no repeat of that zincing feeling

CRITERION: Tim Boreham | September 03, 2009
Article from:
http://www.theaustralian.news.com.au/business/story/0,28124,26018548-23634,00.html

Perilya (PEM) 38.5c

CBH Resources (CBH) 9.3c

THE last time we looked at these Broken Hill base-metals stalwarts they were taking turns at taking each other over, in an effort to combine the city's famed silver-zinc-lead lode into the one workable entity.

Valuation issues and plunging metals prices kyboshed that, leaving both entities fighting for their corporate lives.

The duo is worth another look: zinc and lead prices have recovered 50 per cent and 100 per cent, respectively, since the start of the year, with both stocks benefiting from cost cutting.

Both have attracted support from up north: Zhongjin Lignan, China's third-biggest zinc producer, took a 50.1 per cent stake in Perilya. Japan's Toho Zinc owns 28 per cent of CBH and has advanced a $40m loan facility.

Perilya last week unveiled a $75m full-year loss, including a $32.7m write-off of tax assets, impairment charges of $21.8m and "resizing costs" of $10.5m. Cash costs halved to US58c a pound and productivity doubled, which is no mean feat given Broken Hill miners like to do things the way they've always been done.

CBH Resources lost $96m ($61m from continuing operations) on a 27 per cent revenue plunge, the result of production cuts at its Endeavour mine near Cobar.

Argonaut Securities analyst Troy Irvin forecasts Perilya will bounce back to a $24m profit in the current year, which puts the stock on a PE multiple of six times.

CBH is a trickier investment proposition because it carries debt of $135m (but is in the throes of a $25m-plus raising). CBH's best asset, the Rasp deposit, is between Perilya's Broken Hill operations, hence the need for a merger to exploit the ore economically.

We'll call Perilya a speculative buy and CBH a hold. Let's hope there's no repeat of that zincing feeling as prices drop like lead.