Paramount Gold and Silver Corp. is no exception; in the past six months, its share price has dropped from a high of more than $2 to a low of 40 cents at the beginning of October, with news of its $8.7-million buyout of its partner in a Mexico mining project only slightly helping to move its value. Paramount hasn't been helped by its two trading halts earlier this year following suspicions of corporate hijacking, nor by news of a near-delisting from New York's American Stock Exchange.
However, analysts seem impressed with the company's aggressive property development strategy and with the potential of its mining projects. So what are Paramount's prospects once the markets recover?
The company's view: Paramount CEO Christopher Crupi says the credit crunch is forcing investors to dump riskier stocks, which often include small-cap mining companies like his firm.
"Around the world, people are going, 'I need cash now' and are looking at their portfolios. The major funds are looking for liquidity because there are lots of redemptions right now, so they must sell stock to generate cash to pay people back. Some are in bad shape, so it spirals quickly," Mr. Crupi says. "Pretty much every mining stock below a certain size has an almost identical stock chart right now - they're pointing down."
He says the company is more or less ignoring market dynamics, instead focusing on developing its principal San Miguel asset, since market capitalization is only one of many ways to determine a firm's value.
"At this point, the stock market has no connection to Paramount's value in the ground," he says. "We can't control market dynamics; there are strong, powerful forces ripping through the markets right now, but in the long run, we hope (the market) will catch itself back up to the value of the company."
Mr. Crupi says the junior mining sector will likely see market volatility continuing until at least early 2009, although he says he expects the price of gold will break through $1,000 soon, boosting interest in mining stocks.
Until then, though, the markets are an unfriendly place for raising money, especially since there have been few exits to help investors replenish their funds.
Mr. Crupi says Paramount has reduced its burn rate since August to $300,000 per month from $1.5 million, and it's also looking at the possibility of merging with other small mining companies to create economies of scale.
And now that the company owns 100 per cent of the San Miguel mine, that means it's also a more attractive takeover target, giving Paramount a number of options.
"We aggressively developed a resource that was mineable, so we will get a reward for that," he adds. "We have a reason to survive."
"There are strong, powerful forces ripping through the markets right now, but in the long run, we hope (the market) will catch itself back up to the value of the company." - Christopher Crupi, CEO of Paramount Gold and Silver
The analysts say: In some ways, Paramount's bold approach has been a positive surprise for analysts. "My expectation was that they had the opportunity to double their resource, and I believe they've tripled it. I also didn't expect the Tara Resource (buyout) would happen this year," says Mike Niehuser of Beacon Rock Research, who is in the midst of writing an analyst report on the company and doesn't have a target price. He doesn't own any Paramount shares.
He says the company's strategy of consolidating its San Miguel property position is a good move, and notes that its early drilling results for its other Mexican project, Clavo 66 in the La Union area, have been "quite promising."
Mr. Niehuser agrees that precious metals prices should stay stable or increase in the next while, and adds that the cost of developing mining projects, which increased in the latter half of 2007 and the beginning of 2008, should now come back down again. That's a good thing for Paramount and its brethren.
Meanwhile, Craig Stanley of Blackmont Capital agrees Paramount's additional discoveries were positive developments he had not been anticipating, but he notes that the company also hasn't carried out other drill programs he had expected.
"It's roughly in the middle of the pack (of junior mining companies)," he says, explaining, "Paramount's had nothing yet that indicates it could build a mine; it's had the odd hit, but it warrants further work."
He adds: "Unless it can raise more money, it will be challenged in advancing its project ... but the markets have been seized for the large part of the year, so it's been incredibly onerous of late."
However, Mr. Stanley, who has a target price of $2.50 and a speculative buy rating on the stock, says Paramount is exploring in a great location that is very close to a mine about to go into production, and Mexican authorities have been very supportive of mining endeavours, both of which are factors in the company's favour.
"The governments are good and the geology is good; they just need the markets to get back," he says.
Catalysts to watch: Higher commodity prices; lower development costs; an increase in Paramount's new resource estimate; additional property acquisitions; development work on existing properties; takeover/merger interest; normalization of equity markets; ability to raise more funding.
