The Calandra Report: Paramount Gold, Coeur Mining, and the Ivanhoe charge

MEXICO CITY -- En route to Baja Peninsula for short holiday.

We are adding comments from Paramount Gold's (TSX:T.PZG, Stock Forum) Chris Crupi on possible scenarios for the company's San Miguel proposed mine, next door to Coeur Mining's Palmarejo producing silver and gold mine.

The San Miguel property is a planned 4,000-tonne per day open pit and underground gold and silver mine.

Glen van Treek, PZG chief geologist and VP exploration, tells me the proposed mine sits within a few kilometers of Coeur Mining's Guadalupe property on the western flank of the Sierra Madre. That is Couer's Palmarejo property, which is the world's fifth largest primary silver mine.

Coeur (NYSE:CDE, Stock Forum) right now gets the silver out of the ground for what it says on its web site is less than $2 an ounce operating cost at Palmarejo. It has 900 workers at Palmarejo. This part of the Sierra Madre Occidental Belt is mostly epithermal. Several miners, including Coeur, go at their deposits from underground and at surface via open pit.

Chris Crupi, CEO of Paramount, says that silver cash operating cost estimate (2012 on web site) is so low because of (byproduct) gold credits that Couer gets from Franco-Nevada.

Says Mr. Crupi, "I believe the cost per Ag oz of production for Coeur may be net of Au (gold) credits because I just read a report by Raymond James that the cost per Ag oz is $19.50, which includes an estimated $4.00 per Ag oz royalty to FNV - which is a life of mine Au royalty. If CDE processes PZG ore there is no royalty at Palmarejo."

He continues, "Also, consider the very huge economic impact to the NPV if we did not have to build a $200 million mill ($237 million according to the PEA) and help bump up the CDE capacity simply by extracting and crushing and shipping ore over the claim line. CDE is currently doing same by shipping ore from its Guadalupe mine to the Palmarejo mill."

CDE (Coeur)´s Bridget Freas tells me, "The Franco Nevada royalties are not netted out of the operating cash cost. Those are accounted for on the balance sheet. I think you mean the by-product credit for gold. If you allocate costs in line with revenue (silver is 54% of the revenue at PJO), then you would get a silver cash cost of $12.24 in 2Q 2013."

The recent Paramount PEA for San Miguel assumes initial capital expenditure of $243 million with a 14 year mine life. That is, 800,000 ounces of gold and 43 million ounces silver.

"It will be a mine, of that I am sure," says Mr. van Treek, a Chilean who has worked with Placer Dome Gold, Teck Resources and others. These days, I don´t care if Glen is really Mexico silver geo Peter Megaw in disguise. I shall believe it when I see it.

Still, metallurgy studies already show 90 percent gold open pit recoveries and 94 percent from underground.

I visited the old Sleeper Mine that Paramount bought a couple of years ago in Nevada. I see what could be a heap leach operation there. But my take on Paramount is that its largest shareholders, including CEO Crupi, are in this because of the simultaneous exposure to Mexico and Nevada.

Those two jurisdictions have been hurt far less in the resources market than others. Like Colombia, for instance. Or Yukon.

I believe, based on discussions with other geologists working in Mexico, as well as executives in Canada, Montana and Idaho, that CDE at some point will purchase San Miguel from PZG. This is why I own shares of PZG.

Mr. Crupi, speaking from NYC, adds, "The grades at CDE ... are gradually dropping. PzG is forecasting an overall grade of 3.18 g per T Au equivalent with an underground grade of 4.5 g per T of Au eq. Also, recall we have 50 core drill holes to add to the resource and mine plan."

Jay Taylor, a New York writer, has a worthy radio discussion with Mr. Crupi at https://ow.ly/pKs81. He notes in a report this week at MiningStocks.com that PZG shares owe part of their resilience in this dumpster market for mining equities to Mr. Crupi´s seemingly relentless efforts to reach out to individual investors. "These shares have gotten hit hard along with the entire sector, but they have held their value better than most. Combine even higher resource numbers with a return to the gold bull market, and these shares should do exceptionally well. Both projects are well located in the midst of or close to other major gold and silver producers and there are no significant infrastructure issues facing either project," says Mr. Taylor.

I like the fact that Paramount, thanks to wealthy shareholders who reached out with recent financings, has enough cash for two more years, mas o menos.

Here is a report from Gabriel Bayona in Medellin for Colombia mining equities. It is an excellent summary of what is happening in the nation of ravaged mining stocks. See: https://www.ophirmri.com/wp-content/uploads/2013/10/OPHIR-Mining-Report-October.pdf.

Gabriel details confirmation of the shocking drop in attendance at the Medellin Mining Fair in September.

PLATINUM: Ivanhoe Mines (TSX:T.IVN, Stock Forum) gets a thick slug of platinum group metals from a fresh hole at Flatreef in South Africa. The company says the intercept came in at 4.51 grams per metric ton of platinum, palladium, rhodium and gold (4PGE) over 90.64 meters (297 feet) at a 1 g/t 3PE cut-off. See release.

Ivanhoe Mines in the release compares the intercept to a 30-story office tower.

Likely moving IVN (in Canada) shares today is the matter of what miners call true thickness of ore deposits. As the company points out, gentle dips at Ivanhoe´s patch of the Bushveld Complex mean the 90 meters of minerals is close to true thickness.

Of interest: the fresh assay is a few hundred meters south of the location of the bulk-sample shaft, which recently received approval to proceed from the South African government's Department of Mineral Resources. The high-grade mineralization started at a depth of 803 meters below surface and continued to a depth of 894 meters. "The two mineralized reefs that comprise the uppermost mineralized portion of the Flatreef Discovery — T1M and T2 — are adjacent to each other in this area, which is a contributing factor to the size of the intersection," the company notes.

I own shares of Paramount Gold and Ivanhoe Mines. Alas, I also own shares of Revett Minerals (TSX:T.RVM, Stock Forum), which again is delaying the reopening of its Troy Mine in Montana, with dire consequences for RVM shares. The RVM decline today reduces the polymetallic miner´s market worth to about $25 million and likely crushes the life out of any existing warrants. I am not sure what fair value is for the stock at this point. There is always the Rock Creek property, a long proposed Montana copper.silver mine that now has its own web site.

Humour corner: Check out the Black Panther in this writing contest article. Funny. Oh, and the Tiny Archer, no relation to Great Panther Silver´s Bob Archer.

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