Perilya Limited may well be another "Croesus" in the making; another undervalued stock that the market, in time, will come to reappraise.
As Croesus purchased the "Norseman prospect" from WMC, Perilya paid some $35 million to acquire the Broken Hill zinc-lead-silver mine from Pasminco.
Zinc is at historically low levels - trading at below US$800 per tonne, so ... on the surface ... it does not look like such a good deal.
This is precisely why I like PEM .... it's the old "straw hats in winter" syndrome. Zinc prices will not forever remain in the doldrums. In fact, there are some encouraging signs of life in the zinc market. The future looks encouraging because the resource at the mine for zinc stands at 23.4 million tonnes grading 9.8% zinc, 5.6% lead and 56 grams per tonne of silver.
Just as at Norseman, there is a strong possibility that the resource base at the Broken Hill mine could be significantly extended. To this end, a thorough geological review is currently under way and as one commentator puts it: "old mines don't run out of ore - they just get deeper". Mine life has already been extended from 2006 to 2011.
Expectations are that around 10 million tonnes could be added to the resource base.
Sound familiar? This sounds exactly like what Croesus did and, is doing with proving up additional gold mineralisation at Norseman.
Just as Croesus cut costs, Perilya is doing the same. Perilya is giving the Broken Hill mine a new lease of life. Workforce cuts and new efficiencies at the mine will save $20 million a year. Mine operating costs have fallen by about US$0.34 per pound since PEM took over.
Perilya has renegotiated many of the govt. taxes and royalties that plagued the former owners of the mine.
The similarity with Norseman continues. Like Norseman, the Broken Hill mine, because the richness of its orebody, has not been extensively explored.
If silver prices break upside ( and many belive that this is on the cards) PEM will stand to benefit.
What else does PEM have to offer?
* it owns the small high grade Flinders zinc oxide project in SA (941,000 tonnes grading 31% zinc)
* it owns interesting gold exploration tenaments in WA (Kanowna West & Honeymoon Well)
* it owns copper projects in Qld (Mount Oxide & Dee range)
* it owns promising exploration ground in SA (Gawler Craton)
After PEM's merger with Ranger Minerals last year, PEM gained some $50 million in cash plus a porfolio in a range of listed companies such as Independence Gold and the unlisted Strike Oil.
PEM owns 35.6% of Strike Oil which recently had drilling success with the discovery of the Casino gasfield in the Otway Basin. As well as having exploration acreage in the offshore Otway and Carnarvon Basins in Victoria and WA, it has acreage in Qld as well.
So could Perilla "do a Croesus"?
I think it will. For patient investors the shareprice could double from current levels of around 50 cents.
A lot depends on the global recovery - and the improvement in zinc prices. But zinc prices will improve and investor interest will turn to PEM.
Who wanted CRS when the gold price was around $250?
The time to get set in a stock like PEM is now.
Sure, they may go a bit lower but I am comfortable buying in at 50c. Like Croesus, when it is "discovered" it will leave the 50c level well and truly in its wake.
PEM Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
