Paramount Gold & Silver (ASE: PZG) is generating shareholder value like it grows on trees ... by digging in the dirt.

Late last year, the company scored a discovery of paramount importance at its San Miguel project in Mexico, creating strategic value by positing geological continuity with a portion of Coeur d'Alene Mines' (NYS: CDE) world-class Palmarejo deposit next door. While San Miguel continues to deliver encouraging drill results, the company's Sleeper project in Nevada has now awakened in style.

Paramount paid a piddly sum of just C$32 million for X-Cal Resources last year, acquiring a 30-square-mile land package around a former open-pit mine that had yielded 1.7 million ounces of historical gold production. X-Cal had already established an indicated resource of 750,000 ounces of gold and 5 million ounces of silver, but it was Paramount's discussion of "outstanding exploration targets" identified on the site that really piqued this Fool's interest at the time.

I ask Fools to take very special note of what Paramount has achieved at Sleeper since the company closed that painless acquisition just over 12 months ago. With its updated resource estimate released earlier this week, Paramount has grown the gold resource at Sleeper from 750,000 ounces to a whopping 2.6 million ounces (measured and indicated). Expansion of the silver resource has been even more astonishing, with a rapid quintupling to 25.3 million ounces!

The valuation equation
Here's where it gets exciting for investors: I believe the market has clearly failed to properly value Paramount's latest achievement. I recall feeling uneasy when the stock surged over $4 on the momentum generated by that San Miguel discovery, but this time around I see a surprisingly muted response creating an exciting opportunity for investors to participate in Paramount's ongoing value creation.

Even if we were to ignore for a moment Paramount's inferred resource at San Miguel of 74.6 million ounces of silver and one million ounces of gold -- and there is absolutely no valid reason to ignore it -- Paramount's recent market capitalization of $324 million represents an unmistakable bargain. That's less than 7% of the current market value of measured and indicated gold at Sleeper; or a mere $125 per ounce of gold estimated thus far at this one project. Add in the 25 million ounces of silver, and the value equation grows sweeter still. For reference, consider that Newmont Mining's (NYS: NEM) acquisition of Nevada-focused explorer Fronteer Gold earlier this year valued those shares at $538 per ounce of measured and indicated gold.

Delivering on a promise
Paramount Gold & Silver seeks to occupy the "sweet spot" of shareholder value creation -- which it defines as the stages of development between discovery and production -- by "expanding and upgrading known, large-scale precious metal occurrences in established mining camps, defining their economic potential and then partnering them with nearby producers." I believe that Coeur d'Alene Mines cannot ignore the adjacent resources that Paramount is busily amassing at San Miguel, just as Nevada bigwigs Barrick Gold (NYS: ABX) and Newmont Mining must both take notice of the rapidly expanding scale of resources at Sleepy. Since the strategic interest of nearby established producers forms a critical element of Paramount's growth strategy, I see the company's business plan coming together like a musical crescendo.

Paramount is not done generating shareholder value at either of its principle projects. Not by a long shot. Discussing the enormous value still waiting to be unlocked by the likes of Primero Mining (NYS: PPP) , Brigus Gold (ASE: BRD) , and Great Panther Silver (ASE: GPL) , I suggested that "nothing delivers shareholder value to gold investors quite like the exploration drill." Successful exploration continues at both of Paramount's projects, developing multiple high-grade vein deposits at San Miguel, and establishing an above-ground mineral inventory left by historical mining operations at Sleepy. Additionally, the company recently acquired a smattering of 606 mining claims bridging the gap along trend between the core property and the nearby Sandman project that Newmont Mining consolidated via the Fronteer deal. The company intends to produce preliminary economic assessments for both of its projects during 2012, and I strongly encourage my readers to examine the current valuation of this proven value generator.

At the time this article was published Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Brigus Gold, Coeur d'Alene Mines, Great Panther Silver, Paramount Gold & Silver, and Primero Mining. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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