Stifel Nicolaus Brokers, report October 30 2012BUY RATING3Q...

Stifel Nicolaus Brokers, report October 30 2012

BUY RATING

3Q Financials and Nami Initial Resource Out; Goldcorp's CDG Decision Awaited Cerro Resources (CJO-TSX, CJO-ASX, Buy, $0.10/sh) today released 3Q financials with cash balances at $3.6mm

(vs. 4Q expected expenditures of $1.4m for G&A and exploration). Goldcorp is due to make a decision on the CJO's Cerro Del Gallo j/v $160mm development project (i.e. participate or elect to have its 34% stake diluted down to possibly a 10% NPI). Cerro Resources also recently (10/23/2012) released an initial inferred resource estimate of ~24mmoz AuEq at Namiquipa Ag/Pb/Zn, a secondary property in Mexico.

Namiquipa: The 86 holes drilled during 2011-2012 at Nami have culminated into an initial inferred resource of 4.6mmt containing 15mmoz at 103g/t Ag, 92mmlbs at 0.91% Pb, and 168mmlbs at 1.66% Zn(~24mmoz AuEq at our long-term price
assumptions). Though the tonnage was in line with our expectations, the overall resource was less than our estimates mainly due to lower grades reported. We
expected 5mmt containing 23mmoz Ag at 140g/t Ag, 121mmlbs at 1.1% Pb, and 231mmlbs at 2.1% Zn.

While the grades were less than we expected, this is an initial resource, mainly on the Princesa vein, only one of many veins on the property. We highlight it is still
early stage in the exploration process and the initial resource is a good base from which to start. The recently identified faulted offset of the Princesa America vein
system in the north provides exploration targets that could expand the resource.

We value the 24mmoz AuEq resource at $3/oz, generating a rough value of $71.4mm or $0.04/share for Nami out of a calculated CJO NAV8% of $0.29/sh..

Cerro Del Gallo gold/silver project: 34% j/v partner, Goldcorp, is expected to make decision shortly on whether it will be participating in funding the $160mm
capex for heap leach or electing to take a 10% NPI as the feasibility was filed in July 2012.

Valuation: Cerro Resources currently trades at 0.31x P/NAV at spot gold prices, versus peer average of 0.69x. We maintain our Buy rating and our 12-month target
price of $0.25/share.

Recommendation: While Nami continues to offer "Blue Sky" exploration upside Recommendation: While Nami continues to offer "Blue Sky" exploration upside, particularly as the silver price moves higher, the flagship property Cerro Del Gallo provides a solid valuation base. Our sum-of-the-parts net asset value including Cerro Del Gallo (8%-NAV) and Namiquipa ($3/oz AuEq) assets in Mexico is C$460mm, or $0.29/share (based on approximately 1.5bn fully diluted, fully financed (including future financings shares).

Changes Previous Current
Rating — Buy
Target Price — C$0.25
Price (10/29/12): C$0.10
52-Week Range: C$0.18 –
C$0.07
Market Cap.(mm): 79.2
Shr.O/S-Diluted (mm): 831.6
Enterprise Val. (mm): $75.1
Avg Daily Vol (3 Mo): 15,729
NAVPS: C$0.29
Cash (mm): A$4
Working Capital (mm): A$14.6
Price/NAV: 0.3x
S&P/TSX Composite Index: 12,373.90
Dividend(C$ / %) C$0.00 / 0.0%
Intraday pricing 10/30/2012
P/NAV is at target setting gold price of
$1,600/oz
One Year Price Chart October 30, 2012
Cerro Resources NL
CJO – TSX

Buy
Gold & Precious Metals
Stifel