Preliminary Assessment Completed for Paramount Gold's Sleeper Project
Study Predicts 17 Year Operation with Average Annual Gold Production of 172,000 OuncesEstimated Pre-Tax NPV of US$695 Million at a 5% Discount Rate and IRR of 26.8% at $1,384 Gold Price
WINNEMUCCA, NEVADA -- (Marketwire) -- 07/30/12 -- Paramount Gold and Silver Corp. (NYSE MKT: PZG)(NYSE Amex: PZG) (TSX: PZG) (FRANKFURT: P6G) (WKN: A0HGKQ) ("Paramount") announced today the results of a Preliminary Economic Assessment ("PEA") for its 100%-owned Sleeper Gold and Silver project located in Humboldt County, Nevada. The PEA has been led by Scott E. Wilson Consulting Inc. ("SEWC") using resource and geologic information developed by SRK Consulting (Chile) S.A. ("SRK"). The PEA confirms that the Sleeper project represents an excellent economic opportunity in the current gold price environment. The complete PEA will be filed at www.sedar.com within 45 days.
Commenting on the results of the PEA, Paramount President and CEO Christopher Crupi stated that "we are delighted by the depth of experience the Scott E. Wilson consulting team has brought to this assignment, particularly their work on other similar brown field projects such as Allied Nevada's restart of the Hycroft Mine. This PEA is an important step in the rebirth of what was once a very successful Nevada gold producer. The relatively low estimated start-up capital, unit operating costs and a 17 year life make Sleeper an attractive development option for many producers. As SEWC has confirmed, the exploration potential at Sleeper is highly favorable for expanding the resources available to the open pit operation envisioned in the PEA. We are now drilling these close-in targets to improve the project while also exploring for a second high grade Sleeper mine on our large land position."
In their analysis, SEWC evaluated two distinct development scenarios: (i) a heap leach only operation consisting of large-scale open pit mining, followed by standard heap leaching for all oxide and suitable sulphide material; and (ii) a combined heap leach and conventional milling option consisting of large-scale open pit mining followed by standard heap leaching for all oxide material and conventional milling for suitable sulphide material.
SEWC has concluded that the most attractive development scenario for Sleeper consists of a large-scale open pit mining operation with a heap leach processing plant handling both oxide and sulphide material, producing a gold-silver dore. A "heap leach only" base case scenario was developed for the project incorporating an 81,000 tonnes per day operation (approximately 30 million tonnes per year throughput), resulting in a projected 17 year operation with average annual production of 172,000 ounces of gold and 263,000 ounces of silver. Projected life of mine average cash operating costs are US$767 per ounce of equivalent gold recovered. Start-up capital costs for this project scenario are estimated at US$346 million. Sustaining capital costs over the project's life are estimated at an additional $278 million. Total capital cost contingencies over the project life are estimated at an additional $64 million, bringing the total life of mine capital costs to $688 million. The total cost of equivalent gold production (including cash operating costs and total capital and contingency costs over the life of the mine) is estimated at US$996 per ounce.
At a gold price of US$1,384 per ounce and a silver price of $26.33 per ounce (the 3 year trailing average of gold and silver prices as at July 3, 2012), the base case has a US$1.2 billion pre-tax net cash flow, a US$695 million net present value at a 5% discount rate and an internal rate of return (IRR) of 26.8%. At US$1,618 gold (the spot price on July 3, 2012), the total pre-tax net cash flow increases by 160% over the base case to US$1.9 billion, the net present value at a 5% discount rate almost doubles to US$1.2 billion and the internal rate of return improves to a robust 40%.
Mineral Resources
In September 2011, SRK completed a National Instrument 43-101-compliant global resource estimate for the Sleeper project (see news release dated September 13, 2011 for details). The Sleeper database used for SRK's resource estimate includes more than 4,000 reverse circulation and core drill holes, as well as historical surface mapping and interpretations, to create a comprehensive lithological and structural model over the entire deposit. Additionally, data from more than 378,000 blast holes, collected while the project was in operation, were utilized to define trends, orientations and inclinations for the principal mineral zones. In their analysis, SRK estimated mineral resources for oxide and sulphide material separately, and reported these resources at various cut-off grades. The resource estimate prepared by SRK, in the form of the resource block model, was used by SEWC as the basis for determining mineable mineralization in the PEA.
National Instrument 43-101 compliant global mineral resources estimated by SRK at a cut-off grade of 0.1 grams of gold per tonne for oxide material and 0.2 grams of gold per tonne for sulphide material are as follows:
Global Measured Resources
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Cutoff Gold Silver Silver
Grade Tonnes Grade Gold (000 Grade (000 of
Material Type (g/t) (000) (g/t) of ounces) (g/t) ounces)
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Oxide 0.10 51,140 0.30 493 3.69 6,067
Sulphide 0.20 115,477 0.47 1,745 4.77 17,710
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Total 166,617 0.42 2,238 4.44 23,777
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Global Indicated Resources
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Cutoff Gold Silver Silver
Grade Tonnes Grade Gold (000 Grade (000 of
Material Type (g/t) (000) (g/t) of ounces) (g/t) ounces)
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Oxide 0.10 21,252 0.24 164 3.69 2,521
Sulphide 0.20 53,645 0.38 649 3.65 6,296
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Total 74,897 0.34 813 3.66 8,817
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Global Measured Plus Indicated Resources
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Cutoff Gold Silver Silver
Grade Tonnes Grade Gold (000 Grade (000 of
Material Type (g/t) (000) (g/t) of ounces) (g/t) ounces)
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Oxide 0.10 72,392 0.28 657 3.69 8,588
Sulphide 0.20 169,122 0.44 2,394 4.41 24,006
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Total 241,514 0.39 3,051 4.20 32,594
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Global Inferred Resources
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Cutoff Gold Silver Silver
Grade Tonnes Grade Gold (000 Grade (000 of
Material Type (g/t) (000) (g/t) of ounces) (g/t) ounces)
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Oxide 0.10 29,635 0.23 215 3.18 3,030
Sulphide 0.20 94,874 0.38 1,165 3.05 9,303
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Total 124,509 0.34 1,380 3.08 12,333
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In addition to the above reported resources, SEWC also examined the suitability of including additional above ground material contained in old heap leach pads and mine dumps. Based on metallurgical test work and recent drilling performed by Paramount on this material, SEWC deemed it appropriate to include material from mine dumps on the property which are amenable to heap leach processing. The additional National Instrument 43-101 compliant above ground resources (as estimated by SEWC) included in the proposed mining operation at a cutoff grade of 0.10 grams of gold per tonne are summarized as follows:
Inferred Resources Contained in Mine Dumps
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Gold Grade Gold (000 of Silver Grade Silver (000 of
Tonnes (000) (g/t) ounces) (g/t) ounces)
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22,414 0.30 216 2.39 1,721
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Mine Planning
The average grade of the Sleeper mineral resources is relatively low, which dictates a different mining approach than previously employed in exploitation of the high grade mineralization during the 1980s. These low grades, which are now being mined successfully elsewhere in Nevada, appear to be economically viable in combination with the current high gold price environment and low operating costs that could result from large surface mining throughputs. This mining approach is the basis of the analysis and evaluation developed for the PEA.
A Preliminary Economic Assessment provides a basis to estimate project operating and capital costs and establish a projection of the potential mineable resource including measured, indicated and inferred categories as permitted under National Instrument 43-101. Whittle pit optimization was performed using estimates of operating costs typical of operating surface mines using heap leach processing in northern Nevada, and using estimates of metallurgical recovery based on test work performed on Sleeper core and waste dump material and consideration of historical operating results for heap leaching at the original Sleeper mine. The ultimate pit shell was determined using a gold price of $1,300 per ounce. In-pit resources and mineralized dumps used for production scheduling are as follows:
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Mineralized
Material Gold Silver
Resource (000s Gold Grade (000s of Silver Grade (000s of
Category Tonnes) (g/t) ounces) (g/t) ounces)
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Measured 194,450 0.34 2,090 3.59 22,500
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Indicated 90,050 0.27 790 3.26 9,400
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Measured and
Indicated 284,500 0.32 2,880 3.49 31,900
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Inferred 136,000 0.27 1,196 2.95 12,900
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The estimated strip ratio for the economic pit is 1.08.
Paramount notes that the PEA incorporates inferred mineral resources which are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Therefore, Paramount advises that there can be no certainty that the estimates contained in the PEA will be realized.
Metallurgy
Paramount has performed scoping level metallurgical testing to provide a basis to project potential process recoveries for oxide, sulphide and mine dump material. Data was available from bottle roll testing and column leach testing of drill samples from the mine dumps, Facilities Zone, Westwood Zone and tailings. The tests indicated that materials from the Facilities Zone and mine dumps had generally high Au recovery in cyanide leach tests, while Westwood Zone and Sleeper tails material had generally low gold recovery in cyanide leach tests. Accordingly, material from the Westwood Zone and tailings was not incorporated into the PEA.
Three general mining zones were defined on the basis of metallurgical testing and historical mining performance: (1) the Facilities Zone (an area on the eastern edge of the Sleeper surface excavation), (2) Sleeper Zone (low grade continuation of the original Sleeper deposit at depth), and (3) mine dumps from historic Sleeper mining operations.
On the basis of the existing test data and the historical metallurgical performance of the Sleeper cyanide heap leach and cyanide mill processing, heap leach process recovery assumptions used in the Whittle optimization were:
-- Facilities Zone Oxide and Sulphide mineralization - 78% for gold and 10%
for silver
-- Sleeper Zone Oxide mineralization - 78% for gold and 10% for silver
-- Sleeper Zone Sulphide mineralization - 55% for gold and 10% for silver
-- Mine dumps mineralization - 78% for gold and 10% for silver
The process facilities in the PEA were assumed to be standard cyanide heap leaching with a carbon-in-column and ADR recovery plant. Heap leach material would be crushed to P80 -3/4 inch (19 mm) using a primary and secondary crushing circuit. It was assumed that agglomeration would be required for the heap leach. The crushing circuit would be sized for 81,000 tonnes per day throughput, with a stockpile of mineralized material developed to level the process rate.
The process facilities would produce a dore for direct sale to a regional refinery. It was assumed that metal produced would be sold at spot prices for gold and silver.
Capital Costs
Capital costs were developed based on scaling costs from similar facilities for production rates and from design basis assumptions including an owner operated mining fleet. The costs are collected in three separate categories: (i) initial capital (construction costs to initiate mining operations and heap leach processing); (ii) sustaining capital (costs associated with equipment additions/replacements or system rebuilds); and (iii) contingency estimates. The estimated life of mine capital costs for the base case are summarized as follows:
Life of Mine Estimated Capital Costs
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Description US$(millions)
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Initial Capital 346.2
Sustaining Capital 278.1
Contingencies 63.5
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Total 687.8
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Operating Costs
Operating cost assumptions were based on similar scale surface mining operations using heap leach processing in northern Nevada, and process cost estimates for key consumables based on the available metallurgical test data, power consumption data and prevailing costs for key materials in similar Nevada mining operations. Operating cost assumptions per tonne of material processed are summarized as follows:
Unit Operating Costs
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US$'s
Cost Category (Per Tonne Processed)
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Mining Costs (includes waste and stockpile re-handle) 3.14
Heap Leach Processing Staff & Supplies 1.55
Administrative 0.50
Dewatering 0.20
Reclamation 0.11
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Total 5.50
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Economic Analysis
The base case economic evaluation used historical three-year trailing averages for gold and silver prices as of July 3, 2012. This approach is consistent with the guidance of the United States Securities and Exchange Commission, is accepted by the Ontario Securities Commission and is industry standard. A spot price case was prepared using July 3, 2012 spot gold and silver prices. The base case pre-tax economic results for both sets of metal price assumptions are as follows:
Pre-Tax Projected Economic Results (US$)
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Spot Price
Base Case Case
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Gold Price Per Ounce $ 1384 $ 1618
Silver Price Per Ounce $ 26.33 $ 27.92
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Net Cash Flow $ 1,170 million $ 1,861 million
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NPV @ 5% Discount Rate $ 695 million $ 1,182 million
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IRR 26.8% 40.0%
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Operating Costs Per Ounce of Gold
Equivalent Produced (life of mine) $ 767 $ 767
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Total Costs Per Ounce of Gold Equivalent
Produced (includes all capital) $ 996 $ 996
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Infrastructure
Existing infrastructure at the Sleeper mine site will require upgrades for the projected large mine configuration, however, the basic components remain in place. The site is currently connected to the regional electrical grid, although substantial capacity upgrade would be required. Gravel road access connecting the Sleeper mine site to paved, all weather highways 140 and 95 is in place.
The community of Winnemucca, NV is to the south of Sleeper at the junction of Highway 95 and Interstate Highway I-80, and is a community of 7,400 people. Mining and industrial skills required by the mining operation are readily available in the area, as Winnemucca supports numerous existing gold mining operations.
Existing shop and office buildings at Sleeper are located on top of the Facilities Zone, and would require removal and reconstruction. Heap leach pad and process facilities would have to be constructed, however very favorable terrain should result in low cost and rapid completion.
Renewed mining at Sleeper would require the development of a dewatering system to empty the existing mine lake, control inflow to the mine excavations and create a local depression in the hydrologic regime to allow deepening of the mine. The previous mining created a system of dewatering wells, however only some monitoring wells remain functional. New wells would need to be installed, and a wetlands or rapid infiltration basin constructed.
About the Sleeper Gold Project
The Sleeper Gold Project is located off a main highway about 25 miles from the town of Winnemucca. In 2010, Paramount acquired a 100% interest in the project including the original Sleeper high-grade open pit mine operated by Amax Gold from 1986 to 1996 as well as staked and purchased lands now totaling 2,570 claims and covering about 47,500 acres which stretch south down trend to Newmont's Sandman project. This acquisition is consistent with the Company's strategy of district-scale exploration near infrastructure in established mining camps.
National Instrument 43-101 Disclosure
The PEA for the Sleeper project was prepared by Scott E. Wilson Consulting Inc. ("SEWC") under the direction of Scott E. Wilson, CPG and incorporates the work of a number of industry-leading consultants, all of which are Qualified Persons (as defined under National Instrument 43-101) and are independent of Paramount. Each of the consultants have reviewed and approved this news release.
All resource estimates reported by the Corporation were calculated in accordance with the Canadian National Instrument 43-101 and the Canadian Institute of Mining and Metallurgy Classification system. These standards differ significantly from the requirements of the U.S. Securities and Exchange Commission. Mineral resources which are not mineral reserves do not have demonstrated economic viability. In particular, Paramount notes that the Sleeper Preliminary Economic Assessment referred to above incorporates inferred mineral resources which are considered too geologically speculative to have economic considerations applied to them that would enable them to be categorized as mineral reserves. Therefore, Paramount advises that there can be no certainty that the estimates contained in the Sleeper PEA will be realized.
This document contains "forward-looking information" within the meaning of Canadian securities legislation and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. This information and these statements, referred to herein as "forward-looking statements" are made as of the date of this document. Forward-looking statements concerning the expected completion of a Preliminary Feasibility Study, other goals or objectives, or the completion of work programs, relate to future events or future performance and reflect current estimates, predictions, expectations or beliefs regarding future events and include, but are not limited to, statements with respect to: (i) the amount of mineral resources; (ii) the amount of future production over any period; (iii) cumulative pre-tax net cash flow of the proposed mining operation; (iv) capital costs; (v) operating costs; (vi) mining rates; (vii) mine life; and (vii) planned expenditures. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects", "anticipates", "plans", "projects", "estimates", "envisages", "assumes", "intends", "strategy", "goals", "objectives" or variations thereof or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.
All forward-looking statements are based on Paramount's or its independent consultants' current beliefs as well as various assumptions made by them and information available to them on the date the statements are made. These assumptions include: (i) the presence of and continuity of metals at the Project at modeled grades; (ii) the capacities of various machinery and equipment; (iii) the availability of personnel, machinery and equipment at estimated prices; (iv) metals sales prices; (v) appropriate discount rates; (vi) tax rates and royalty rates applicable to the proposed mining operation; (vii) financing structure and costs; (viii) anticipated mining losses and dilution; (ix) metals recovery rates; (x) reasonable contingency requirements; and (xi) receipt of regulatory approvals on acceptable terms. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Many forward-looking statements are made assuming the correctness of other forward-looking statements, such as statements of cumulative pre-tax net cash flow, which are based on other forward-looking statements and assumptions. The cost information is also prepared using earlier values, but the time for incurring the costs will be in the future and it is assumed costs will remain stable over the relevant period.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that estimates, forecasts, projections and other forward-looking statements will not be achieved or that assumptions do not reflect future experience. We caution readers not to place undue reliance on these forward-looking statements as a number of important factors could cause the actual outcomes to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates, assumptions and intentions expressed in such forward-looking statements. These risk factors may be generally stated as the risk that the assumptions and estimates expressed above do not occur, but specifically include, without limitation, risks relating to variations in the mineral content within the material identified as mineral reserves from that predicted; variations in rates of recovery and extraction; developments in world metals markets;, increases in the estimated capital and operating costs or unanticipated costs; difficulties attracting the necessary work force; increases in financing costs or adverse changes to the terms of available financing, if any; tax rates or royalties being greater than assumed; changes in development or mining plans due to changes in logistical, technical or other factors; changes in project parameters as plans continue to be refined; risks relating to receipt of regulatory approvals; the effects of competition in the markets in which Paramount operates; operational and infrastructure risks; and the additional risks including those described in Paramount's most recent Annual Report Form 10-K filed with the U.S. Securities and Exchange Commission on EDGAR (available at www.sec.gov/edgar.shtml) and SEDAR in Canada (available at www.sedar.com). Paramount cautions that the foregoing list of factors that may affect future results is not exhaustive.
When relying on our forward-looking statements to make decisions with respect to Paramount, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Paramount does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by Paramount or on our behalf, except as required by law.
Contacts:
Paramount Gold and Silver Corp.
Christopher Crupi, CEO
Glen Van Treek, VP Exploration
Chris Theodossiou, Investor Relations
866-481-2233
www.paramountgold.com