Perilya Ltd, a struggling zinc and lead mining company, saw its shares jump sharply, then subside as it revealed plans to sell a controlling stake to a Chinese Group to avoid being forced to consider and possibly recommend a takeover offer from rival CBH Ltd.
Perilya shares jumped 25% to a high of 20c before they eased to be up around 6.6% at the close at 16c.
The company announced yesterday that China’s fourth-biggest zinc producer had agreed to buy 50.1% for $A45 million.
The buyer, Shenzhen Zhongiin Lingnan Nonfemet will pay 23c for each Perilya share, or a premium of 53% to its close on Friday, December 5.
The sale provides “a significant platform for growth and a major operational and funding boost,” Managing Director Paul Arndt said in the statement justifying what seems to have been a very high price paid for the stake.
“It also will leave Perilya extremely well placed to withstand the current commodity price environment, and to pursue growth options as they arise.”
The purchase is subject to the approval of Guangdong province’s Development and Reform Commission and shareholders of Perilya, the Chinese company said in a filing to the Shenzhen Stock Exchange yesterday.
It needs Australian approvals from the Foreign Investment Review Board. Perilya shareholders will have to vote on the deal.
That shouldn’t be a problem as FIRB and the federal government have approved the successful takeover for Midwest Corporation (an emerging WA iron ore company) by Sinosteel of China.
Under the deal, Perilya will issue 197.67 million shares to Shenzhen Zhongjin Lingnan Nonfemet; the Perilya board will be restructured to allow Zhongjin representatives to comprise half of the board.
Paul Arndt will continue as managing director and chief executive.
Mr Arndt said "Perilya believes this access to capital provides a significant comparative advantage to other resource companies, and will also allow us to advance, as appropriate, development projects such as the Mount Oxide copper project".
Zhongjin is China’s third largest zinc producer and has mining, processing, smelting and marketing experience.
President of Zhongjin, Zhang Shuijian, said in a statement that the company’s investment was a good opportunity to invest in the Australian market.
Mr Zhang also confirmed in a statement that Zhongjin did not intend to accept an outstanding offer for Perilya shares from CBH Resources Ltd: that’s the most important part of the deal.
At one stage this year the two companies were close to merging, but then called off the proposed marriage as relations seemingly worsened.
CBH launched a new bid early last month offering 4.2c for each Perilya share. Perilya told shareholders to reject it. Perilya confirmed media reports in late November that there were rival interests to CBH’s bid.
That was confirmed yesterday with the very generous proposal from the Chinese group.
"The board is unanimous in the belief that the placement of shares to Zhongjin represents the best alternative currently available to Perilya shareholders, and will be voting their own stock in favour of the Placement," Perilya chairman Patrick O’Connor said.
"The Placement significantly improves Perilya’s cash backing and better positions Perilya to withstand the currently depressed commodity price environment through a material injection of capital.
"Perilya believes that access to capital will provide it with a material comparative advantage to other resource companies, while also allowing Perilya to advance development projects such as Mount Oxide."
As part of the Placement, Zhongjin will provide Perilya with an initial cash deposit of $A10 million by Wednesday, December 24 2008 to complement Perilya’s existing cash balance.
The deposit is refundable in the event the transaction conditions precedents are either not satisfied or waived.
Perilya said shareholder approval will be sought in a general meeting, currently scheduled for February 2009.
"A Notice of Meeting and Explanatory Memorandum will be issued to shareholders in January 2009.
"The Explanatory Memorandum will include further details on the proposed Placement and will include an Independent Expert’s Report that will opine on whether the Placement is fair and reasonable and in the best interest of Perilya shareholders, given all other alternatives currently available to Perilya."
