Cerro Resources Managing Director, Mr. Tony McDonald commented: "Cerro management has recognised the investment market's prevailing preference to see new precious metals operations funded out of existing cash flows."
"By undertaking this transaction, Cerro shareholders benefit immediately from Primero's balance sheet and cash flow, enabling the Cerro del Gallo project to be constructed without external financing. Importantly, this should ensure returns from an operationalised Cerro del Gallo are maximised, while appreciably lowering the combined average operating cost per ounce of the merged group - benefitting all shareholders."
"Cerro shareholders should also benefit from improved market liquidity of their Primero shareholding and the combination with Primero's proven management team who have a demonstrated track record of successfully growing precious metals mining companies."
"At the same time, this deal will free "Spinco" to focus its time and resources on fast tracking the high potential Namiquipa and Espiritu Santo projects in Mexico - and enable those projects to be more readily valued without being overshadowed by market focus on Cerro del Gallo's operation."
Primero's President and Chief Executive Officer, Joseph Conway said, "Cerro del Gallo is a very promising, undeveloped, large resource base opportunity in Mexico. Primero has the operational and financial strength to advance the project on a timely basis which will be beneficial for all stakeholders involved. This also represents a significant opportunity for Cerro shareholders in terms of continuing participation in Primero shares and their potential upside."
Benefits to Cerro securityholders:
-- Offer represents an implied premium of 62% to the 20 trading day VWAP of Cerro shares on the ASX as at December 13, 2012.-- Immediate exposure to strong balance sheet and cash flow sufficient to fund the development of Cerro del Gallo, as well as finance further growth opportunities including a potential further expansion of Primero's existing San Dimas mine.-- Addresses key project funding requirement through effectively funding at a premium to alternative funding sources, while maximising long term operational earnings.-- Enables Cerro's shareholders to maintain exposure to the Cerro del Gallo project.-- Primero has an existing in-house management team with proven mine construction and operational expertise - potentially fast-tracking development.-- Provides opportunity to participate in valuation re-rating as the combination has a greater market capitalisation, liquidity and immediate cash flows.-- Increases analyst following and exposure of the Cerro del Gallo opportunity.-- Creates a new purpose-specific vehicle to progress Cerro's existing world class suite of exploration assets through 80.01% ownership of "Spinco".
Benefits to Primero Shareholders:
-- Attractive long-life, precious metals project.-- Diversifies near-term production with an additional 95,000 gold equivalent ounces per year, a 55% increase in currently estimated near- term production.-- Doubles reserves and triples measured and indicated resources.-- Leverages Primero's regional expertise and solidifies Primero's presence in Mexico, one of the world's most supportive mining districts, with further consolidation opportunities.-- Accretive to Primero on key metrics and an attractive total acquisition cost.-- Asset diversification reduces risk and volatility in cash flow and earnings.-- Allows participation in upside potential of non-Cerro del Gallo assets through 19.99% ownership of "Spinco".-- Enhanced capital markets profile and re-rating potential as a junior gold producer with a proven operating team, a superior growth profile and significant exploration upside.-- Delivers on Primero's strategy of creating value for shareholders through low risk exposure to precious metals in the Americas.
