afr article today, page-3

the full afr article today SE Market Wrap
HD Perilya - the quiet achiever
BY Tim Findlay
WC 616 words
PD 6 April 2006
SN Australian Financial Review
SC AFNR
ED First
PG 26
LA English
CY © 2006 Copyright John Fairfax Holdings Limited. www.afr.com Not available for re-distribution.

LP Perth-based diversified miner Perilya may have flown under investors' radar for the best part of the past four years, but the company has emerged as the best-performing stock on the Australian Stock Exchange this year.

The company has attracted relatively little attention since it bought its flagship Broken Hill zinc-silver-lead mine from the now defunct Pasminco in 2002, but the resources boom has refocused the gaze of investors onto the junior miner.


TD Taking advantage of soaring zinc prices, Perilya has jumped 184 per cent to a record $2.81 so far this year, pushing its market capitalisation to more than $483 million from about $190 million on December 30, 2005, when its shares were 99¢.

While the benchmark S&P/ASX 200 Index has risen 9.3 per cent the price of zinc has climbed more than 40 per cent, hitting a record $US2740 a tonne.

ABN Amro Morgans resource analyst John Moorhead said the effect of rising zinc prices had trickled down to the bottom line of Australia's zinc producers.

"It is almost purely to do with the zinc price," he said.

"Zinifex got the first round of interest, then Kagara Zinc got the next and then Perilya started running very hard."

As long as zinc prices stay high, Mr Moorhead thinks Perilya's rise will continue.

His firm recently upgraded its forecast for zinc prices in 2007 to an average of $US2104 a tonne, from a previous average forecast of $US1411. The long-term forecast, beyond 2009, has risen 10 per cent to $US1212 a tonne.

An unhedged book has helped put the company in a prime position to capitalise on soaring zinc prices, but Mr Moorhead said the company's earnings and cost structure made it an attractive investment.

"They are unhedged so that obviously gives them a head start, but they are also a higher-cost producer, which means that any additional revenue from increased zinc prices leads to a bigger percentage increase in profits," he said.

A revised 2007 earnings per share forecast of 59.1¢ a share has led to the company's forward price-earnings ratio falling to 4.3 times earnings, attracting bargain hunters. Analysts said a P/E of about eight times earnings was more appropriate, suggesting the shares were worth almost double their level now.

Mining industry watchers have lauded the work of chief executive officer and managing director Len Jubber, a former chief operating officer for Oceana Gold who joined the company in May 2005, in developing a new culture in the business.

"It's a very good company and a lot of that comes down to the new management," the managing director of small resources specialist Far East Capital, Warwick Grigor, said.

"The change of management style is really what the company did need. While the previous management was good . . . it was more exploration-focused, but now they've brought in management with more experience in production."

Mr Jubber said his company's new, simple strategy was to enjoy the good times, but prepare for the bad, ensuring investors got maximum value. "We are putting in place the building blocks to ensure that at the top of the cycle we are very profitable, and at the bottom of the cycle we are sustainable," he said.

He acknowledged the macro factors that had boosted his company's share price.

"The dramatic increase in zinc prices and the edging downwards of the exchange rate has complemented the work we have been doing," he said.

Mr Jubber said the company was broadening its production base.


CO
perim : Perilya Ltd

IN
i211 : Metal Ore Mining | imet : Metals/Mining

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