Canada-based precious metals producer Primero Mining has signed a definitive agreement to acquire Cerro Resources for approximately $119m.

Precious and base metals exploration and development company Cerro owns a 69% stake in the Cerro Del Gallo project, currently in the feasibility stage.

The deposit, located in the Guanajuato province of Mexico, comprises proven and probable reserves of 1 million oz of gold equivalent and measured and indicated resources of 2.3 million oz.

According to the agreement terms, Primero will offer 0.023 of a common share for each Cerro common share held.

Cerro shareholders will also receive an 80.01% interest in Spinco, a newly incorporated company that will assume Cerro’s interests in the Namiquipa, Espiritu Santo, Mt Philp and Kalman projects, shares in Syndicated Metals and $4m in cash.

Following the transaction’s closure, shareholders of Primero and Cerro will respectively own 85% and 15% of the issued common shares of Primero.

Primero president and CEO Joseph Conway said that the firm has been focused on organic growth at San Dimas for the past two years, while considering external acquisition opportunities.

"This transaction solidifies Primero’s operating advantage in Mexico, a region that we feel has further consolidation opportunities," Conway added.

Cerro managing director and CEO Tony McDonald stated, "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."