Primero to Acquire Cerro Del Gallo
TORONTO, ONTARIO -- (Marketwire) -- 12/13/12 --
(Please note that all dollar amounts in this news release are
expressed in Canadian dollars unless otherwise indicated.)
Primero Mining Corp. ("Primero" or the "Company") (TSX:P)(NYSE:PPP)
today announced that it has entered into a definitive agreement (the
"Agreement") with Cerro Resources NL ("Cerro") (ASX:CJO)(TSX
VENTURE:CJO) whereby Primero will acquire all of the issued and
outstanding common shares of Cerro by way of a scheme of arrangement
(the "Arrangement") under the Australian Corporations Act 2001. Cerro
is an exploration and development company whose principal asset is
69%(1) of the feasibility stage Cerro Del Gallo project, a
gold-silver deposit with approximately 1.0 million ounces of gold
equivalent proven and probable reserves and 2.3 million ounces of
gold equivalent measured and indicated resources (inclusive of
reserves)(2), located in the province of Guanajuato, Mexico.
Under the terms of the Arrangement, each Cerro shareholder will
receive 0.023 of a Primero common share (the "Exchange Ratio") for
each Cerro common share held (the "Share Consideration").
Additionally Cerro shareholders will receive 80.01% of the common
shares of a newly incorporated company ("Spinco"). Spinco will assume
Cerro's interests in the Namiquipa, Espiritu Santo, Mt Philp and
Kalman projects, shares in Syndicated Metals Limited and
approximately $4 million in cash. Primero will purchase a 19.99%
interest in Spinco with anti-dilution rights for two years. Primero
will also be entitled to appoint a director to the Spinco board of
Excluding the value of the Spinco exploration assets, the offer
represents an implied 62% premium to Cerro's 20-day volume weighted
average price ("VWAP") and a 77% premium to the spot closing price at
December 12, 2012. Upon completion of the Arrangement, existing
Primero shareholders and Cerro shareholders will own approximately
85% and 15%, respectively, of the issued common shares of Primero.
The total transaction value is approximately $119 million.
"For the past two years, Primero has been focused on organic growth
at San Dimas at the same time as reviewing external diversification
and acquisition opportunities. We believe that Cerro Resources' Cerro
Del Gallo project offers our existing and new shareholders immediate
improved leverage to gold with a significantly larger reserve and
resource base, production and cash flow profile. Although, upon
completion, it will represent 15% of Primero's market capitalization,
it could ultimately deliver more than 55% of our total gold
equivalent production," commented Joseph Conway, President and Chief
Executive Officer. "This transaction solidifies Primero's operating
advantage in Mexico, a region that we feel has further consolidation
opportunities. In our view, 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
"Cerro management has recognized the investment market's prevailing
preference to see new precious metals operations funded out of
existing cash flows. By undertaking this transaction, Cerro
shareholders will benefit from Primero's balance sheet and cash flow,
enabling the Cerro Del Gallo project to be constructed without
external financing. Importantly, this should enable returns from an
operationalised Cerro Del Gallo to be maximized benefitting all
shareholders. They will also benefit from improved market liquidity
for shareholders and the combination with Primero's proven management
team who have a demonstrated track record of successfully growing
precious metals mining companies," stated Tony McDonald, Managing
Director and Chief Executive Officer of Cerro.
Highlights of the Transaction:
-- Creates a diversified, high growth, competitive cost producer in Mexico
with further consolidation opportunities.
-- Peer leading growth profile with expected annualized production growth
of 24% over the next four years, reaching at least 260,000 ounces of
gold production by 2016.
-- Combined attributable proven and probable reserves of approximately 1.7
million gold equivalent ounces and measured and indicated resources of
over 3.1 million gold equivalent ounces (inclusive of reserves).
-- Strongly enhances and diversifies Primero's production profile and
diversifies Cerro's development project with a high quality mine and
existing cash flow.
-- Ability to fund further opportunities with a strong balance sheet and
significant cash flows from existing production.
-- Leverages on Primero's position in Mexico.
-- Additional significant exploration upside.
-- Exceptional re-valuation opportunity for all shareholders, driven by
compelling valuation, growth potential, transaction rationale and
management track record.
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 58% increase in currently estimated near-
-- Doubles reserves and triples measured and indicated resources(3 ).
-- Leverages on 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
-- Asset diversification reduces risk and volatility in cash flow and
-- 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.
Benefits to Cerro Shareholders:
-- Offer represents an implied premium of 62% to the 20 trading day VWAP as
at December 12, 2012. The implied premium represents a share price
exceeding Cerro's 52 week high.
-- 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 San
-- Primero has an existing management team with proven mine construction
and operational expertise.
-- Provides opportunity to participate in valuation re-rating as the
combination has a greater market capitalization, liquidity and immediate
-- Increases analytical following and exposure of the Cerro Del Gallo
-- Allows continuing shareholder participation in non-Cerro Del Gallo
assets through 80.01% ownership of Spinco.
Under the terms of the Arrangement, each Cerro shareholder will
receive 0.023 of a Primero common share for each Cerro common share
held (the "Share Consideration"). Cerro shareholders will also
receive 80.01% of the common shares of a newly incorporated company
("Spinco"). Spinco will acquire Cerro's interests in the Namiquipa,
Espiritu Santo, Mt Philp and Kalman projects, shares in Syndicated
Metals Limited and approximately $4 million in cash. Primero will
purchase a 19.99% interest in Spinco with anti-dilution rights for
two years. Primero will also be entitled to appoint a director to the
Spinco board of directors.
Cerro's outstanding options and its option plan will be substantially
assumed by Primero, subject to adjustment to reflect the Exchange
Ratio and a corresponding upward adjustment in the exercise price.
The transaction will be carried out by way of a court-approved scheme
of arrangement and will require approval by at least 75% of the votes
cast by at least 50% of the shareholders of Cerro at a special
meeting of Cerro shareholders. Approval of Cerro's option holders
will also be required. The transaction is also subject to applicable
regulatory approvals and the satisfaction of certain other closing
conditions customary in transactions of this nature. It is
anticipated that the Cerro shareholder meeting will be held in April
2013. Primero does not require a shareholder vote to complete the
The Arrangement includes customary provisions, including no
solicitation of alternative transactions by Cerro, a right in favour
of Primero to match any potential superior proposals and a
reimbursement fee payable to Primero by Cerro in certain events.
Both companies' Boards of Directors have determined that the proposed
transaction is fair and reasonable to their respective shareholders
based on a number of factors. Each company's Board of Directors
approved the terms of the proposed Arrangement and Cerro's Board of
Directors will recommend that their shareholders vote in favour of
the proposed transaction. TD Securities Inc. has provided an opinion
to the Board of Directors of Primero that, as of the date of such
opinion and based upon and subject to the scope of review,
assumptions, limitations, qualifications and other matters described
in such opinion, the consideration to be paid by Primero in
connection with the proposed transaction is fair, from a financial
point of view, to Primero. Cerro will engage an independent expert to
provide a report to shareholders as to the fairness and
reasonableness of the transaction and to assist them in determining
their vote at a meeting to approve the transaction. Each of the
directors of Cerro and its Chief Executive Officer and Chief
Financial Officer have agreed to enter into a support agreement and
have agreed to vote in favour of the transaction.
The transaction is expected to close in May 2013.
Advisors and Counsel
Primero's financial advisor in relation to the transaction is TD
Securities Inc. Its Canadian legal advisor is Stikeman Elliott LLP
and its Australian legal advisor is ClarkeKann Lawyers LLP.
Cerro's Canadian financial advisor in relation to the Canadian
aspects of the transaction is National Bank Financial Inc. Its
Canadian legal advisor is Wildeboer Dellelce LLP and its Australian
legal advisor is GRT Lawyers.
Conference Call and Webcast
A conference call is scheduled for Thursday, December 13, 2012 at
10:00 a.m. (EST), to discuss the proposed transaction. Participants
may join the call by dialing North America toll free 1-866-200-6965
or 1-646-216-7221 for calls outside Canada and the U.S. and entering
the participant passcode 29461929#.
A recorded playback of the call will be available until January 10,
2013 by dialing North America toll free 1-866-206-0173 or
646-216-7204 for calls outside Canada and the U.S. and entering the
call back passcode 278669#.
A live and archived webcast of the conference call will also be
available at www.primeromining.com.
For more details about the transaction please refer to the investor
presentation on Primero's website at www.primeromining.com.
(1) Cerro Del Gallo is owned 69.2% by Cerro Resources NL and 30.8% by
Goldcorp Inc. as of September 30, 2012.
(2) Gold equivalent reserves and resources are calculated based on 100%
ownership of Cerro Del Gallo and on long term consensus prices of
US$1,350 per ounce of gold, US$23.25 per ounce of silver and US$7,447
per tonne of copper. Measured and indicated resources include reserves.
(3) Assuming Goldcorp Inc. converts their position to a Net Profit Interest.
Primero Mining Corp. is a Canadian-based precious metals producer
that owns 100% of the San Dimas gold-silver mine in Mexico. Primero
is focused on delivering superior, sustainable value for all
stakeholders with low-risk exposure to precious metals. The Company
has intentions to become an intermediate producer by building a
portfolio of high quality, low cost precious metals assets in the
Primero's website is www.primeromining.com.
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, actively exploring the Namiquipa
silver project in northern Mexico, and commencing exploration on the
Espiritu Santo gold/silver project in Jalisco. It also maintains an
active focus on the Mt Isa, Queensland, region where it holds 100% of
the Mt Philp haematite project as well as a continued interest in the
Kalman molybdenum, rhenium, and copper project.
Additional information about the Company and its projects is
available on the Cerro's website at www.cerroresources.com and on
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This Primero news release contains "forward-looking information", as
such term is defined in applicable Canadian securities legislation
and "forward-looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995, concerning
Primero's future financial or operating performance and other
statements that express management's expectations or estimates of
future developments, circumstances or results. Generally,
forward-looking information can be identified by the use of
forward-looking terminology such as "expects", "believes",
"anticipates", "budget", "scheduled", "estimates", "forecasts",
"intends", "plans" and variations of such words and phrases, or by
statements that certain actions, events or results "may", "will",
"could", "would" or "might", "be taken", "occur" or "be achieved".
Such forward-looking information may include, without limitation,
statements regarding the completion and expected benefits of the
proposed transaction and other statements that are not historical
facts. Forward-looking information is based on a number of
assumptions and estimates that, while considered reasonable by
management based on the business and markets in which Primero
operates, are inherently subject to significant operational, economic
and competitive uncertainties and contingencies. Assumptions upon
which forward looking statements relating to the arrangement have
been made include that Primero will be able to satisfy the conditions
in the Agreement, that due diligence investigations of each party
will not identify any materially adverse facts or circumstances, that
the required approvals will be obtained from the shareholders of
Cerro, that all required third party, regulatory and government
approvals will be obtained and that Primero will be able to achieve
its currently announced guidance targets.
Primero cautions that forward-looking information involves known and
unknown risks, uncertainties and other factors that may cause
Primero's actual results, performance or achievements to be
materially different from those expressed or implied by such
information, including, but not limited to: gold, silver and copper
price volatility; fluctuations in foreign exchange rates and interest
rates; the impact of any hedging activities; discrepancies between
actual and estimated production, between actual and estimated
reserves and resources or between actual and estimated metallu
recoveries; costs of production; capital expenditure requirements;
the costs and timing of construction and development of new deposits
and expansion of existing operations; the success of exploration and
permitting activities; parts, equipment, labor or power shortages or
other increases in costs; mining accidents, labour disputes or other
adverse events; and changes in applicable laws or regulations. In
addition, the factors described or referred to in the section
entitled "Risk Factors" in Primero's Annual Information Form for the
year ended December 31, 2011 or under the heading "Risks and
Uncertainties" in Primero's 2011 Annual Report, both of which are
available on the SEDAR website at www.sedar.com, should be reviewed
in conjunction with the information found in this news release.
Although Primero has attempted to identify important factors that
could cause actual results, performance or achievements to differ
materially from those contained in forward-looking information, there
can be other factors that cause results, performance or achievements
not to be as anticipated, estimated or intended. There can be no
assurance that such information will prove to be accurate or that
management's expectations or estimates of future developments,
circumstances or results will materialize. As a result of these risks
and uncertainties, the proposed transaction could be modified,
restricted or not completed, and the results or events predicted in
these forward looking statements may differ materially from actual
results or events. Accordingly, readers should not place undue
reliance on forward-looking information. The forward-looking
information in this news release is made as of the date of this news
release, and Primero disclaims any intention or obligation to update
or revise such information, except as required by applicable law.
This news release does not constitute an offer to buy any securities
or a solicitation of any vote or approval or a solicitation of an
offer to sell any securities.
Cautionary Note to US Investors Regarding Mineral Reporting
Primero prepares its disclosure in accordance with the requirements
of securities laws in effect in Canada, which differ from the
requirements of US securities laws. Terms relating to mineral
resources and mineral reserves in this news release are defined in
accordance with National Instrument 43-101-Standards of Disclosure
for Mineral Projects under the guidelines set out in the Canadian
Institute of Mining, Metallurgy, and Petroleum Standards on Mineral
Resources and Mineral Reserves. The Securities and Exchange
Commission (the "SEC") permits mining companies, in their filings
with the SEC, to disclose only those mineral deposits that a company
can economically and legally extract or produce. Primero use certain
terms, such as, "measured mineral resources", "indicated mineral
resources", "inferred mineral resources" and "probable mineral
reserves", that the SEC does not recognize (these terms may be used
in this news release and are included in the public filings of
Primero which have been filed with securities commissions or similar
authorities in Canada).
Estimates of equivalent production are calculated using analyst
consensus metal price estimates. Primero's gold equivalent production
estimate is adjusted for the silver purchase agreement and only
silver ounces attributable to Primero are included.
Primero Mining Corp.
VP, Investor Relations
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