Cerro Resources is involved in exploration in Australia but its main assets are in Mexico. The Cerro Del Gallo gold and silver project is located in central Mexico in a region that has historic production of about 1.1 billion ounces of silver and 6.5 million ounces of gold.
Analysts expect Cerro Del Gallo will come into production in 2012-13 with a mine life of 15 years and average annualised production of about 75,000 ounces of gold and 670,000 ounces of silver. Cerro Resources owns 66 per cent of the project at present but it has the opportunity to increase this to 90 per cent if it, rather than minority owner Goldcorp, provides the capital expenditure required for development.
Either way, the market consensus is the company should achieve earnings per share in the vicinity of 7¢ in 2013-14.
The Cerro Del Gallo project should pay its way in less than two years, providing Cerro Resources with the cash flow to develop its highly prospective Namiquipa silver project in Mexico.
Management has proven expertise in developing gold and silver projects in Mexico.
The company's chairman, Norman Seckold, was at the helm of ASX-listed Bolnisi Gold when its Palmarejo silver and gold project attracted the attention of Coeur d'Alene. Bolnisi Gold was subsequently taken over for about $950 million in 2007, representing a substantial premium to its enterprise value before the takeover.
Analysts at Patersons are very upbeat about the Namiquipa project, believing upcoming drilling results will confirm extensions of high-grade silver, a development that may be the next catalyst for a share price rise.
