Paramount Gold and Silver Corp. (NYSE: PZG)(TSX: PZG)(FRANKFURT: P6G)(WKN: A0HGKQ) ("Paramount") announced today that it has been advised by Klondex Mines Limited ("Klondex") that the Klondex board of directors has withdrawn its support and therefore breached its binding letter agreement of July 20, 2009 ("Agreement") in which it had agreed to support a combination of the two companies on the basis of 1.45 shares of common stock of Paramount for each common share of Klondex ("Transaction").
Paramount CEO Chris Crupi said "the decision by the Klondex board of directors to withdraw its support and breach the July 20, 2009 letter agreement between Paramount and Klondex triggers a break fee of US$2.85 million payable to Paramount as set out in this agreement. We believe that Paramount may also be entitled to significant damages resulting from the Klondex board of directors decision."
Klondex claims that it is not proceeding with the Agreement due to an alleged misstatement of material facts by Paramount in Paramount's NI-43-101 Technical Report dated November 20, 2008. Paramount specifically and emphatically rejects these allegations, noting that the issues raised by Klondex with respect to the Paramount NI-43-101 Technical Report are minor, not material and have no adverse impact on the valuation of Paramount. "This is a frivolous claim designed to entrench Klondex management without having to pay the break fee that would otherwise be due on termination of Paramount's letter agreement with Klondex," said Mr. Crupi. As a show of good faith, Paramount engaged the Qualified Persons who authored the November 2008 Technical Report to assess Klondex's stated concerns, and this updated Technical Report was filed on SEDAR on September 17, 2009. The authors concluded that Paramount's mineral resource did not require restatement in response to Klondex's allegations because the potential variances were "small amounts ... within the margin of error in such estimates. Thus they are of little practical consequence."
"We are now considering all of our options in connection with Klondex's breach of Paramount's letter agreement with Klondex," said Mr. Crupi.