Cerro Resources NL
ASX : CJO
TSX VENTURE : CJO

Cerro Resources NL

May 16, 2011 08:43 ET

Cerro Resources NL: Kalman JV Restructure and Farm-Out to Syndicated Metals to Advance Project

LONGUEUIL, QUEBEC--(Marketwire - May 16, 2011) - Cerro Resources NL (ASX:CJO)(TSX VENTURE:CJO) is pleased to announce that it has entered into a Joint Venture and Farm-in Agreement with Syndicated Metals Limited ("Syndicated" or "SMD") for the Kalman Project ("Kalman"), Mt Isa Queensland, Australia.

HIGHLIGHTS:

  • Syndicated to earn up to 80% in the Kalman project and surrounding tenement portfolio in two stages, by equity issue and exploration expenditure as follows:
  • Stage 1: SMD can earn an initial 60% by issuing Cerro with $2M of SMD shares and by spending $4M on exploration over 2 years;

  • Stage 2: SMD can elect to earn a further 20% by issuing Cerro with $1M of SMD shares and by spending $7M on exploration over 3.5years.

  • Complementary agreement by which:

Syndicated:

  • Can earn up to 80% interest in the Kalman, Mt Isa, molybdenum-rhenium-copper-gold project and the surrounding tenement portfolio;

  • Gain management and funding control for Kalman's advanced exploration and development; and

  • Increases the potential to add to its other compatible projects in the Mt Isa district and augment its existing copper-gold resource at the Barbara project; while

Cerro Resources:

  • Retains a significant 20%+ Kalman direct project ownership;

  • Retains a direct 20%+ exposure to any upside within the surrounding tenement portfolio;

  • Becomes a substantial shareholder in SMD (circa 12% at signing of agreement) providing continued indirect exposure to Kalman and SMD's Barbara Project; and has

  • A free carry to any 'decision-to-mine' if SMD earns 80%.

  • Agreement excludes Mt Philp iron-ore haematite project – remains 100% Cerro Resources'
  • Cerro Resources to focus on the Cerro del Gallo gold-silver project - now nearing 'decision-to-mine' – and the Namiquipa silver exploration project, both in Mexico, and the Mt Philp iron-ore haematite discovery in the Mt Isa district.

Cerro Resources and Syndicated have agreed and documented terms of a Farm-in and Joint Venture that provides an opportunity to unlock value in and expedite development of the Kalman molybdenum-rhenium-copper-gold project near Mt Isa, Queensland Australia.

The Kalman Project contains a Cerro Resources' majority owned, Syndicated minority owned, 60.8Mt (0.05% Mo/ 0.32% Cu/ 1.19g/t Re/ 0.15g/t Au) JORC inferred mineral resource* (cut-off grades open-pit 0.2% Cu, 0.02% Mo and underground 0.5% Cu, 0.05% Mo), situated approximately 60km south east of Mt Isa.

The new agreement will replace the existing Pelican Joint Venture Agreement between the two companies upon Syndicated completing the first stage of the earn-in.

*Source: NI43-101Technical Report - Kalman Deposit In The Mt Isa Project, Queensland, August 2010 available on SEDAR and at www.cerroresources.com . Resource estimate by Mr R J Stewart BApp Sc, MAusIMM, MAIG.

Kalman remains a highly regarded exploration asset and Cerro Resources has worked with its joint venture partner to find a way to release value for both companies and their shareholders in the Kalman Project and its surrounding areas. The new arrangements achieve the desire to allow Kalman's potential to be explored now, rather than 'lying fallow'. At the same time the arrangements allow Cerro's shareholders to retain considerable Kalman exposure in regard to further value that it may hold and to participate in any upside Syndicated may be able to extract from the tenement package.

Syndicated holds the compatible Barbara project as well as a significant tenement holding in the Mt Isa district. Its management and team has demonstrated a capacity and capability to explore and develop projects and the company has a profile and large tenement holding in the Mt Isa district. This transaction gives Cerro Resources an exposure to the existing resources of Syndicated and to their future exploration upside.

Key Details of the Kalman Farm-in and Joint Venture

Stage 1: To earn a 60% interest Syndicated will issue shares to Cerro to the value of $2 million within 30 business days with the price being determined at a 10% discount to the 10 day Volume Weighted Average Price (VWAP) prior to signing of the Agreement plus undertake a minimum exploration spend of $4 million within two years.

The shares will be subject to escrow, with 50% of the shares issued escrowed for a period of 12 months and the remaining 50% escrowed for a period of 24 months.

Should Syndicated elect to withdraw from the Agreement during this stage or not meet the minimum exploration requirements the existing Pelican Joint Venture Agreement would re-start on its current terms and conditions.

Once the $4 million exploration spend is complete, Syndicated will have earned a 60% interest in the Kalman project and surrounding tenement portfolio, including the Pelican (Kalman South) joint venture tenement (EPM13870) currently 49% owned by Syndicated. The parties will then form an unincorporated joint venture known as the Kalman Joint Venture to be managed by Syndicated and owned 60% by Syndicated and 40% by Cerro Resources.

Stage 2: Syndicated can elect to earn a further 20% and move to an 80% interest by issuing shares to Cerro Resources to the value of $1 million with the price being equal to the 10 day VWAP at the time of election, plus sole fund further exploration expenditure of $7 million over a maximum of 3.5 years.

Syndicated can elect to stop sole contributing at 60% or at any time during the second earn-in period, at which time the Joint Venture allows for joint contribution towards annual work programmes and budgets or dilution by either party.

Free Carried Period

Assuming Syndicated elects to earn and does earn 80% under the Joint Venture, Cerro Resources will be free carried by Syndicated until a Decision to Mine is made.

Decision to Mine and Option to Purchase to 100%

A Decision to Mine can be taken by the Operating Committee of the Joint Venture after completion of a Bankable Feasibility Study. The area of the proposed mining operation will then be delineated and will be become the subject of a new Production Joint Venture Agreement.

Following the Decision to Mine, Syndicated will have an option period of 40 days to purchase Cerro Resource's 20% interest in the Production Joint Venture for cash or shares or a combination of both at Cerro Resource's election. If the participants are unable to agree on a value, the valuation will be referred to an expert.

The Kalman Joint Venture will continue over the remainder of the joint venture area not delineated.

Shallow Open Pit Mining Operations

At any time during the second stage, the Operating Committee may resolve to commence open pit mining operations without completing a Bankable Feasibility Study. In this instance, if Syndicated has not yet earned its 80% interest it will be deemed to have done so provided it completes the $7million spend.

Competent / Qualified Person

The information in this release that relates to Exploration Results, Mineral Resources, Ore Reserves or Metallurgy is based on information compiled by Mr John Skeet who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Skeet is the Chief Operations Officer of Cerro Resources NL and has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves". Mr Skeet has have consented to the inclusion in the release of the matters based on their information in the form and context in which it appears. Mr Skeet is a qualified person as defined under Canadian NI 43-101.

Forward-Looking Information

This news release contains "forward-looking information" under Canadian securities law. Any information that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words such as "expect", "anticipate", "believe", "plans", "estimate", "scheduling", "projected" or variations thereof or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking information. Forward-looking information relates to, among other things: the potential of the Kalman Project; the potential value of the Farm-in and Joint Venture transaction on Cerro Resources and its shareholders; the accuracy of mineral resource and mineral reserve estimates; the ability of the Company to finance its operations and capital expenditures; future financial and operating performance including estimates of the Company's revenues and capital expenditures and estimated production.

Forward-looking information are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking information, including, without limitation, risks relating to: fluctuating commodity prices; calculation of resources, reserves and mineralization and precious and base metal recovery; interpretations and assumptions of mineral resource and mineral reserve estimates; exploration and development programs; feasibility and engineering reports; permits and licences; title to properties; recent market events and conditions; economic factors affecting the Company; timing, estimated amount, capital and operating expenditures and economic returns of future production; operations and political conditions; environmental risks; and risks and hazards of mining operations. This list is not exhaustive of the factors that may affect any of the Company's forward-looking information. Forward-looking information about the future are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking information due to a variety of risks, uncertainties and other factors. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated, described or intended. Accordingly, readers should not place undue reliance on forward-looking statements or information. The Company's forward-looking information are based on the assumptions, beliefs, expectations and opinions of management as of the date of this press release, and other than as required by applicable securities laws, the Company does not assume any obligation to update forward-looking statements and information if circumstances or management's assumptions, beliefs, expectations or opinions should change, or changes in any other events affecting such statements or information. For the reasons set forth above, investors should not place undue reliance on forward-looking information.

About Cerro Resources

Cerro Resources is a precious and base metals exploration and development company. The Company is currently focused on Mexico where it is developing the Cerro del Gallo gold/silver project in the central state of Guanajuato, Mexico and commencing exploration on the Namiquipa silver project. It also maintains an active working focus on the Mt Isa, Queensland, region where it is exploring the Mt Philp haematite project and it holds an interest in the Kalman molybdenum, rhenium, copper project.

Additional information about the Company is available on the Company's website at www.cerroresources.com and on SEDAR.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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