The agreement was made through Paramount's Indonesian subsidiary PT Paramindo, with the company acquiring a majority interest in the 1475 hectare Gunung Rosa gold-silver production mining lease.
Paramount said subject to the completion of a staged, five month due diligence program, progress payments up to a total of $US7 million ($US6.52 million) would be made to the current Chikondang shareholders.
The first payment of $100,000 was paid on execution of the agreement and $400,000 is to be paid after an initial 30 day due diligence.
There is no minimum expenditure requirement and Chikondang will retain the remaining 15% stake.
Paramount said Gunung Rosa was located 125 kilometres south of Jakarta and contained the historic Chikondang gold mine, which was first operated by the Dutch colonials in the early 1900s.
"Further underground development was established by the Japanese who extracted gold and base metals in World War Two," Paramount said.
The company said in 1991-92 an Australian-Indonesian consortium developed the project.
The consortium spent $A10 million on completing 63 diamond drillholes, 2500 metres of vertical and horizontal underground development including a decline to 200m, and a drift level to explore the main zone for a further 700m of the Dutch and Japanese workings.
Data from 34 of the diamond drillholes that intersected the mineralised vein and achieved core recoveries of greater than 8% revealed an average true thickness of 2.26m with an average grade of 14.7 grams per tonne of gold, 34.4gpt silver and 3.7% zinc.
Paramount said the project was considered financially viable, with construction design being completed by two previous owners, however the financial crisis in early 1991-92 followed by the Bre-X scandal in 1996-97 resulted in the postponement of project financing as well as construction.
"Projects of this calibre are available only very rarely," Paramount chairman Mo Munshi said.
"The Gunung Rosa project compares favourably to Kingrose Mining's Way Linggo project in South Sumatra, which had a starting base of less than 200,000 ounces of gold resources."