Certain statements in this Quarterly Report on Form 10-Q ("Form 10-Q")
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements give the
Company's current expectations and forecasts of future events. All statements
other than statements of current or historical fact contained in this quarterly
report, including statements regarding the Company's future financial position,
business strategy, budgets, projected costs and plans and objectives of
management for future operations, are forward-looking statements. The words
"anticipate," "believe," "continue," "estimate," "expect," "intend," "may,"
"plan," and similar expressions, as they relate to the Company, are intended to
identify forward-looking statements. These statements are based on the Company's
current plans, and the Company's actual future activities and results of
operations may be materially different from those set forth in the
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from the statements made. Any or all of the forward-looking statements in this
quarterly report may turn out to be inaccurate. The Company has based these
forward-looking statements largely on its current expectations and projections
about future events and financial trends that it believes may affect its
financial condition, results of operations, business strategy and financial
needs. The forward-looking statements can be affected by inaccurate assumptions
or by known or unknown risks, uncertainties and assumptions. Factors that could
cause or contribute to these differences include those discussed below and
elsewhere in this Form 10-Q, and in the risk factors on Form 10-K that was filed
with the U.S. Securities and Exchange Commission (SEC) on September 25, 2020.
The Company expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein, to
reflect any change in our expectations with regard thereto, or any other change
in events, conditions or circumstances on which any such statement is based.
Cautionary Note to U.S. Investors
Paramount is subject to the reporting requirements of the Exchange Act and this
filing and other U.S. reporting requirements are governed by the SEC Industry
Guide 7. Additionally, Paramount is subject to certain reporting requirements
under applicable Canadian securities laws with respect to our material mineral
properties under National Instrument 43-101 Standards of Disclosure for Mineral
Projects (NI 43-101) We caution investors that certain terms used under Canadian
reporting requirements and definitions of NI 43-101 to describe mineralization
may not be classified as a "reserve" unless the determination has been made that
the mineralization could be economically and legally produced or extracted at
the time the reserve determination is made. Therefore, investors are cautioned
not to assume that all or any part of the mineralized material contained at any
of our material projects will ever be converted to Industry Guide 7 compliant
reserves.
Overview
We are a company engaged in the business of acquiring, exploring and developing
precious metal projects in the United States of America. Paramount owns advanced
stage exploration projects in the states of Nevada and Oregon. We enhance the
value of our projects by implementing exploration and engineering programs that
have the goal to expand and upgrade known mineralized material to reserves. The
following discussion updates our outlook and plan of operations for the
foreseeable future. It also analyzes our financial condition and summarizes the
results of our operations for the three-month period ended September 30, 2020
and compares these results to the results of the prior year three-month period
ended September 30, 2019.
Operating Highlights:
During the three-month period ended September 30, 2020, the Company announced
that the Oregon Water Resource Department ("OWRD") had reviewed and approved the
plans and specifications for the tailings dam proposed for the Grassy Mountain
mine and stated that from a safety perspective the plans are construction
ready. The OWRD reviewed the data within the Consolidated Permit Application
which Paramount submitted in November 2019 and which included all tailings
design drawings, safety analysis, field data collected and laboratory testing.
The OWRD and its engineering team are required to review and evaluate the data
and design, classify the hazard level (high, significant, or low hazard rating)
and evaluate readiness for construction from a dam safety
perspective. Considering the project's remote geographic location, low
population density, arid nature with no rivers or permanent streams in close
proximity, seismic analysis and all other data compiled, OWRD has rated the dam
as low hazard, its lowest risk level. The approval for construction is valid for
5 years with extensions possible on request.
In September 2020, we press released the results of a Canadian NI 43-101
Feasibility Study ("FS") for our Grassy Mountain Project in Oregon. The FS was
completed by a group of industry leading consulting firms led by Ausenco
Engineering Canada Inc. ("Ausenco") who managed the overall study and were
responsible for processing and infrastructure design and oversaw metallurgical
testing; Mine
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Development Associates ("MDA") who updated the mineral resource estimate and
completed the mine planning and reserves estimation; Golder Associates designed
the tailings storage facility and EM strategies who oversaw the environmental
aspects of the FS.
This mining scenario in the FS results in an average annual production of 47,000
ounces of gold and 55,000 ounces of silver for eight years. The metal prices
used for the economic analysis includes $1,472 per ounce of gold sold and $16.96
per ounce of silver sold. The life of mine average cash operating are estimated
to be $583 per gold ounce including silver revenues as credit produced and the
total initial capital requirements are estimated to be $97.5 million resulting
in a net present value of $105 million using a 5% discount rate.
Outlook and Plan of Operation:
We believe that investors will gain a better understanding of the Company if
they understand how we measure and disclose our results. As an exploration and
development company, we do not generate cash flow from our operations. We
recognize the importance of managing our liquidity and capital resources. We pay
close attention to all cash expenses and look for ways to minimize them when
possible. We ensure we have sufficient cash on hand to meet our annual land
holding costs as the maintenance of mining claims and leases are essential to
preserve the value of our mineral property assets.
As reported in our Annual Report on Form 10-K for the year ended June 30, 2020
the Company expects to undertake the following activities:
Grassy Mountain Project:
Paramount expects to receive the Feasibility Study report from Ausenco in its
second quarter of the current fiscal year and to focus its efforts on continued
state and federal mining permitting for the fiscal year ending June 30, 2021. As
a follow up to submitting the Consolidated Permit Application ("CPA") in
November 2019, Paramount will respond to the State of Oregon's CPA completeness
review ("Review") received in February 2019. The Review provided included
proposed resolutions and additional information required by the Company and will
assist the Company in submitting a revised CPA. The Company expects the revised
CPA to address all the comments and requests for additional information with the
objective of submitting a complete revised CPA that allows the State of Oregon
to determine whether to issue a state mining permit for the Grassy Mountain
Project. In addition to the State of Oregon permitting activities, Paramount
expects to respond to BLM comments it received on its POO. Once all the comments
have been addressed, the BLM will register a Notice in the Federal Register once
the application is deemed complete. The Notice initiates the EIS process under
the National Environmental Policy Act. To complete these activities Paramount
will engage specialized mining consulting firms, work with State and Federal
contracted thirds parties and work directly with both state and federal
permitting agencies.
Sleeper Gold Project:
Paramount is planning to initiate several programs during the upcoming fiscal
year that it believes will enhance the value of the Sleeper Gold Project. The
programs planned include: 1) A review of all geological, geochemical and
geophysical data for the purposes of generating targets for exploration drilling
to locate additional higher-grade mineralization in the close proximity of the
original Sleeper pit or in the large mining claim package owned by the Company.;
(2) Evaluate the various successful metallurgical tests, previously conducted on
the sulfide bearing mineralized material in order to optimize the best economic
alternatives and increase the number of gold ounces produced in a proposed
mining scenario. This could include bio or alkaline oxidation in a heap leach
scenario, flotation and oxidation and gold recoveries from concentrates.; and
(3) Update the resource estimation and preliminary economic assessment with the
best alternatives identified for the project.
Frost Project:
The Company will implement an initial reverse circulation drill program to test
historical drill results and additional selective targets.
COVID-19 Update
Paramount continues to monitor the evolution of the COVID-19 pandemic and
continues to evaluate its business activities and plans. Our priority is to
ensure the health and safety of our employee and consultants. We continue to
perform the majority of our activities remotely with a limited amount of on-site
or in-office attendance only when required. Video conferencing has replaced
in-person participation in conferences, permitting and other corporate
activities that typically required corporate travel.
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Comparison of Operating Results for the three-months ended September 30, 2020
and 2019
Results of Operations
We did not earn any revenue from mining operations for the three-months ended
September 30, 2020 and 2019. During the three-month period ended September 30,
2020, we continued with activities related to completing a feasibility study on
the Grassy Mountain Project and released a summary of results from the
comprehensive study in which a complete report is expected in our second
quarter.
Net Loss
Our net loss before income taxes for the three-months ended September 30, 2020
was $1,331,508 compared to a net loss before income taxes of $1,006,499 in the
previous year. The drivers of the increase in net loss before income taxes of
32% are fully described below.
The Company expects to incur losses for the foreseeable future as we continue
with our planned exploration and development programs.
Expenses
Exploration and Land Holding Costs
For the three-month period ended September 30, 2020, exploration expenses were
$636,027 compared to $458,572 in the prior year comparable period. This
represents an increase of 39% or $177,455. During the three-month period ended
September 30, 2020, the Company focused its efforts on completing its previously
announced feasibility study for the Grassy Mountain project. Included were
expenses related to the Company's reclamation activities at the Sleeper
Project. Total exploration expenses at the Grassy Mountain Project during the
current three-month period were $352,764.
For the three-month period ended September 30, 2020, land holding costs were
$131,183 compared to $137,577 in the prior year comparable period. The decrease
of land holding costs from the prior year comparable period was due to the
expiry of a lease term on non material BLM mining claims owned by a third
party.
Salaries and Benefits
For the three-month period ended September 30, 2020, salary and benefits
increased by 23% or by $48,174 to $255,941 from the prior year's three-month
period ended September 30, 2019. Salary and benefits is comprised of cash and
stock based compensation of the Company's executive and corporate administration
teams. The increase primarily reflects changes to salary and stock-based
compensation incurred during the three-month period ended September 30, 2020
compared to the three-month period ended September 30, 2019. Included in the
salary and benefits expense amount for the three-month period ended September
30, 2020 and 2019 was a non-cash stock-based compensation of $58,929 and
$43,409, respectively.
Directors' Compensation
For the three-month period ended September 30, 2020, directors' compensation
increased by 26% or by $6,355 from the prior year's three-month period ended
September 30, 2019. Directors' compensation consists of cash and stock-based
compensation of the Company's board of directors. The increase reflects the
additional cash compensation recorded in the current quarter compared to the
prior year's comparable period.
Professional Fees and General and Administration
For the three-month period ended September 30, 2020, professional fees were
$44,452 compared to $23,636 in the prior year's comparable period. This
represents an increase of 88% or $20,816. Advisory fees incurred related to the
completion of our feasibility study were the main factors for the increase in
these expenses from the prior year comparable period.
For the three-month period ended September 30, 2020, general and administration
expenses increased by 2% to $114,123 from $112,124 in the prior year comparable
period. Although general and administration expenses did not change
significantly from the previous year's comparable period the Company did incur
lower travel related expenses due to the COVID-19 related travel
restriction. The reduction in travel expenses were offset by additional costs to
support remote working and the participation in additional industry related
virtual investment conferences.
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Liquidity and Capital Resources
As an exploration and development company, Paramount funds its operations,
reclamation activities and discretionary exploration programs with its cash on
hand. At September 30, 2020, we had cash and cash equivalents of $4,491,478
compared to $5,434,081 as at June 30, 2020. In May 2020, the Company established
an $8.0 million "at the market" equity offering with Cantor Fitzgerald & Co. and
Canaccord Genuity LLC to proactively increase its financial flexibility. During
the three-months ended September 30, 2020, the Company issued 595,281 shares for
net proceeds of $770,514 under the program.
The main uses of cash for the three-month period ending comprised of the
following material amounts:
• Cash used in operating activities which included general and administration
expenses, land holding costs, exploration programs at our Grassy Mountain
and Sleeper Gold Projects and reclamation activities of $1,713,117We anticipate our operating expenditures for the remainder of the fiscal year
ending June 30, 2021 to be as follows:
• $1.35 million on corporate administration expenses (expenses include
executive management and employee salaries, legal, audit, marketing and
other general and administrative expenses)
• $0.85 to $1.1 million on the Sleeper Gold Project (expenses include
exploration programs, reclamation costs, employee salary and benefits, and
land holding costs)
• $2.0 million on the Grassy Mountain Project and Frost Project (expenses
include consulting fees, land holding costs and general and administration
expenses, environmental impact statement preparation, and costs associated
with the State of Oregon permit revised CPA)
Our anticipated expenditures will be funded by our cash on hand and by other
capital resources. Historically, we and other similar exploration and
development public companies have accessed capital through equity financing
arrangements or by the sale of royalties on its mineral properties. If, however
we are unable to obtain additional capital or financing, our exploration and
development activities will be significantly adversely affected.
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.
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
We record exploration expenses as incurred. When we determine 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, we have not established any proven or probable reserves
and will continue to expense exploration expenses as incurred.
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Stock Based Compensation
For stock option grants with market conditions that affect vesting, the Company
uses a lattice approach incorporating a Monte Carlo simulation to value stock
option granted.
For stock option grants that have no market conditions that affect vesting, the
Company uses the Black-Scholes option valuation model to value stock options
granted. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. The model requires management to make estimates
which are subjective and may not be representative of actual results. Changes in
assumptions can materially affect estimates of fair values.
Use of 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, long-lived assets and asset retirement obligations.
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.
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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