Paramount Gold and Silver Corp

Transcription

1 Beacon Rock Research, LLC 1 BEACON ROCK RESEARCH JANUARY 18, 2008 INTRODUCTORY REPORT Paramount Gold and Silver Corp AMEX, TSX: PZG Mike Niehuser mike@beaconrockresearch.com Price $2.05 Shares O/S (mils) 47.4 P/E Ratio (ttm) NA Shares Dil. (mils) 57.6 Silver Res. (Ag.eq.) 35.8 M Market Cap (mils) $ Week Range $ $3.25 Ave. Daily Vol. 65,122 Cash/share $0.28 Short Position 5,360 Current Ratio 11.3 Insider Ownership 13.5 % Debt to cap ratio 0.00 % Inst'l Ownership 14.0 % Price Target $4.00 Rating Buy Risk High Disclosures 1, 2, 3, 4 Price (US$) $5.00 $4.00 $3.00 $2.00 $1.00 Initial Rating - Buy Price - $2.05 Target - $4.00 1/18/08 Paramount Russell 2000 $0.00 5/7/06 8/7/06 11/7/06 2/7/07 5/7/07 8/7/07 11/7/07 Earnings Per Share (US$) Q1: Sep. Q2:Dec. Q3:Mar. Q4:Jun. Annual* 2009E $ (0.10) $ (0.06) $ (0.06) $ (0.06) $ (0.29) 2008E $ (0.14) $ (0.07) $ (0.07) $ (0.06) $ (0.33) 2007A $ (0.06) $ 0.00 $ (0.16) $ (0.21) $ (0.43) 2006A $ (0.07) $ 0.00 $ (0.02) $ (0.04) $ (0.04) * numbers may not add up due to rounding Paramount Gold and Silver Corp. (AMEX, TSX: PZG) is an aggressive exploration company operating in the prolific and historic Sierra Madre silver-gold belt near Chihuahua, Mexico. The Company has established a 35.8 million silver equivalent resource and is currently about half way through a 50,000 meter drill program. Catalysts for appreciation in the next 12 months include: Drill results from San Miguel Zone Resource upgrade expected mid-2008 Initiation of Scoping study by year-end Paramount s projects are well located among numerous previously operating mines and current areas of interest for modern exploration. Paramount s projects resemble the nearby Palmarejo project that was recently acquired for $1.1 billion. We are initiating coverage of Paramount with a Buy rating and $4.00 price target. Corporate Officer Christopher Crupi, President and CEO (613) Contact Person Larry Segerstrom, Chief Operating Officer (623) Corporate Address 346 Waverley Street, Ste. 110, Ottawa, Ontrario, Canada K2P 0W5 Website

2 Beacon Rock Research, LLC 2 Investment Thesis Paramount Gold and Silver Corp. (AMEX, TSX: PZG) is aggressively exploring its extensive and well located land position near Temoris, Chihuahua, Mexico. Their projects are located in the Guazapares mining district, which has a long mining history and ample evidence of historic mines in the Sierra Madre silver-gold belt. They occupy most of the territory between Coeur d Alene Mines Corp. s (NYSE: CDE) Palmarejo project, hosting a 3.1 million ounce gold resource to the west, and Goldcorp Inc. s (NYSE: GG) El Sauzal mine, with a 2.5 million ounce gold resource to the southeast (Figure 1). We believe that the combination of location, with exploration activities to date, suggests potential for substantial expansion of the current resource, leading to potential appreciation of Paramount s stock price. In early 2007, Paramount established an initial Inferred resource of 35 million Ag eq. ounces based on 39 drill holes at its San Miguel project. In April of 2007, Paramount committed to a 50,000 meter drill program of which 20,000 meters have been completed to date. Paramount reports having now completed over 27,000 meters of core drilling, totaling 157 drill holes on the project, with results pending on 43 of these holes. Paramount anticipates completing an updated resource estimate in 2Q08, leading to initiating a Scoping Study later in We are particularly interested in the release of drill results from about 25 drill holes at their San Miguel Zone (a subset of and not to be confused with the greater San Miguel project) with potential of resembling the Palmarejo project to the west, which may provide a near term catalyst for appreciation. Figure 1 San Miguel Project Location Map Source: Paramount The initial resource and drill results in an area of numerous historic mines provide ample justification for additional exploration and study. We are intrigued by the variety of multiple zones of mineralization at the San Miguel project including various combinations of gold, gold/silver, or silver and base metals. Mineralization at the San Miguel project covers a strike length of approximately 10 kilometers. We believe that Paramount is still in the very early stages of understanding the potential of the San Miguel project. When the San Miguel project is combined with the adjacent 86,300 hectare Andrea project, the potential for investors to visualize the mid to long term opportunity becomes more apparent. Investing in exploration companies inherently carries significant risk. We believe Paramount has capable management, and its projects have numerous promising targets with good potential sufficient for us to initiate coverage with a Buy rating and a 12 to 18 month price target of $4.00 per share. While the Company may gain additional exposure in 2008, we believe that their progress is not yet fully appreciated or widely understood. Ongoing exploration success at current metal prices should continue to generate interest in Paramount and the sector, and their stock may experience significant appreciation. Company Background Paramount was incorporated in 2005 as Paramount Gold Mining Corp., and changed its name to Paramount Gold and Silver Corp. in August The Company is headquartered in Ottawa, Canada, with offices in Temoris, Mexico. In March 2005, Paramount optioned a 70% interest in the San Miguel Project, including numerous mining concessions and past producing mines, including the high-grade San Luis Mine, from American Stellar Energy now Tara Gold Resource Corp. (TRGDK.PK). In May 2006, Paramount staked the Andrea project, an 86,300 hectare mining concession to the east and south of the San Miguel project. In October 2006, Paramount signed a letter of intent for an option to earn up to an 80% interest in 7,000 hectares surrounding the San Miguel project from Garibaldi Resources Inc. (TSX Venture: GGI). Paramount has established a silver-gold-lead-zinc resource at the San Miguel project, and intends to complete its current drill program in 2008, as well as advance exploration, select targets and drill at its wholly owned Andrea concession as well at its joint venture with Garibaldi (Figure 2).

3 Beacon Rock Research, LLC 3 Paramount announced in May 2006 that it had signed an agreement with Teck Cominco Ltd (NYSE: TCK) creating the Andean Gold Alliance (AGA). The AGA, initially consisting of 21 properties (ten in Argentina, seven in Chile and four in Peru), created a strategic alliance between Paramount and Teck for gold exploration. After the evaluation of 28 properties, only one was advanced to the drilling stage, and all remaining properties have since been returned to Teck Cominco. Paramount has since suspended exploration activities on its South American projects, and has directed its South American exploration team to focus on its projects in Mexico. Paramount should soon receive a large number of assays which may be very positive. We anticipate that upcoming drill results on the Company s San Miguel Zone (one of many targets in the San Miguel project) may resemble other better known names in the area which should resonate with investors. Paramount Gold and Silver Corp. Projects The San Miguel project, Andrea project, and Garibaldi JV are located in the far southeast corner of the State of Chihuahua, in Northern Mexico. This is approximately 400 kilometers southwest by road from the state capital, Chihuahua City. Regionally, the projects are about 20 kilometers north of the town of Temoris, adjacent to the tiny village of Guazapares. Figure 2 San Miguel, Andrea, Garibaldi JV Projects Map Source: Delve Consultants, LLC, Technical Report (July 2007) We visited the San Miguel project which included a review of drill holes, trenches, and historic workings at the San Antonio Zone, plus the Montecristo Zone to the north. We also visited the San Miguel Zone to the northwest, and the area south of San Antonio, including the area along strike from the historic San Luis mine south to the La Union Zone. The visit was sufficient to visualize the potential of the 10 kilometer strike length of mineralization extending well beyond the current resource and visualize the potential of the entire San Miguel project. We did not visit the adjacent wholly owned Andrea project or the Paramount/ Garibaldi JV to the south and east of the San Miguel project. The size of these other concessions dwarf the San Miguel project, and may eventually prove to have an even greater number of promising targets. The map in Figrue 2 clearly outlines Paramount s dominant land position between the Palmarejo project to the west and the El Sauzal mine to the southeast. San Miguel Project The San Miguel project is a grouping of several mining concessions over a ten kilometer strike length (Figure 3). The project is readily accessible by road from Temoris (about 20 kilometers to the southeast). Nearly all the known mineralization is developed in altered andesitic rocks of the lower volcanic sequence and potentially the base of the upper sequence. Mineralization consists of multi-phase epithermal, low sulfidation, silver-gold vein and hydrothermal breccia deposits which occur in a north-northwest trending, steeply dipping complex fault zone. Mineralization is found in veins, breccias, and quartz veinlet stockworks contained in andesites and rhyodacites typical of the Sierra Madre silver-gold region. The area has a history of mining dating back to early Spanish colonial times (Figure 4). Figure 3 San Miguel Project Map Source: Paramount

4 Beacon Rock Research, LLC 4 The Technical Report, completed by Delve Associates, LLC noted that on a district scale, the lithology, structural setting and controls of mineralization appear strongly analogous to other deposits in the general area, particularly to those at the Palmarejo deposit, approximately 15 kilometers to the west. The Technical Reports further notes that precious metals systems such as that at Palmarejo have ore shoots to depths of over 300 meters. The San Miguel project includes the historic mining village of Guazapares, founded in 1630, surrounded by numerous near surface gold and silver mines taking high grade ore within 70 meters from the surface. The village is also the location of the high-grade gold San Luis Mine which was active in the last century by Alaska-Juneau Mining Company. The mining and agricultural activity in the area has led to welldeveloped infrastructure. The area is accessible by vehicle and railway and close to a recently constructed 33,000 volt power line which will need to be upgraded for mine operation. The most significant mining activity in the area focused on the San Luis Mine. Alaska-Juneau operated a 150 tpd flotation mill at the mine from 1959 to The mine reached a depth of 800 feet, which has since filled with water up to 300 feet from the top of the shaft. Production records report historic average grades of 12 g/t gold and 350 g/t silver, with more than 10% lead and zinc. A survey contemporary to previous operation included 92 face samples on Alaska-Juneau longitudinal mine section with a calculated weighted average of 155 g/t gold and 144 g/t silver. Operations at the San Luis Mine were discontinued due to operating issues at Alaska-Juneau, unrelated to the mine operation itself. It is believed that operating difficulties at Alaska-Juneau may have stopped the San Luis Mine well short of mining mineralized zones. Figure 4 San Miguel Regional Location Map Delve Consultants, LLC, Technical Report (July 2007) The San Luis Mine is interesting due to high grades recovered from historic operations leaving potentially untapped mineralized zones. Considering the previous high cut-off rates while the mine was in operation, it would appear that the veins from the San Luis Mine trailing south to the La Union Zone may host significant gold mineralization. Samples taken by Paramount included g/t gold and 87 g/t silver across 25.8 meters. We don t expect Paramount to dewater and restart the mine. We do expect the Company to make good use of the available information from the mine combined with modern geotechnical tools and models, in order to locate other similar high-grade occurrences near surface along strike between the historic San Luis Mine and the La Union Zone to the south. Exploration Success at the San Miguel Project In January 2007, Paramount released an NI Technical Report establishing an initial Inferred resource of four million tonnes of 273 g/t silver equivalent (35.8 million oz. silver equivalent), based on 39 widely spaced drill holes at an average depth of only 100 meters (Table 1). By the end of 2006, Paramount had completed 22 trenches for a total of 2,100 meters. The Company reports this was completed at a cost of less than US$0.10 ounce of silver. The resource was limited to the San Antonio-El Carmen, San Luis, San Jose and La Union targets located in the San Antonio Zone in the southeast portion of the San Miguel project. Area Tonnes Au g/t Ag g/t % Pb % Zn Ag Eq g/t Ag Eq Oz La Union 675, % 1.06% 245 5,307,700 San Jose 1,010, % 1.51% ,615,400 San Luis 305, % 5.00% ,643,100 San Antonio-El Carmen 2,050, % 0.49% ,841,200 Total 4,040, % 0.96% ,841,200 Table 1 San Miguel Project Resource Table Source: Analyst

5 Beacon Rock Research, LLC 5 Since April 2007, Paramount has drilled an additional 118 holes at the San Miguel project, including in-fill and stepout drill holes, 30 of which are still pending. They have also completed 20,000 meters of the current 50,000 meter drill program. It would appear with continuing exploration success and study that the Company should be in good position to increase and upgrade the resource at the San Miguel project. Ongoing Exploration Following Establishment of Resource In early October 2007, Paramount reported assays from drilling at its San Antonio-El Carmen Zone to the north of the historic San Luis Mine (Figure 5). Drill results demonstrate continuity of mineralization and the deposit remains open along strike and down dip. Results including SA-52 intercepting 2.85 meters of 6.7 g/t gold and 632 g/t silver, including 0.85 meters of g/t gold and 1,600 g/t silver. Later in the month, Paramount reported additional results from 12 holes further demonstrating consistency of the zone of mineralization at good grades. For example, SA-32 intercepted 0.9 meters of 0.26 g/t gold and g/t silver. In addition, SA-40 intercepted 2.0 meters of g/t silver and SA-38 intercepted 3.75 meters of g/t silver and 0.8 meters of 932 g/t silver. Figure 5 El Carmen Zone Area Geology Source: Paramount The primary mineralized structure of the San Miguel project consists of two sub-parallel gold and silver mineralized zones with an approximate strike length of 10 kilometers. Mineralization occurs as quartz veins and breccias within west-northwest and north-northwest striking faults. Presently, Paramount has tested only seven kilometers of the ten kilometer strike length, and only to a depth of 50 to 150 meters. to date the Company has completed a total of 27,000 meters of drilling in 157 drill holes. They have also completed more than 3,700 meters of trenching in 69 trenches on seven kilometers over the ten kilometer strike length (Figure 6). Overall, it would appear that the exploration program (since establishing the resource) continues to confirm mineralization along strike. Exploration North of Resource in the Montecristo Zone The Montecristo Zone, to the north of the San Antonio Zone, is a bulk tonnage gold-silver target. Paramount appears early in its understanding of Montecristo, but it does have the potential of being large. Montecristo is a dome complex intruded into tertiary volcanics with a hydrothermal breccia developed along the contact. The Company had previously completed three drill holes in These include MC-01 which intercepted 19.5 meters of 0.39 g/t gold and 80.6 g/t silver (1.74 Au eq.), and MC-03 intercepting 29.5 meters of 0.61 g/t gold and 11.3 g/t silver (0.80 Au eq). Paramount reported early drill results from the La Veronica target, including a 10.2 meter intersection of 468 g/t silver with 0.81% lead and zinc (including 5,370 g/t silver across 0.4 meters). In October 2007, the Company reported drill results from an additional ten holes. Highlights include LV-02 intersecting 3.81 meters with 0.32 g/t gold, g/t silver (7.64 g/t Au eq), LV-06 with over 0.69 meters intersecting 8.25 g/t gold, and five holes with intersections ranging from 2.42 to meters, which reported gold equivalent grades of 3.68 to 7.64 g/t. The Company reported additional drill results in November 2007, including LV-12 intersecting 1.64 meters of 189 g/t silver, with a total of six drill holes ranging from 0.87 to 13.0 meters with gold equivalent grades of 1.13 g/t to 3.15 g/t. Figure 6 COO Larry Segerstrom in the Trenches San Antonio Zone, San Miguel Project Source: Analyst

6 Beacon Rock Research, LLC 6 Near Term Upside at San Miguel Zone The San Miguel Zone, situated in the northwest portion of the San Miguel project, is a gold rich silver vein open for two kilometers and at depth. The mineralization appears concentrated in a thick zone at the contact of andesites and rhyolites (Figure 7). We believe that drilling through this zone of structural change may elevate San Miguel Zone to a primary area of interest for Paramount, and offer a potential catalyst should results provide some resemblance to the nearby Palmarejo project. Paramount has conducted a sampling of historic workings and a trenching program in this mineralized zone. Results of initial programs included 1.09 g/t gold and 330 g/t silver across 12 meters. Surface samples across the vein average 9 meters at 0.85 g/t gold and 202 g/t silver. The Company is currently drilling at San Miguel Zone and is anticipating results of a 25 hole drill program (Figure 8). The combination of consistent trenching and sampling along the contact of andesites and rhyolites lead us to anticipate upside from recent drilling. Figure 7 San Miguel Zone Area Geology Source: Paramount On May 3, 2007, Coeur, Bolnisi Gold NL (ASX: BSG, BXLGF.PK) and Palmarejo Gold and Silver Corp. announced a merger valued at approximately US$1.1 billion. Bolnisi shareholders received Coeur shares for each Bolnisi share and Palmarejo shareholders were to receive Coeur shares for each Palmarejo share. It was anticipated that as a result that Coeur would issue approximately million new shares. Bolnisi held 74.6% of Palmarejo s shares. Palmarejo had an estimated resoure of 3.1 million ounces gold equivalent (972,000 ounces of gold and million ounces of silver). The Palmarejo project is expected to begin production in early 2009 at an annualized rate of approximately 10.4 million ounces of silver and 115,000 ounces of gold per year with cash costs, net of gold bi-product, of an estimated ($0.41) per ounce of silver and an initial mine life of nine years. The project has a current measured and indicated mineral resource of 88.7 million silver ounces,1.0 million measured and indicated gold ounces, and an additional 61.4 million ounces of inferred silver mineral resources and 0.7 million inferred gold ounces (Table 2). Deposit Tonnes Grade Ounces Gold g/t Silver g/t Gold Silver Palmarejo Measured 5,100, ,000 32,520,000 Indicated 8,800, ,000 52,390,000 Inferred 4,500, ,000 22,290,000 Guadalupe Indicated 710, ,000 3,790,000 Inferred 8,000, ,000 35,120,000 La Patria Inferred 3,600, ,000 4,030,000 Total 30,710,000 1,706, ,140,000 Table 2 Palmarejo Project Resource Table Source: Analyst Figure 8 Drilling from Tracked Drill Rig San Miguel Zone, San Miguel Project Source: Analyst

7 Beacon Rock Research, LLC 7 Other Projects (Andrea) The 86,300 hectare Andrea project is 100% owned by Paramount, and is located about ten kilometers from the eastern boundary of the San Miguel project. Andrea dominates the area between the Company s San Miguel project and Goldcorp s El Sauzal gold mine. Paramount has conducted an aggressive predrilling exploration campaign at Andrea including regional geochemistry, satellite imagery analysis and follow-up work. This includes an extensive stream sediment sampling program (371 drainage basinsincluding stream sediment and heavy mineral concentrate samples at each site). In addition, they completed a hydrothermal alteration mineral mapping program using their own in-house Aster satellite imagery analysis. These programs identified several areas with anomalous gold, silver, copper and zinc and strong hydrothermal alteration. The Company has exposed several prospective targets. Marimara is a porphyry copper target, covering a 120-hectare area of intensely fractured, altered and iron stained rock with 2-5% original pyrite content. The system extends under volcanics and may be considerable. The area contains historic mine workings, some of which followed gold-silver quartz veins. Mesa Colorada is a gold-silver target with intense alterations, in an area of historic mine workings. This area contains the largest group of stream sediment anomalies in the Andrea concession, and is located at a major intersection of regional lineaments. Maty is a gold-silver target with initial results from sampling showing contents ranging from 3.4 to 19.2 g/t gold and 76 to 702 g/t silver in vein material. While Paramount s understanding is still very early at Andrea, the project is very large and very well situated, producing targets to follow up in Discussion of Metal Prices Figure 9 Andrea Project Area Geology and Targets Source: Paramount We believe the world is still in the early phase of a long-term bull market for metals. This opinion does not ignore the likelihood for increased volatility of metal prices in the short run due to seasonality or speculation. Our opinion is not unique, as there appears to be consensus that growth of the world s economy is driving demand for raw material that has drawn down inventories, stressed substitutes, and is unmet by recycling or production. Despite concerns for a slowing U.S. economy, a growing middle class in China and India is driving demand that the mining industry, through decades of inactivity, remains unprepared to meet. There also remains increased interest in holding precious metals such as gold and silver as a store of value during periods of increasing anxiety of either errant monetary policy or strained international relations. A weaker U.S. Dollar and saber rattling between the U.S. and Iran qualify, not to mention the cost and agitation of the U.S. presence in Iraq. These factors contribute to higher metal prices, enhancing investor interest in holding the physical metal or equities of exploration and metal producing companies. Our belief is that investment in exploration companies should be based on its ability to bring a deposit to production. While the price of an exploration company may be correlated to the underlying metal price, we consider the likelihood of proving the feasibility of a resource to be a much more important factor than current metal prices. Our opinion is that as long as metal prices are above the perceived costs of production of a company s deposit, they should be in a position to obtain capital and advance their project.

8 Beacon Rock Research, LLC 8 The average real price of gold from 1968 to 2007 has been about $521 per ounce. From 1881 to 2007 the average real price of silver has been $8.62 per ounce. Gold and silver and are now in the neighborhood of $900 and $16 per ounce. We can conclude that current prices are high relative to the average. In addition, despite rising costs in the mining industry, current prices appear to be above increased costs of production. While it may take seven to ten years to advance a deposit from discovery to a producing mine, investors should establish their own outlook on longterm metal prices and perceived costs. This would extend for a period of time necessary to advance the project to production or acquisition by a competitor or larger metal producer. Management Comments We were quite impressed with the management we met on site during our visit to the San Miguel project. The activities and organization at the project including field work, the Temoris office and core shack, reflected the large company background of the Chief Operating Officer, Larry Segerstrom. In addition to his work as a geologist, Mr. Segerstrom s prior management position and experience with a drilling company was evident in the professionalism and execution of drilling we observed in process at the San Miguel Zone. Paramount has approximately 60 employees, 17 of which are geologists. They are also utilizing experienced structural geology engineers to better understand the projects various mineralized zones. Paramount s management team appears to have the appropriate level of experience and a good match for advancing the company s projects. Christopher Crupi, C.A is Paramount s President and Chief Executive Officer, and a chartered accountant with extensive corporate finance experience. His field of experience includes the mining, software, sports and entertainment, and manufacturing industries. Mr. Crupi has over fifteen years of business experience including mergers and acquisitions and has participated in transactions of over $1 billion. Larry Segerstrom M.Sc. (Geology) is Paramount s Chief Operating Officer, and has over 25 years of experience in the mining industry, including 19 years as an exploration geologist and ten years in management. From 1999 to 2003, Mr. Segerstrom was the Manager of Geologic Services Group for Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) at the world-class Grasberg Mining District in Indonesia including open pit and underground mining exploration. Prior to this from 1993 to 1999 he was the General Manager of Layne Christensen Co s (NASDAQ: LAYN) Mexican drilling subsidiary. He also worked as an exploration geologist for Newmont, Noranda and Phelps Dodge from 1976 to 1993 in the U.S. and Mexico, and Chile on a variety of types of projects seeking various precious and base metals. Mr. Segerstrom has a B.S. (Geology) degree from Colorado Sate University, an M.S. (Geology) degree from the University of Arizona, and an MBA from Thunderbird, The Garvin School of International Management. We consider Mr. Segerstrom s substantial experience as an exploration and manager in Latin America on complex projects in a regional setting, including his relationship with Layne and understanding of the local culture, to be of significant value to Paramount in advancing numerous targets at its projects in northern Mexico. Charles W. Reed is Paramount s Manager of Exploration in Mexico. Mr. Reed was Chief Geologist Mexico for Miner Hecla S.S. de C. V., a subsidiary of Hecla Mining (NYSE: HL) from 1998 to While at Hecla he supervised exploration at the Noche Buena project in Sonora and the San Sebastian silver and gold mine in Durango. Prior to Hecla, Mr. Reed was a Regional Geologist in Mexico and Central America for Echo Bay Exploration, where he discovered the potential of the Dolores mining district in Chihuahua. Mr. Reed has a B.S. degree in Mineralogy from the University of Utah and has also completed the Intensive Spanish Program at Institute De Lengua Espanola, San Jose, Costa Rica. Marc Slauenwhite is Paramount s Senior Project Geologist, South America. Prior to Paramount, he worked as a Senior Project Geologist with Barrick Gold Corporation (NYSE: ABX) from 1995 to While as a Senior Project Geologist for Barrick in Peru, he discovered the ten million ounce Alto Chicama gold deposit and the 7.2 million ounce Pierina gold deposit. Prior to Barrick, he worked for eleven years at INCO Ltd. (NYSE: N).

9 Beacon Rock Research, LLC 9 Corporate Comments Paramount reported cash of $13.2 million on its balance sheet as of September 30, The Company completed a $21.8 million financing in March 2007 at $2.10 per share with Blackmont Capital as the lead. A subsequent $2.4 million financing was completed in November 2007 at $2.40 per share with Fondi Anima of Milan, Italy. Currently, there are 47.4 million shares outstanding (57.6 million fully diluted). The recent Technical Report recommended a $10 million exploration budget. We anticipate that Paramount should have adequate cash on hand and from conversion of warrants to complete the program. We anticipate that should the current exploration program be successful, the Company may be positioned to raise additional capital without excessive dilution. For this reason it is important to examine exploration results relative to deployment of funds relative to market expectations. Risks and Mitigations Investments in companies include numerous risks, many of which can not be readily perceived (Figure 10). Exploration companies include many risks which are readily identifiable but may correlate with unperceived factors which may adversely affect the value of their project s resource opportunity, operation of their exploration and development activities. This may potentially adversely impact their viability resulting in high levels of volatility and loss of value. We believe that so long as metal prices targeted for exploration projects remain above perceived costs of operation at production, projects with potential for development and expansion, well located to infrastructure in stable and friendly political jurisdictions, should have good potential to raise capital and fund additional exploration. We believe investment in companies with these types of projects should hold value and increase as exploration projects proceed to feasibility and production. This report has attempted to discuss our opinion to place both risks and opportunities for Paramount and its projects in proper context. We have also summarized our opinion of risks worth noting, which is not intended to limit additional important concerns held by cautious investors. Risks: Exploration in early stage mining companies such as Paramount includes significant exploration risk. Should management s exploration programs fail to meet investor s expectations, their stock may experience above average volatility and difficulty obtaining additional capital necessary for ongoing operations. Mitigations: Paramount s projects are located in a region of Mexico that is of interest for mining due to the stable political environment friendly to mining. The projects are located in the vicinity of other multi-million ounce gold/ silver deposits and historic mining activity, and the company s own exploration providing opportunity for further discoveries. Paramount s exploration programs appear to be well managed and have enjoyed success. Risks: Paramount has no revenues and, as an exploration company, must periodically raise capital to remain in operation. Capital and credit markets are subject to factors beyond management s control which may impact their ability to obtain additional capital as necessary to remain in operation. Mitigations: Paramount has adequate funding to complete its current drill program. They have also experienced good results to date with potential for additional releases upon receiving assays from completed drill holes. We consider location and characteristics of Paramount s projects to increase its ability to compete for capital. Figure 10 View from Historic Workings, La Union Zone, San Miguel Project Source: Analyst

10 Beacon Rock Research, LLC 10 Risks: Mitigations: The mining industry continues to face increasing demand for necessary equipment and personnel, resulting in shortages and cost increases. These factors may place pressure on the company s resources, forcing the company to reduce exploration programs below their project s potential and investor expectations. Paramount appears to have an appropriate level of personnel, and access to drill equipment to complete the current exploration program. The Company has recently relocated its South American team to its projects in Mexico. Conclusion and Valuation We were impressed with both Paramount s management and the San Miguel project on our visit to Chihuahua, Mexico. We observed a significant level of activity and progress which should lead to additional resources. In our opinion, Paramount s current stock price and exploration and development activities suggest more value than is readily apparent in their existing 35.8 million Ag eq. resource. Paramount is scheduled to produce a resources update following the drill program in the first half of 2008, leading to the commencement of a Scoping Study later in the year. In addition, Paramount plans to complete additional drilling to extend known zones by drilling along strike, down-dip, and by drilling sub parallel structures. This would include the San Miguel, San Luis, El Carmen North, and San Jose West gold-rich zones. They also intend to drill targets on the Andrea project, and reconnaissance activities at the adjacent 7,000 hectare joint venture with Garibaldi. Paramount is on course with the initiatives and it is reasonable to assume that upon completion they should merit a higher value based on these fundamentals. We anticipate that assays from San Miguel Zone in the near future should illuminate potential comparisons with Palmarejo s project to the west. The sale of Palmarejo s 3.1 million Au eq. ounce resource for $1.1 billion equates to about $350 per Au eq. ounce. This may be an important indicator of the early phases of consolidation in the district. It may also provide an exploration and corporate development goal for Paramount. The market cap of Paramount is approximately $100 million or about $3 per Ag eq. ounce. We suspect that given the relative size of the current program to the earlier program, that Paramount could reasonably double or triple the current resource or improve the classification of a significant portion of the resource in Figure 11 Chief Operating Officer, Larry Segerstrom Historic Workings and Current Trenching San Miguel Zone, San Miguel Project Source: Analyst Paramount is more similar to Orko Silver Corp (TSX: OK). Orko has a 10.4 million tonne resource with an estimated 73.1 million Ag eq. ounce deposit. Orko s stock price trended up from the $0.50 per share range in September 2006, when they had a resource estimated at 3.4 million tonnes and 28.7 million Ag eq. ounces, to over $2.00 per share more recently. Orko s current resource was based on 120 holes, but they have since completed an additional 38 drill holes for a total of 70,000 meters. We consider Paramount to be in a similar growth pattern that could double the Company s stock in the next 12 to 18 months. Both Orko and Paramount have solid land position with good ability to increase and upgrade its resource and make additional discoveries. We see both companies as having good potential to make acquisitions as being acquired at a premium.

11 Beacon Rock Research, LLC 11 Paramount Gold and Silver Corp. Income Statement FYE: June 1Q 2006A 2Q 2006A 3Q 2006A 4Q 2006A 1Q 2007A 2Q 2007A 3Q 2007A 4Q 2007A 1Q 2008A 2Q 2008E 3Q 2008E 4Q 2008E Sept. '05 Dec.'05 Mar. '06 Jun. '06 Sept. '06 Dec.'06 Mar. '07 Jun. '07 Sept. '07 Dec.'07 Mar. '08 Jun. '08 Interest Income 15 $ 1,112 $ 3,892 $ 1,841 $ 178 $ 83 $ 2,434 $ 265,910 $ 185,062 $ Expenses: Incorporation Costs $ - $ 1,946 $ - $ (1,946) $ - $ - $ - $ - $ - Exploration 60,000 (50,000) 60, , ,484 1,013, ,964 1,617,449 2,048,446 2,000,000 2,000,000 2,000,000 Professional Fees 57,750 19,062 24, ,872 16,292 22, , , , , , ,000 Travel & Lodging 18,328 19,238 29,944 9,617 6,527 (3,995) 47,717 70,816 79,137 80,000 80,000 80,000 Geologist Fees & Expenses 16,296 89,960 82, , , , ,418 (1,310,816) 80,194 80,000 80,000 80,000 Corporate Communications 17,780 15,170 48,722 36,789 33,253 1,291, ,947 (2,000,540) 207, , , ,000 Consulting Fees 15,000 1, ,518 (201,141) 562,399 1,024,408 1,264,229 (2,851,036) 48,508 50,000 50,000 50,000 Stock-Based Compensation 2,009,152 6,127,643 3,590, , , ,000 Marketing 7,948 10,620 8,132 46,401 17,311 21,151 21,969 28, , , , ,000 Office & Administration 1,310 4,667 3,600 25,299 11,079 7,503 69, ,873 76,889 75,000 75,000 75,000 Interest & Service Charges ,229 2,260 56, (53,057) 2,355 2,000 2,000 2,000 Insurance - 4,900 (500) 9,344 46,918 11,502 12,000 12,000 12,000 Amortization - 4,646 5,105 5,879 6,569 13,076 20,314 20,000 20,000 20,000 Occupancy ,000 20,000 20,000 Miscellaneous 2,669 23,536 25,417 (57,797) (17,371) 10,000 10,000 10,000 Write off of mineral properties 1,471,049 - Total Expense 194, , ,492 1,859, ,705,760 6,663,049 3,144,000 3,144,000 3,144,000 Net Loss $ (194,671) $ (111,892) $ (739,248) $ (828,651) $ (1,859,074) $ (4,118,298) $ (6,252,667) $ (3,439,850) $ (6,477,987) $ (3,134,000) $ (3,134,000) $ (3,134,000) Average weighted shares n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 46,156,154 47,000,000 48,000,000 49,000,000 Basic and diluted loss per share $ (0.07) $ (0.00) $ (0.02) $ (0.04) $ (0.06) $ (0.00) $ (0.16) $ (0.21) $ (0.14) $ (0.07) $ (0.07) $ (0.06) Note: Negative figures fourth quarter of fiscal year do not balance with year-end totals, geologist Fees & Expenses, Corporate Communications, and Consulting Fees are included in Stock-Based Compensa 2006A 2007A 2008E 2009E 2010E $ 6,860 $ 268,605 $ 485, $ - $ - - $ - 533,616 4,359,306 8,048,446 8,000,000 8,000, , ,061 1,076,883 1,120,000 1,160,000 77, , , , , , , , , , , , , , , , , , ,000 8,136,795 3,890,907 2,600,000 3,250,000 73,101 89, , , ,000 34, , , , ,000 4,604 4,326 8,355 8,000 8,000 4,900 55,762 47,502 48,000 48,000 4,646 30,629 80,314 80,000 80, ,761 80,000 80,000 (6,175) 12,629 40,000 40,000 1,471,049-1,881,322 15,938,494 16,095,049 14,856,000 15,606,000 $ (1,874,462) $ (15,669,889) $ (15,609,987) $ (14,696,000) $ (15,486,000) 46,980,630 36,543,532 47,539,039 51,500,000 55,500,000 $ (0.04) $ (0.43) $ (0.33) $ (0.29) $ (0.28) copyright laws. Beacon Rock employees and affiliates may have positions and effect transactions in the securities or options of the issuers reported herein. Please refer to the company index in the back of this

12 Beacon Rock Research, LLC 12 Paramount Gold and Silver Corp. Balance Sheet FYE: June 1Q 2006A 2Q 2006A 3Q 2006A 4Q 2006A 1Q 2007A 2Q 2007A 3Q 2007A 4Q 2007E 1Q 2008E Sept. '05 Dec.'05 Mar. '06 Jun. '06 Sept. '06 Dec.'06 Mar. '07 Jun. '07 Sept. ' A 2007A Assets Current assets: Cash $ 327,752 $ 100,008 $ 455,108 $ 465,791 $ 215,983 $ 63,682 $ 19,863,136 $ 16,231,388 $ 13,185,040 Amounts receivable - 5,000 16, , , , , ,069 1,191,404 Prepaid expenses 7,037 31,957 77, ,665 1,933,714 2,788,170 2,828,513 1,741,625 1,367,693 Total current assets 334, , , ,566 2,642,535 3,082,279 23,128,157 18,917,082 15,744,137 Mineral properties 1,113 1,757,000 2,932,800 3,085,800 3,243,600 4,502,296 3,001,247 3,051,247 Fixed assets 428,000 9,413 42, , , , , ,067 Total Assets $ 334,789 $ 566,078 $ 2,315,740 3,848,669 $ 5,885,833 $ 6,479,004 $ 27,795,087 22,189,838 $ 19,132,451 Liabilities Current liablities: Accounts payable $ 11,907 $ 9,641 $ 3,117 $ 223,666 $ 724,932 $ 671,601 $ 1,333,453 $ 779,345 $ 1,391,162 Demand note $ 472,303 $ 817,750 $ 205,580 $ - Current liablities: $ 484,210 $ 827,391 $ 3,117 $ 429,246 $ 724,932 $ 671,601 $ 1,333,453 $ 779,345 $ 1,391,162 Equity (149,421) (261,313) 2,312,623 3,419,423 5,260,901 5,807,403 26,461,634 21,410,493 17,741,289 Total Liabilities & Equity $ 334,789 $ 566,078 $ 2,315,740 $ 3,848,669 $ 5,985,833 $ 6,479,004 $ 27,795,087 $ 22,189,838 $ 19,132,451 $ 465,791 $ 16,231, , , ,665 1,741, ,566 18,917,082 2,932,800 3,001,247 42, ,509 $ $ 3,848,669 22,189,838 $ 223,666 $ 779, , , ,345 3,419,423 21,410,493 $ 3,848,669 $ 22,189,838 copyright laws. Beacon Rock employees and affiliates may have positions and effect transactions in the securities or options of the issuers reported herein. Please refer to the company index in the back of this

13 Beacon Rock Research, LLC 13 DISCLOSURES: Beacon Rock Research, LLC provides information and analysis on selected companies, with a focus on small-cap and micro-cap companies. This report has been written in accordance with current SEC regulations and the Standards of Practice developed by the Chartered Financial Analyst Institute (CFAI). Our research has been conducted by employing analytical practices generally accepted as standard within the analytical industry. In this instance, a comparison of financial strength, a bottom-up earnings projection based on the U.S. economy, and relative multiples, were employed. The target price was calculated on comparative EPS, sales and book value multiples, and our knowledge of small-cap markets when enjoying both a sector and a cyclical rebound. Our conclusions are, by the very nature of forecasting, speculative, but are also reasonable, supportable and consistent. Key to disclosures: 1. The research analyst or a member of the research analyst s household may take a financial interest in the securities of the Subject Company in the form of a long position. 2. The Subject Company is paying an annual fee totaling $25,000 to SLB Equity Research, LLC., one of its affiliates, for research coverage, institutional introductions, and other awareness building services. 3. The research analyst principally responsible for preparing this research report received compensation based upon various factors, including SLB Equity Research, LLC total revenue. 4. This report was prepared exclusively for the benefit of institutional investors and may or may not receive compensation directly or in soft dollar arrangements. The analyst, Mike Niehuser, hereby certifies that the research conclusions and recommendation contained herein accurately reflects his personal views about the industry, company and shares and also hereby certifies that no part of his research compensation was or will be directly or indirectly related to the earnings estimates, target price or recommendation about the security. The research provided herein should not be considered a complete analysis of every material fact regarding the companies, industries or securities named above. The opinions expressed herein reflect the analysis and judgment of the author on the date of publication and are subject to change without notice. Facts have been obtained from sources considered reliable but should not be construed as complete and are not guaranteed to be accurate. Beacon Rock Research, LLC; its members; employees and their families may have positions in the securities covered within the research material above and may make purchases or sales while this report is in circulation. Additional information on the subject companies is available upon request. EQUITY RECOMMENDATION SYSTEM: Buy Hold Sell Immediate purchase is recommended. The security expected to outperform the market over the next 12 to 18 months. Holding the stock is recommended because the share price s appreciation potential is less than or equal to the market. The stock has reached the target price objective and/or conditions have changed sufficiently to alter the outlook for the stock. EQUITY RISK SYSTEM: High Moderate Low The security is more volatile than the market and/or the company is more leveraged than its peer group. The security has about the same volatility as the market and/or the company carries a level of leverage in line with its peer group. The security is less volatile than the market and/or the company is less leveraged than its peer group. DISTRIBUTION OF RECOMMENDATIONS: At this time, there are an insufficient number of companies under coverage to generate usable distribution information or draw any conclusions regarding bias about the research methodology. Prospective companies are screened and evaluated by sales personal and research analysts with the investment thesis and overall research recommendation developed before the commission is established.