PEM - Perilya Limited

EXTRACT FROM FN ARENA

Market Sentiment: 0.6



PEM - PERILYA LIMITED
Credit Suisse rates PEM as Downgrade to Underperform from Neutral - The analysts have downgraded Perilya's rating due to recent relative share price movements. In the past five days, Perilya's share price has risen 17.4% while the S&P/ASX200 has fallen 1.2%.
Perilya has released encouraging results from its Mount Oxide deposit. Although this is positive, analysts believe that earnings will drive the share price, and Credit Suisse maintains the outlook for Perilya's earnings is weak at present.
Target price is $1.70 Current Price is $1.90 Difference$0.20) - (brackets indicate current price is over target). If PEM meets the Credit Suisse target it will return approximately - 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June. Credit Suisse forecasts a full year FY08 dividend of 3.90 cents and EPS of 15.80 cents . At the last closing share price the estimated dividend yield is 2.06%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 11.99.


ps: i do not hold any PEM SHARE OR OPTIONS . Just for information

countryboy said:

i cant see a takeover or merger, This ann will be operational. Joint crib halfway down the incline ! and share a loader or two. should have happened earlier.

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I agree also countryboy. Makes sense to combine the efforts in this way at Broken Hill.

Better late than never.

Boardroom Radio report on the half year results with Mr Len Jubber, MD and CEO:
http://www.brr.com.au/event/42084

Company website: http://www.perilya.com.au

noirua said:

Boardroom Radio report on the half year results with Mr Len Jubber, MD and CEO:
http://www.brr.com.au/event/42084

Company website: http://www.perilya.com.au

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I know these guys are experts in spin but It seems to me that the company is going way better than the sp of late indicates.

What happened to PEM today? I still have a few of these not too many. I thought the price of zinc was stronger

Fug, owning this share is like partaking in chinese torture.

Im sure if they gave the inmates at Guantanimo the choice of being a shareholder or giving up Bin Ladens whereabouts they would opt for the latter .

Got a partial fill for more PEM today.......will the bottom never end

ha ha....I totally agree with you.

I have no idea what is driving the price down Zinc, Copper and Silver have increase greatly in Price,.

Bin Larden's in a mountain in Afgan I tells ya.

Looks like a double bottom in charting analysis, anyone support my views on this one? New to this stock and havent been following it, interesting thou.

Young Gun said:

Looks like a double bottom in charting analysis, anyone support my views on this one? New to this stock and havent been following it, interesting thou.

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Dont know about that, looks like it tested it a a while ago and went below. But then again I dont chart too much either.

Young Gun said:

Looks like a double bottom in charting analysis, anyone support my views on this one? New to this stock and havent been following it, interesting thou.

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Looks more like a triple bottom. The timeframe of less than 2 months might be a little short for this triple bottom to be a strong reversal pattern but it is nevertheless either neutral or a reversal. A reversal will not be confirmed until the $2.00 resistance is smashed.

On fundamentals PEM might struggle to get above $2.00, but a rise to this level is possible.

somehow methinks the attached earnings and divvies have a lot to do with it and will see price less than a $ in near future

treefrog said:

somehow methinks the attached earnings and divvies have a lot to do with it and will see price less than a $ in near future

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TF,

Comsec data isn't worth a pinch of salt, youre own cut/paste indicates how wrong they have been over past forecasts . Who uses broker research off Comsec anyway.......!

Current market sentiment in general may indeed take PEM below a buck, are you a buyer/seller/bystander or downramper if that eventuates?

Freeballinginawetsuit said:

TF,

Comsec data isn't worth a pinch of salt, youre own cut/paste indicates how wrong they have been over past forecasts . Who uses broker research off Comsec anyway.......!

Current market sentiment in general may indeed take PEM below a buck, are you a buyer/seller/bystander or downramper if that eventuates?

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freeballs

there was no comsec analyst in that composit - commsec just collate the data - those included for the PEM summary (according to commsec) were CONTRIBUTING ANALYSTS
CREDIT SUISSE - AUSTRALIA, HARTLEYS LIMITED, PATERSONS SECURITIES LIMITED, GOLDMAN SACHS JB WERE, ABN AMRO, E.L. & C. BAILLIEU STOCKBROKING LTD., MACQUARIE RESEARCH EQUITIES, UBS (sorry for the caps - copied from their footnote

I am monitoring PEM only atm - have not traded it since closing short position at 1.50
have been looking to go long but am wary of current market sentiment and apparent lack of confidence in the spin and decisions made by CEO Jubber
not convinced there is much downside left as more analysts are jumping on the buy button for PEM - but despite this the market is not interested as so many buy reccos and so few buyers
and yes I do take note of analyst reccos (for MT trades) not because I think they are right or wrong but because, like the media they are a factor in influencing buyer sentiment - their weighting I input to my decissions could be up to 1/3
cheers

Its a few weeks old now, but....




BOTTOM LINE
26/2:
EW Trend: Down
Price Trend: Down
Trend Strength: Strong
Broker Consensus: Intermediate BUY

LAYMANS ANALYSIS
26/2:
VIDEO ANALYSIS (1 mins 37 secs)
LAYMANS: Always the cynic that I am but here is a classic example of how and why Fundamental analysis is a dangerous sport. My philosophy is not about being right or wrong. The damage is done by staying wrong. I'm going to quote FN Arena (www.fnarena.com) which is a service that helps in my analysis of Broker consensus and cuts through the long-winded reports. Here are the valuations by Credit Suisse, a very large, global investment bank that pays its analysts top dollar:

22 October - Valuation: $5.00 Price: $3.79
28 November - Valuation: $5.00 Price $2.78
8 January - Valuation: $3.00 Price $2.20
31 January - Valuation $1.70 Price $1.88

The whole journey this Broker has suggested that PEM is a Buy. All the way down. In turn they have reduced their valuation progressively and after the price has declined. At no stage did they suggest exiting positions or protecting capital. The core difference between Technical Analysis and Fundamental Analysis is that charts offer a very strong right/wrong point where capital can be protected. Afterall, if you lose your capital, you can't participate. One of my core motto's: "I am simply a manager of bad trades". If I can look after the garbage, then the rest will look after itself.
TECHNICAL: Off my high horse. The price action after the drop through the major support at $3.50 has been nothing short of impulsive. Clean and strong. The current price action is taking the shape of a 3-wave counter trend pattern and is most likely a wave-iv. Classic texts will call this a bearish flag. Any breach through the lower side of this flag suggest continued weakness, quite possibly toward $0.50 being the lower side of the channel. Discussing such targets can be difficult, especially when looking at a chart and seeing where the stock was just a short time ago. However, reality suggests and confirmed by recent events, that stock prices can go far and wide of the mark driven by sentiment of fear and greed. PEM has had a slow tumble compared to the likes of Centro, Allco and today in ABC Learning. A slow tumble is not an over reaction though and represents a more sinister problem with the company. Until we see a base being built there is no reason to be involved with this stock on the long side.

TRADING STRATEGY
26/2:
A break of the lower flag boundary would suggest a selling opportunity but many would find this hard considering how far the stock has come. Essentially it can go to zero. There are plenty of stocks trading below $0.50 that were once high fliers. The same thing occurred back in the late-90's. All we need do is replace Resource with Technology and we're doing the same dance.


This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Surely though their stash of cash would have to provide some sort of base below which they would be unlikely to fall, eg if they have $136m in cash and an MC of $200m then their operations are only valued at $64m.

I guess when you are talking TA though, you're right in saying that protecting capital is about reading the charts and getting out when you should. Maybe a short on PEM then?

Well they have found a takeover/merger target.

· Under the terms of the Proposed Merger, CBH shareholders will receive:
o 1 Perilya ordinary share for every 3 CBH shares;
o 1 Perilya option for every 20 CBH shares; and
o shares in Kimberley Metals, expected to be approximately 1 Kimberley Metals
share for each 9.2 CBH shares.


Will be interesting

UMike said:

Well they have found a takeover/merger target.

· Under the terms of the Proposed Merger, CBH shareholders will receive:
o 1 Perilya ordinary share for every 3 CBH shares;
o 1 Perilya option for every 20 CBH shares; and
o shares in Kimberley Metals, expected to be approximately 1 Kimberley Metals
share for each 9.2 CBH shares.


Will be interesting

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How can I find out what Perilya options and the worth of shares in Kimberley Metals?

Any help will be appreciated.

I don't think there are any shortcuts here UMike and I've been trying to work it out myself.
The value of the option can be estimated using some kind of weighted volatility based on what the resulting company will look like (I think 59% CBH, 31% PEM) and historic prices, plus I guess the best estimate of the price of the underlying would be todays PEM price. We know the expiration is Dec 2010 as well. But the implied volatility using this would probably be too high. I'm not sure how best to adjust for this in any objective way.
The value of the Kimberley portion is also a guess, but there are clues in CBH quarterlys which can give you an idea of what the tenements are worth in-situ.
Not much help I suppose but that's my two cents.

interesting story unfolding at the southern end of the line of load. 15km out to be exact .Private company Pinnacles resources have just announced a jorc compliant resource from just 35% of their mine lease.Exact figures I'll post when i get the paper back from my wife !

ongoing stories about PEM chasing this area which could still eventuate. Pinnacles are developing the open cut mine from their own capital but surely don't have the resources to go the whole way. At some stage they will require the help of a company with access to capital.

more to come on this

Aspect "Perilya (PEM) and CBH Resources (CBH) will finally merge. Broken Hill will have unified ownership for the first time. The merger is all scrip, via scheme of arrangement. It’s conditional on an independent expert concluding the merger is in the best interests of CBH shareholders and a CBH shareholder vote. PEM will offer 1 share for every 3 CBH shares – a generous deal for CBH. Only six months ago PEM traded at over six times CBH. CBH shareholders also receive 1 free $2.00 PEM option for every 20 CBH shares, expiring December 2010. PEM will own 41% of the combined entity and CBH 59%. Merger documentation is expected in early April with the vote and final court approval set for July. Prior to the merger, CBH will spin out ‘non-core’ exploration assets into Kimberly Metals. Shareholders will get a Kimberly share for every 9.2 CBH.

A merger has long made sense, though the terms are somewhat surprising. A 50/50 split seems fair but CBH extracted a premium, suggesting PEM’s Broken Hill mine is struggling more than was already known. PEM shareholders are paying the price for management taking its eyes off the core business. This has seen a lukewarm response from PEM analysts and the media. Regardless, it’s a better than average corporate deal. Significant value will be created and it makes sense for both sides. New Rasp ore will help reduce reliance on PEM’s troubled Southern Mine and fill the Broken Hill mill.

We reaffirm our Buy recommendations on both stocks individually and preferably with the merger to proceed, looking for a recovery in the zinc price, cost savings from Broken Hill and Endeavor and growth from Panorama. High cash costs make both companies unsuitable for conservative investors. The zinc price is close to the marginal cost of production and some miners are hurting. On that basis, there is potential for substantial uplift in earnings and valuations but a prolonged zinc price depression would threaten the business. The conservative combined balance sheet provides some protection and we don’t expect zinc to fall out of bed. Nevertheless that risk must be acknowledged. This deal makes the most sense for both companies and its unlikely a competing offer will come forward. The more probable play would be a takeover after the merger, though significant progress would need to be made on cost savings first.

Our combined valuation is $1.95 a share for PEM and 68c for CBH, conservatively assuming no synergies from the merger. Broken Hill has deteriorated for PEM due to a number of production issues. The merger should help solve the problems, with real benefits from FY10 onwards. Forecast FY08 and FY09 output is reduced while cash costs and depreciation estimates rise. We now expect FY08 Broken Hill production of 89kt zinc and 54kt lead at a cash cost of US$0.93c/lb, down from previous guidance of 95kt-105kt zinc at US$0.80c/lb. A strong improvement was expected in FY09 but that now looks unlikely and we downgrade to 100kt zinc. Our CBH valuation is slightly higher than the PEM merger implies as CBH is pre the spinout of Kimberley Metals. We assign a nominal $25m to Kimberley Metals. Long term assumptions for both companies remain US$0.90/lb zinc, US$0.70/lb lead, an A$/US$ exchange rate of 0.80 and a 10% discount rate. Forecast combined EPS is 1.5c in FY08 and 14.7c in FY09 per PEM share which equates to 0.5c and 4.9c per CBH share respectively.

The deal is unanimously recommended by CBH’s board and largest shareholder Toho Zinc. PEM’s chairman Patrick O’Connor will chair the combined group while CBH’s CEO Stephen Dennis will become Managing Director. Current PEM MD Len Jubber has retired effective immediately. The board will include four PEM and three CBH directors. PEM is bringing a strong balance sheet while CBH brings a better pipeline of exploration and development opportunities.

Close to $200m in operating and capital cost savings should come from Broken Hill by FY11. Use of PEM’s spare capacity will avoid $70m to build a separate mill for the Rasp mine. CBH will not need to recruit a separate new workforce. Rasp production will be brought forward to June 2009, dependent on receipt of government permits by October 2008. Some high grade ore on the lease boundaries will be accessible for a modest near term production uplift. Post FY11, expect ongoing operating cost savings of at least $30m a year. Potential for additional savings will be explored with more likely to be found. PEM previously indicated a US20c/lb zinc cash cost saving from running its Broken Hill mill at full capacity. This suggests operating cost savings closer to $50m a year.

The combined group will be capped at around $500m. The balance sheet will be strong with $313m cash and $243m debt, most of which is convertible notes which will convert. Proforma 2007 production was 220kt of zinc and 72kt of lead. Diversification will reduce operating risk with ore sourced from five mines. The merged group will have a reasonable pipeline of exploration and development options. Combined group resources and reserves are 10.3Mt and 4.1Mt of zinc equivalent respectively.


*Combined sensitivities per PEM share. For sensitivities per CBH share, divide by three."

emphasis mine - a fighting chance now for PEM with spin merchant gone