Cerro Resources NL
ASX : CJO
TSX VENTURE : CJO

Cerro Resources NL

July 26, 2011 12:47 ET

Cerro Resources NL Reports Quarterly Activities and Files Financial Statements for the Period Ending June 30, 2011

LONGUEUIL, QUEBEC--(Marketwire - July 26, 2011) - Cerro Resources NL (ASX:CJO)(TSX VENTURE:CJO) ("Cerro" or "the Company") is pleased to release a summary of the Company's quarterly activities. Financial statements and MD&A, for the period ending June 30, 2011, have been filed on www.sedar.com and can be viewed on the Company's website, www.cerroresources.com.

1. QUARTERLY HIGHLIGHTS

Corporate:

  • Preliminary financing discussions held in relation to target 2012 Cerro del Gallo mine construction commencement. Project finance, equity and alternative non-dilutive funding approaches are being reviewed for use post the completion of the current Heap Leach Definitive Feasibility Study (DFS);
  • Kalman JV restructured – Syndicated Metals Limited (SMD) to earn to 60% via $4m exploration spend at 1st stage and issue of 12.5M SMD shares to CJO (completed);
  • Initiation of stockbroking analyst coverage by:
    • MF Global (formerly Man Financial) and Hartleys;
  • Updated coverage by Hallgarten & Company (New York);
  • Attendances at:
    • Hard Assets conference (New York);
    • ASX Small – Mid caps conferences (Hong Kong and Singapore);
    • World Resource Investor conference (Vancouver);

Operations:

Mexico

Cerro del Gallo Gold/Silver Project, San Anton

  • Work continuing on Definitive Feasibility Study (DFS) for Heap leach plant and operation;
  • Test work concludes enhanced metal recovery and reduced process risk by including High Pressure Grinding Rolls (HPGR) in crushing circuit;
  • HPGR trials underway for final crushing circuit design;

Namiquipa Silver Project

  • Drilling commenced in May, with 2nd drill rig to commence in August;
  • Initial drill program assays anticipated September quarter 2011;

Australia

Mt Isa, Queensland

  • Initial drill results at Mt Philp Iron Ore Project – 6 holes from most northerly 1km of 3.7km strike averaged 52.3m at 50.6% Fe from or within 20m of surface. Grades in line with initial surface sample test work that supported potential for a market-grade haematite product with low (1.5%) silica and no contaminants;
  • Partial inferred resource for northern section of project targeted for end September quarter 2011;
  • Kalman JV restructured to enable Company to focus on Mexico and Mt Philp operations;

2. CORPORATE

Company management continued an active corporate development focus during the June quarter, in line with the shift from exploration into mine development and construction at the Cerro del Gallo gold/silver project in Mexico.

Preliminary financing discussions were held in relation to target 2012 Cerro del Gallo mine construction commencement. Project finance, equity and alternative funding approaches are under consideration for use post completion of the Heap Leach Definitive Feasibility Study (DFS).

During the period the Company was also represented at the following conferences:

  • Hard Assets conference May 2011 (New York);
  • ASX Small – Mid caps conferences May 2011 (Hong Kong and Singapore)
  • World Resource Investor conference June 2011 (Vancouver)

In part reflecting this increased market awareness, the Company attracted initiation research coverage from analysts at:

  • MF Global, and at
  • Hartleys Stockbroking, and a revised and upgraded coverage by
  • Hallgarten & Company (an arm of Knight Capital) out of New York

3. INVESTOR RELATIONS AGREEMENT

Cerro Resources NL (the "Company") is pleased to announce that it has entered into an investor relations consulting agreement with Mis Corporate Pty Ltd, effective November 1, 2010, under which Mr. Greg Germon is to provide investor relations services to the Company on a month-to-month basis.

Mr. Germon has been acting as investor relations representative of the Company (formerly known as Kings Minerals NL) since January 2008, prior to its listing on the TSX Venture Exchange ("TSXV"). The agreement was entered into to satisfy a requirement of the TSXV. Mr. Germon will provide services normally rendered by investor relations manager of publicly traded companies including the establishment and maintenance of relations between the Company, its security holders, potential investors as well as the financial community and peers, organization and attendance at investment conferences, trade shows, analyst and property tours, and preparation of news releases, annual reports, brochures and website update.

The agreement provides for a monthly consulting fee of AU$8,734. As previously disclosed, the Company granted to Mr. Germon 1,000,000 ordinary shares of the Company. Half of the options are exercisable at a price of AU$0.15 and have a three year term, and the other half is exercisable at AU$0.20 per share and have a four year term. Of the 1,000,000 options, 25% vested 3 months after the grant, another 25% vested 6 months after the grant and the balance will vest 12 months after the grant. The options are subject to the Company's stock option plan and the TSXV policies. The agreement is subject to final acceptance of the TSX Venture Exchange.

4. MEXICO

Cerro del Gallo Gold/Silver Project, San Anton

Building on the previously announced heap leach feasibility and CIL preliminary assessment continued during the quarter and enhancement opportunities, before decision to mine and funding mechanisms, were identified. These are being addressed to ensure maximum value can be achieved.

Further column leach tests were completed during the quarter and the results of the leaching work to date has confirmed the additional benefits of incorporating high pressure grinding rolls (HPGR) in the crushing circuit for the final size reduction stage before being stacked onto the heap leach pad. The benefits are increased gold and silver recoveries and greater assurance of crushing size to ensure projected gold and silver recoveries are achieved. The overall effect for the project is potential higher revenue from gold and silver production and reduced technical risk associated with achieving the fine crush size. The HPGR is better suited to producing the final crusher product size than cone crushers. Additional drill core material has been received in Perth, Australia and detailed HPGR test work to enable the sizing of the machine and to determine the design and operating parameters has commenced. Over recent years there has been a growing trend for the inclusion of HPGR in heap leach crushing circuits.

At the completion of the HPGR test work, the final crusher design and layout can be completed. The higher metal recoveries, in particular the silver, means that the metal recovery circuit will incorporate conventional Merrill-Crowe zinc precipitation, which is better suited to the high silver:gold ratio compared with carbon adsorption. Test work to enable the detailed design of the Merrill-Crowe circuit is currently in progress.

Overall, the outcome for the production of gold and silver at Cerro del Gallo is enhanced with higher recoveries and lower risk.

Land access for some additional ground condition testing to determine detailed construction parameters and optimum infrastructure placement is being negotiated and once that is concluded the definitive feasibility study layout and cost estimates can be completed.

These matters have been addressed previously and the additional work is in significant part due to fine tuning and recognition of the potential for better economics with lesser risk.

Given the capital intensity involved in mine construction, and the relatively fixed scope for recovery improvement once mill capital items are ordered - the Company takes the view that this further work to ensure optimal gold/silver recoveries can be achieved from the outset of mine life is appropriate as a risk/return trade-off.

Namiquipa Silver project

Drilling commenced at the Namiquipa project in the third week of May and at 30 June approximately 2,800m of diamond core drilling had been undertaken as part of an initial 10,000m program.

Initial results are expected to be reported during the September quarter 2011.

The initial drilling is designed to test potential mineralization extensions at the historic producing La Venturosa Mine where production was estimated at 14.4 million ounces of silver, 32,550 tonnes of lead and 43,530 tonnes of zinc from two prominent quartz/breccias vein systems; the America and Princesa.

Zonge Engineering (Tucson, Az) finalized a detailed ground magnetic geophysical survey of the entire tenement. Zonge also completed three test lines using Induced Polarization (IP) across the known vein systems to determine the effectiveness of IP. Ground magnetic and IP anomalies detected during the surveys are being evaluated and prioritized for testing during the next quarter. (Photograph testing the extensions of veins systems at the La Venurosa Mine can be viewed on the Company's website).

Namiquipa Project Vein Systems: http://media3.marketwire.com/docs/cjoa0726.pdf

5. AUSTRALIA

MT ISA PROJECT, QUEENSLAND

Mount Philp Iron Ore Project

Core drilling was undertaken for the whole of the quarter as part of the anticipated full year resource drilling program.

The first of the results for the drilling during the quarter were released on 5 July 2011.

The first six holes all intersected significant zones of massive haematite with lesser intervals of siliceous haematite. The average drill interval over the 6 holes is 52.3 metres for an average grade of 50.6% iron (Fe) and 26.2% silica (SiO2). These initial drill campaign assay findings conform with previous indicative iron content analysis in the range of 45 – 61% (average 53%) iron content which beneficiated to 68% iron and 1.5% silica.

Resource drilling will continue for the reminder of the calendar year and an inferred resource estimate for the northern section of the project is targeted for the December quarter 2011.

The next phase of metallurgical test work will seek to optimise grind size and iron recovery to concentrate whilst keeping the silica content in line with industry acceptable levels.

Mount Philp is located 57km south east of Mt. Isa and consists of a 50 metre high ridge of ironstone that strikes south-southwest for 3.7km. The objective of the drilling is to define a resource of commercial proportions through the course of 2011.

Kalman Project

On 15 May the Company announced it had reached agreement with Syndicated Metals to restructure the joint venture arrangements which governed their relationship over part of the Kalman project. The objective was to provide an opportunity to unlock value in and expedite development of the Kalman molybdenum-rhenium-copper-gold project. It has various stages to the arrangements:

Stage 1: To earn a 60% interest Syndicated issued 12,523,482 shares to Cerro Resources to the (value then of $2 million) and must now undertake a minimum exploration spend of $4 million within two years.

The shares are 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.

Once the $4 million exploration spend is complete, Syndicated will have earned a 60% interest in the Kalman project and surrounding tenement portfolio. 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 Definitive 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 Definitive 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.

Sincerely

CERRO RESOURCES NL

Tony McDonald, Managing Director & CEO

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 exploring the Namiquipa silver project in northern Mexico. 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.

Competent Person/Qualified Person

The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mr John Skeet (as it relates to process related material), who is a Member of the Australasian Institute of Mining and Metallurgy; Mr Bill Fleshman (as it relates to the San Anton Project and Namiquipa Project), who is a Fellow of the Australasian Institute of Mining and Metallurgy; and Mr Trevor Leahey (as it relates to the Mt Philp Project), who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Skeet is the Chief Operations Officer of Cerro Resources NL. Mr Fleshman and Mr Leahey are consultant to Cerro Resources NL. They have sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are 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" and "qualified persons" as this term is defined in Canadian National Instrument 43-101 ("NI 43-101"). Mr Skeet, Mr Fleshman and Mr Leahey consent to the inclusion in the report of the matters based on their information in the form and context in which it appears.

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 price of silver and gold; 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.

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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