Golden Minerals

[MWM]

Paradigm Capital Initiates Coverage

Implications:

•AUM has been under pressure for several months due to a vacuum of news flow (in our opinion).
•Exploration results and discoveries have not flowed as fast as expected – the likely cause of weakness during Q1 in the face of rising silver prices.
•The principal reason for the lack of news flow is the first target tested in the 2011 regional program was Carmen, which didn’t turn out as good as hoped
?The highlight hit at Carmen returned a modest width of 2m @ 524gpT Au, 0.29gpt Au, and another hit of 2m @ 405gpT silver and 2.2gpT Au. As this is the highlight hole of a 24 holes program, its clear why the company has moved to Mani sub, however it does at least demonstrate how well mineralized the El Quevar district is, in our opinion, and the gold intercept is of interest, (previous drilling on the property has not identified gold)
•We are encouraged by the initial results from Mani-Sub
•Net-net, there some positives (Mani Sub) and Negatives (Carmen) on the exploration front. The positives out weigh the negatives in our mind, as exploration is at a very early stage, particularly regional exploration with drilling largely focused on Yaxtche, a deposit that was only discovered during the last 24 months.
•Investors focus on exploration is understandable (we are also watching the exploration program closely), but in our opinion it is important not to loose the forest from the trees - Yaxtche is already 60Moz and represents one of the silver sector’s best undeveloped projects that can be developed in the next 3 years. Honourable Mention goes our to BCM (Speculative Buy 12/sh Target) for its Santa Ana, and Orko Silver (No Coverage, No Recommendation) for its share of La Preciosa
•From a valuation standpoint, the exploration potential is mostly upside to our numbers. Our estimates are based on a resource of 100Moz, which is (in our opinion) a modest extrapolation from the 70-80Moz resource we expect in Q2
•Our NAV of C$32/sh at $27/oz silver (0.67xNAV). At spot silver of ~$38.50/oz our NAV increase to C$53.40/sh (0.40x). Both levels are significantly above the current share price
Note especially the last bullet point.