Perilya (PEM) $3.77Font Size: Decrease Increase Print Page: Print Tim Boreham | September 11, 2007 HAVING twice given the nod to the Broken Hill base metals producer and twice been chastened, Criterion is loath to give Perilya the benefit of the doubt.
Yet Perilya's numbers look compelling. Despite a sharp retraction last week, lead prices have still doubled this year while zinc continues to be in tight supply. At the same time, Perilya is emerging from the production hiccups stemming from the death of a worker in January's underground accident.
In the wake of the tragedy, 2007 production slid dramatically to 92,800 tonnes of zinc and 61,000 tonnes of lead, from the previous year's 144,000 tonnes and 75,000 tonnes respectively. The lower production affected per-tonne costs, as did the use of lower-grade ore. The buoyant prices saw Perilya post a "record" $82.5 million for the year to June 30, 2007 (take out asset sales and the result was less glossy).
Perilya forecasts current-year output of 120,000-140,000 tonnes of zinc and 70,000-80,000 tonnes of lead. There's also 28,000 tonnes of 35 per cent grade ore stockpiled at the Flinders Zinc (Beltana) project in South Australia, expected to be sold in the December quarter.
Broker Patersons notes that Broken Hill grades should improve as Perilya moves to higher-grade stopes.
An unabashed fan of the stock, Patersons forecasts a current-year net result of $119 million and earnings per share of 67.1c, which puts the stock on a miserly PE ratio of 5.6 times. This assumes an average zinc price of $US1.14 a pound, compared with the current $US1.28/lb.
Goldman Sachs JB Were's Perilya watchers are more grudging, noting in part that Perilya paid a 1c dividend when the firm expected 10c. Presumably Perilya -- sitting on cash reserves of $173 million -- is eyeing an acquisition.
As with Zinifex's Century mine, Broken Hill has a short (six-year) mine life. Perilya is moving away from its flagship Broken Hill through the Beltana project, which is "on schedule and below budget".
Criterion rated Perilya a buy at $5.37 on January 31 and then again at $4.23 on February 8. Laughable calls, perhaps, but if Perilya's production recovers, the stock looks laughably cheap.
For a third time we say buy, but any more hiccups over the next year and it's bye-bye.
PEM Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
