Joining the growing list of mining mergers, Perilya Limited (PEM) today launched its much heralded $294 million take-over bid for CBH Resources, to create a “globally significant producer of both lead and zinc”.
The friendly takeover will result in the historic Broken Hill line of lode in far western NSW having a single owner of the first time in its history resulting in material operational efficiencies, the companies said in a joint statement.
“The proposed merger represents a watershed for the historic mining district of Broken Hill with all of the Broken Hill line of lode to be under the one ownership for the very first time,” Perilya chairman Patrick O’Connor said.
“The combination of the two companies is a logical development that will create a new force in global lead and zinc markets,” he said.
In effect, the merger, which aims to ease the financial constraints facing the two miners, will aim to lower mining cost at both operations.
Perilya has been struggling with lower production, bad hedges and a falling zinc price, and reported an 84% fall in first-half profit in February.
It has been more than a month since the two parties have been in talks, during which the share price of Perilya and CBH have fallen 45% and 18% respectively.
CBH’s chief executive officer, Stephen Dennis, said the merger will result in “significant synergies and operating efficiencies, particularly in relation to milling capacity, infrastructure and the faster development of new ore sources.”
Perilya has handpicked those assets that will contribute to its Broken Hills mine assets, and will not be acquiring CBH’s Endeavour Mine, Panorama Project or Broken Hill mines.
These assets will instead by separated into a new entity known as Kimberley Metals, and shares in this company will be distributed to existing CBH shareholders.
Under the terms of the deal, Perilya will offer one of its shares for every three CBH shares and one Perilya option for every 20 CBH options.
Perilya and CBH add to a list of other current takeovers, such as Lihir Gold and Equigold, as well as Zinifex and Oxiana.
In the December quarter 2007 resources figures released this month from ABARE, zinc did not get rave reviews – it was one of the commodities that saw significant declines in export earnings – down $186 million (16%) to $954 million.
The decline in zinc and metallurgical coal exports was driven largely by lower prices received, thanks mainly to the stronger Aussie dollar.
It said production of zinc ores and concentrate increased during the quarter, supported by a substantial increase in production from Perilya’s Flinders zinc project. However, this did not seem to build support for the miner, with the stock price plummeting in the new year.
Today’s announcement brought some life back into the stock, with PEM rising 14.5% or 14.5 cents to $1.145 and CBH adding 5 cents or 14.5% to 39.5 cents.
