pem cbh resources agree all scrip merger

time to go long on PEM maybe, once the hiring freeze is over of course.

AFTER weeks of negotiations, the zinc miners Perilya and CBH Resources have finally agreed on a merger that would unite all of the mining assets in Broken Hill for the first time in more than 100 years.

The all-scrip deal, which could be worth about $500 million based on the miners' market values, is expected to be announced to the market on Wednesday next week after the companies finalise the legal documentation and other details over the long weekend.

The executive chairman of Perilya, Patrick O'Connor, is expected to emerge as chairman of the merged group, with CBH's chief executive, Stephen Dennis, as the managing director. Perilya's chief executive, Len Jubber, is not expected to continue with the combined entity.

Analysts have said a tie-up between the miners made sense because Perilya had an under-utilised concentrator in Broken Hill that could be filled by material from CBH's neighbouring Rasp mine, which is under development. It is believed they could save more than $200 million by combining the operations.

Perilya and CBH, which have both recently undertaken strategic reviews, last month admitted they were in merger discussions. At the time they were discussing a transaction which would see Perilya make an all-scrip bid for CBH at a premium to the target's share price. Perilya then had a slightly higher market value than CBH.

But over the past month - in part because investors moved out of Perilya and into CBH shares based on the expected make-up of the deal - Perilya shares have been battered. Before the companies entered trading halts yesterday, Perilya had a market value of $197 million, while CBH was worth $291 million.

It is understood the deal struck yesterday is based more on the historical relative valuations of the companies than on the current trading ratio.

Perilya shares last traded at $1, while CBH traded at 34.5c, which is close to a 1-for-3 ratio. That pales in comparison with the 1-to-7.5 trading ratio last September.

The merged group would have $290 million of cash available for development projects - and acquisitions - based on their financial statements for the half-year ended December 31. Both are looking to diversify their production bases since the zinc price has fallen steeply during the past year.

Perilya last month said the resource at its Mount Oxide copper project in Queensland had increased to 203,000 tonnes of contained metal. It expects to start a feasibility study on the project early next year.

CBH is looking to develop the $213 million Panorama zinc-copper project in Western Australia, to add to production from its Endeavor mine near Cobar and its Rasp development. It expects to start construction at Panorama in July and production in September next year.