NEW YORK ( TheStreet ) -- Paramount Gold and Silver ( PZG) is still praying for a buyout even if gold prices continue their retreat.

This $419.3 million company just needs gold prices to stay above $400 an ounce for their projects to be viable, according to CEO Chris Crupi. Currently the company has one large property, San Miguel, in northern Mexico, and another re-start up mine, Sleeper, in Nevada.

Sleeper, at its prime between 1986-1996, produced 1.66 million ounces of gold and 2.3 million ounces of silver. But for now Crupi is putting his eggs in San Miguel's basket. The company just completed strong results from its last 28 drill holes at its San Francisco target in the property.

Adam Graf, director of emerging miners for Dahlman Rose & Co., recently wrote in a research note that "the results continue to confirm favorable conditions for near-surface, bulk-minable gold and silver deposits." Graf has a buy rating on the stock and a price target of $12.11.

"We view this type of mineralization as low capital intensive, and thus attractive for PZG to possibly exploit themselves (if they so choose)," Graf writes. The company is still trying to quantify how much gold is in the ground and what the grade is but once it has those figures, Paramount will start gussying up for a buyer.

The mergers and acquisition trend stays sexy the longer gold prices remain high, regardless of recent corrections. Kinross Gold ( KGC) and Goldcorp ( GG) spent a combined $10 billion on their major purchases in 2010, paying premiums of 21% and 35%, respectively. If a major gold company paid a 30% premium for Paramount using today's market cap, they would pay less than $550 million.

Another option for Paramount is China, which has also been stepping up its relationship with North American gold miners. The country imported 200 tons of gold in the first 10 months of 2010, despite the fact that the country is one of the leading gold producers in the world.

China National Gold Group Corp., the country's No. 1 gold producer, cut a deal with Coeur d'Alene ( CDE) to receive half of all the gold concentrates from its Kensington mine in Alaska.

But big names and countries aren't likely to pay up without knowing the quality and amount of gold reserves, making the next few years critical to Paramount's success. I recently sat down with Crupi to see what the strategy is.

TheStreet: Last time we spoke, you were hoping to pull metal out of the ground in San Miguel in three years, that was at the beginning of 2010. You were looking for a partner to help you do that, where are you in that search?

Crupi: What we're doing right now is we're identifying. We're still trying to quantify the amount of metal and it keeps growing. We know who would be interested in this type of project, i.e. companies; where they are; who they are. We're just not yet ready to do that because we don't want to give it away. It's too early.

So what needs to happen then for you to do that?

We need to know what we have and then we need to know how we're going to mine it in big picture terms. Once we know how to mine it, then the economics fall out and you know what it's worth. When we know what it's worth, we can then market it and that's the strategy.

What needs to happen? Is that a feasibility; a pre-feasibility study ?

I would say it's a pre-feasibility. Feasibility is another large endeavor but getting the pre-feasibility should be done in short order.

When do you expect to have that happen?

Well by the end of this year we expect to get out a preliminary economic assessment which leads into the pre-feasibility, that would be next year.

Then after pre-feasibility you'd be ready with the economics to put that up for sale?

Absolutely; that's the critical stage, I think, the turning point that we're shooting for.

So when do you think you'll actually be in production then? Are you looking at more than 3 years?

No, it's a three year window and that's the right time.

You don't think you have missed the M&A trend? Because we saw so much of it in 2010 and you're the perfect market cap to get bought, you haven't missed it?

No, no, not at all, in fact I think we're just starting ...I think you'll see a whole lot of it as long as the economics of the marketplace hold up and I think all indications is that they will.

Are you worried about smaller projects and smaller companies that have re-opened certain mines at high gold prices, could they be competition?

I don't think they are because there is such a demand right now and typically a major mining company will want to do it themselves in their own way. So typically they like to do their own feasibility work and build their own mines in the manner in which it suits them and they have the in-house technical and financial expertise in order to do that.

That's the big difference between buying a small fledgling re-start up operation which sometimes works and sometimes doesn't. In the case of our Sleeper mine, that was a large operation so that's a whole different kettle of fish than some of the smaller things you'll find.

Let's talk about your cash position. You have $18 million, how do you have that much?

Well, last fall we raised over $20 million and we were very judicious with it. We had some warrants come due ... so we're in a good shape. We don't need to go to the marketplace to raise money, which is very good from a dilution perspective.

What are your exploration and development costs like because even though gold prices are rising so is oil. Are your energy costs higher? How are you combating that?

We've been lucky. We're fortunate to contain our costs because the costs of doing business in Mexico are much lower, the cost of oil is a third of what it is in America. The people cost are a fraction, unemployment is high in that country so that's the benefit to being down there. We haven't seen an uptick at all in our costs. Operating in Nevada with the Sleeper mine, there certainly has been some rise, but nothing really substantial.

Even in worker pay?

No, no, so we're fortunate. I think if you're running a very large operating mine perhaps where you're using inputs such as oil and heavy equipment and whatnot, I think you'd be budgeting for increased costs this year as well as last year with inflation.

What is your biggest roadblock?

I think the biggest roadblock we would have is just getting people. I mean we have good people but if we were to look forward ... it's the most difficult thing in the industry right now ... you always need more people. You can never have enough good people and that's just a generational issue, that's just a fact of the industry. The system, the education systems in America particularly, are not producing enough technical people.

Like the rig operators and the drillers?

I'm talking about the engineers and geologists. Those types of people and I think everybody in the industry is facing that hurdle, let's call it.

Are you worried you are going to have to pay up for them?

You can always find people, it's just a cost factor.

What do you want your company to look like in five years?

In five years, we are going to have some very advanced stage projects. Our mantra is exploration. We are good at finding and developing. We don't have the expertise necessarily to build big mines, but we think we could be in the marketplace for a long time and we have no shortage of partners who we think that we can bring in over time to build.

Your stock returned about 157% in 2010 helped by the discovery of your San Francisco target, what's going to be that catalyst for 2011?

Well I think that once we cross the hurdle of getting the economic assessment out of the way, and we know the value of what the Mexican assets are, I think people will be able to reflect on that. I think we will drive some significant value off of that.

What do you think your gold-and-silver ratio will be?

Well, you know we look at this as a gold project but I think at the end of the day you're looking at very close to a 50/50 split ... our corporate objective is to get to five million ounces which breaks down into two million ounces of gold, so it's anywhere from 50%-60% silver and obviously conversely for gold.

Do you have any read on the grade of gold or the mine life yet?

I mean that's what we're trying to answer this year. This will be a multimillion ounce deposit when we put out our next resource estimates so ... there are many years of mine life in that deposit.

And the grade of gold?

Again, we shouldn't comment on the grade until the reports are out.

Which metal do you think has the most upside in 2011 and what are your price targets for the short term?

I see gold rising 20-30% easily.

This year?

This year, so $2000 gold is not out of line. From what I read a lot of the forecasts are coming out at $1,600 and I think silver will just fall in line with it its long-term ratio. Silver's already had quite a run in 2010.

What kind of ratio do you think the gold silver price will be?

I think you are going to look at a 50 to 1 and that's a long term historic trend ... I don't see any reason why we'll move out of that. The demand for silver is not going to exceed the investment demand for gold so I don't think you'll see afar stretch in the ratio.

Edited for length and clarity.

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-- Written by Alix Steel in New York.

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