reserves and future issuances of shares of our common stock.

For the year ended June 30, 2012, the company received $287,425 pursuant to the exercise of stock options.

At June 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 $7.9 million. These warrants expire in March 2013.

At June 30, 2012, the Company's amounts receivable of $1,458,365 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 adversely affected.


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Net Loss

Our net loss before other items for the year ended June 30, 2012 was $18,092,749 compared to a loss of $11,860,043 in the previous year. The increase in net loss of $6,232,706 or 53% reflects our expanded exploration programs 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 exploration programs at both projects.

Expenses

Our exploration expenses for the year ended June 30, 2012 compared to the
previous year increased by 68% or by $5,442,602.  The increase is mainly driven
by the increased number of holes and total cumulative length of feet drilled by
the Company in both Nevada and Mexico.

The following table summarizes our drilling activities at both projects for the
year ended June 30, 2012 and 2011:

                                           For the year ended June 30, 2012       For the year ended June 30, 2011
                                                                Cumulative                             Cumulative
                                                                 Length in                              Length in
                                              Holes                Feet             Holes                 Feet
San Miguel Project, Mexico                         149               135,166               86                72,887
Sleeper Gold Project, USA                           79                21,013               36                24,742
                                   Total           228               156,179              122                97,627

Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $2,534,123 for the year ended June 30, 2012. This is an 8% increase over the previous year ended June 30, 2011. Management believes the increase was reasonable given the level of business activity that occurred during the year. We believe our cash is adequate to meet our budgeted expenses in the short-term.

For the year ended June 30, 2012, the Company's warrant liability decreased by $6,167,873. The decrease was recorded as a gain on the Consolidated Statement of Operations. The decrease in warrant liability is primarily due to a decrease in the Company's share price from $3.26 at June 30, 2011 to $2.40 at June 30, 2012

Contractual Obligations

The following table summarizes our obligations and commitments as of June 30,
2013 to make future payments under certain contracts, aggregated by category of
contractual obligation, for specified time periods:

                                          Payments due by period
                                                  Less than                                    More than 5
Contractual Obligations              Total          1 year       1-3 years      4-5 years         years
Accounts Payable & Accrued
Liabilities                       $   298,281     $  298,281              -              -               -
Asset Retirement Obligations        1,263,584        102,000        318,404        113,742         619,028
Total                             $ 1,561,865     $  400,281     $  318,404     $  113,742     $   619,028

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.


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Estimates

The Company prepares its consolidated financial statements and notes in conformity to United States Generally Accepted Accounting Principles ("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 these costs 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 records exploration expenses 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.

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 instrument.

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 Company's outstanding warrant 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 the fair value of our 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 monthly average exchange rate 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.


Table of Contents

Reclassification

Certain comparative figures have been reclassified to conform to the current year end 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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