PEM - Perilya Limited

[Ken]

Perilya is cashed up and on the prawl for an acquisition.

If they continue to fall the stock will become a takeover target certainly.


Watch this space.

Dont go bottom picking.

Fundamentals come into resource stocks, forward looking eps are deceptive because they also rely on commodity prices.

Worth noting that PEM is a top ten lead producer in the world.

So they are not a small speculative stock.

I think they are unloved because of the short mine life.

An acquisition of another company could very well give investors long term confidence to get stuck in.

There are several target prices of $4-$5.20

 

[mishu]

It has two active mines and plans for 4-5. It has the sites and money to develop them. We think the share is very good value currently and we expect a good return on it over the next two-three months.

 

[mishu]

It's up 4 and a half percent today. I am convinced that this stock has good prospects- both on its own merits, and also either through acquiring or being acquired.

 

[GREENS]

Have to say, when people talk about PEM being one of the biggest Lead producers and benefiting greatly from the rising price of Ld, one needs to only look at their hedging strategy for the metal for the 08 and 09 Financial years to see, that although they may be the among the biggest producers they would certainly not be among the top earners for the metal. They have close to 50% of their Lead production hedged for 08 @ approx AU$0.75/lb and for 09 @ approx AU$0.80/lb. When Ld has been currently hovering around AU$ 1.80/lb, no wonder investors aren’t poring in for the exposure to Ld, because if investors did want exposure to Ld your probably be better off jumping on other miners that are producing way less but are fully unhedged and have greater diversity in their metal production to also take advantage of higher Cu, Ag & Au prices. I was looking at the company because it appeared to be good value, but considering the price of Zn at the present time and the grim outlook over the feasible future, the low profit margin compared to its peers, the short mine life and the relatively high cost of production at broken hill, it was obvious why it traded on such a low PE multiple. After looking at these basic fundamentals I didn’t even bother looking at the company’s development and exploration, so maybe I am missing something and this is where the value of the company really lies. However one good thing to come out of its hedging plan is that it hedged against the AUD/USD at an ER around $0.83, which will benefit its Zn sales compared to other miners. Still trading on a PE of 8 to me says that surely this hasn’t got too much more downwards movement, unless their current mine experiences some server output problems or Zn heads sharply south. So maybe its one for the bottom drawer, but the question is how long will it have to stay in the bottom drawer to earn its rewards? Nevertheless the brokers seem to place high hopes for it, so good luck to all those that hold.

 

[mishu]

PEM has bought a significant holding(8%)in Herald which is developing a mining site with excellent lead and zinc resources in Indonesia. Production and Labor costs should be lower there.

 

[mishu]

Greens I think you misunderstand PEM's position.

From a financial report they submitted to the ASX:

"Metal Put Options
The company has acquired put options over approximately 50% of forecast lead sales to June 2009. These put options
provide the right, but not the obligation, to sell lead at an agreed strike price at a future date (refer to Table 4 on page 10).
The overall effect of these USD lead put options and the AUD call options is a minimum gross achievable price of
A$3,316 per tonne on the 30,221 tonnes hedged for the balance of FY08, and A$2,666 per tonne on the 38,701 tonnes
hedged in FY09, whilst maintaining upside exposure to a rising lead price and/or a weakening AUD."

 

[GREENS]

Greens I think you misunderstand PEM's position.

From a financial report they submitted to the ASX:

"Metal Put Options
The company has acquired put options over approximately 50% of forecast lead sales to June 2009. These put options
provide the right, but not the obligation, to sell lead at an agreed strike price at a future date (refer to Table 4 on page 10).
The overall effect of these USD lead put options and the AUD call options is a minimum gross achievable price of
A$3,316 per tonne on the 30,221 tonnes hedged for the balance of FY08, and A$2,666 per tonne on the 38,701 tonnes
hedged in FY09, whilst maintaining upside exposure to a rising lead price and/or a weakening AUD."

Mishu

Yes you are correct in saying they have 50% hedge of there Ld production using put options, but they have also entered into forward contracts (which I would assume to be a short and not a long position) for the sale of the other 50% of Ld production. Refer to page 10 of their latest quarterly report, its all there. This means that they will have a loss on their put options and have forgone significant revenues from entering into their forward contracts at such low prices. Forward contracts are an obligation to deliver a certain amount of contained Ld at a particular price you don’t have any choice whether you want to exercise or not.

08 Forward Contracts – 25,006t @ $AU 1,447/tn & 4,794t @ $US 2,446/tn & additional put options as you mentioned. Adding to this is their small position in Zn Forwards 18,000t @ $AU 2,466/tn.

09 Forward Contracts – 33,242t @ $AU 1,748/tn and small position in Zn again 16,246t @ $AU 3,768/tn.

10 Forward Contracts – 5,460t @ $AU 3,359/tn

If you can prove this to be wrong, I would be quite happy, because then maybe PEM would be worth considering in a market where value is hard to find.

 

[michael_selway]

Mishu

Yes you are correct in saying they have 50% hedge of there Ld production using put options, but they have also entered into forward contracts (which I would assume to be a short and not a long position) for the sale of the other 50% of Ld production. Refer to page 10 of their latest quarterly report, its all there. This means that they will have a loss on their put options and have forgone significant revenues from entering into their forward contracts at such low prices. Forward contracts are an obligation to deliver a certain amount of contained Ld at a particular price you don’t have any choice whether you want to exercise or not.

08 Forward Contracts – 25,006t @ $AU 1,447/tn & 4,794t @ $US 2,446/tn & additional put options as you mentioned. Adding to this is their small position in Zn Forwards 18,000t @ $AU 2,466/tn.

09 Forward Contracts – 33,242t @ $AU 1,748/tn and small position in Zn again 16,246t @ $AU 3,768/tn.

10 Forward Contracts – 5,460t @ $AU 3,359/tn

If you can prove this to be wrong, I would be quite happy, because then maybe PEM would be worth considering in a market where value is hard to find.

Hi there 6 yr mine life is still an issue i think

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 43.1 61.0 69.7 56.5
DPS 11.0 15.4 16.4 15.0

thx

MS

Date: 15/10/2007
Author: Michael Vaughan
Source: The Australian Financial Review --- Page: 22
Australian-listed base metals group Perilya will pursue acquisitions in order tosignificantly boost its market capitalisation. Perilya is currently valued atless than $A1bn, but CEO Len Jubber says the group's aim is to increase itscapitalisation to more than $A2bn. Perilya will seek to acquire a base metalproject in the near-term, although Jubber says the group wants to ensure that itbuys the right asset at the right price. Perilya shares eased $A0.17 on 12October 2007, closing at $A4.25

Back
Date: 12/11/2007
Author: Michael Vaughan
Source: The Australian Financial Review --- Page: 16
On 8 November 2007, listed Australian miner, Perilya, purchased five millionsshares in Herald Resources from Renaissance Capital. It is not expected thatPerilya will launch a takeover bid at this stage, although CEO Len Jubberrecently indicated that Perilya aims to purchase a base metal miner by 31December. Herald Resources is valued at $A310 million. There is speculation thatPerilya could ask Herald Resources for access to due diligence and couldpotentially appoint a board member to the group. Shares in Herald Resourcesclosed $A0.08 higher on 9 November, at a record $A1.58, while Perilya fell$A0.03 to $A3.60

 

[mishu]

Mishu

Yes you are correct in saying they have 50% hedge of there Ld production using put options, but they have also entered into forward contracts (which I would assume to be a short and not a long position) for the sale of the other 50% of Ld production. Refer to page 10 of their latest quarterly report, its all there. This means that they will have a loss on their put options and have forgone significant revenues from entering into their forward contracts at such low prices. Forward contracts are an obligation to deliver a certain amount of contained Ld at a particular price you don’t have any choice whether you want to exercise or not.

08 Forward Contracts – 25,006t @ $AU 1,447/tn & 4,794t @ $US 2,446/tn & additional put options as you mentioned. Adding to this is their small position in Zn Forwards 18,000t @ $AU 2,466/tn.

09 Forward Contracts – 33,242t @ $AU 1,748/tn and small position in Zn again 16,246t @ $AU 3,768/tn.

10 Forward Contracts – 5,460t @ $AU 3,359/tn

If you can prove this to be wrong, I would be quite happy, because then maybe PEM would be worth considering in a market where value is hard to find.

The forward contract sales are there alright. And yes they are at low prices. But the rest of the product will likely be at better prices than the rest of the market will get. PEM's financials are on target for the expected profit as of the last financial report. (Unlike ZFX, they have not issued a profit downgrade). I have asked PEM to clarify the position regarding the forward sales and the projected minimum price attainable - no answer as yet, but I truly do not see the pre-sales as a bar to a growing company, well managed, and developing into Indonesia in all likelihood.


Regarding mine-life, I am not expecting to have to hold the share 6 years When the first Flinders project sales are made this quarter i believe they will boost figures and result in a very good December quarter report. However, investment in Herald for its rich Indonesian mining sites and extended exploration for other open and other mining prospects continues.

You can see about the ongoing exploration and development of sites in the latest quarterly report.

 

[mishu]

I note that ZFX has recently announced it expects lower revenues than predicted due to the falling price of zinc and the high dollar and rising mine costs. (Apparently brought on by analysts lowering their outlook for zinc prices to 1.25 per pound from 1.75)

Relevant to that I note that PEM has evidently taken into account lower zinc prices when plannign their mining viability , cash flow and profits, has hedged against the dollar, is ahead of forecasts and below costs on the Beltana zinc production, and is actively exploring other avenues of lowering mining costs, including the Potosi deposit and the later possibility of taking over Herald.

(Information from various articles and reports)

http://www.bloomberg.com/apps/news?pid=20601081&sid=aLmmqc4bcYlo&refer=australia

http://www.news.com.au/heraldsun/story/0,21985,22754890-664,00.html

http://72.14.253.104/search?q=cache...e+of+zinc+"&hl=en&ct=clnk&cd=1&gl=au&ie=UTF-8

http://www.theaustralian.news.com.au...-23634,00.html

http://au.us.biz.yahoo.com/ft/071112...3103.html?.v=1

 

[mishu]

http://asx.com.au/asx/statistics/showAnnouncementPDF.do?idsID=00783243

Good news here. Doubles the copper resources of PEM and increases suitability for open cut mining.

 

[michael_selway]

http://asx.com.au/asx/statistics/showAnnouncementPDF.do?idsID=00783243

Good news here. Doubles the copper resources of PEM and increases suitability for open cut mining.

Hi how much does that increase its mine life by?

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 43.1 61.0 69.7 56.5
DPS 11.0 15.4 16.4 15.0

thx

MS

 

[GREENS]

Mishu

Back to my original points. People have been suggesting:

1. That Perilya has substantial leverage to currently high Ld Price. My point was that yes they still do have 50% of production unhedged but their other 50% is hedged at considerably low prices. Investors can gain this same exposure through other companies with smaller production which are fully unhedged, yet have more attractive exposure to Cu, Au &/or Ag which have been performing much better than the other metals of late. Thus the reason why investors aren’t rushing in for the exposure, to the higher lead prices. Please let me know if this is incorrect when you hear back from the company, because as you can see from reading the report, it obviously says they have future contracts amounting to the volumes discussed in my previous post.

2. It is good value because it is trading on a low PE multiple. The fact that you wont be holding until the mine exhausts its resources in 6 years is not the point (even though it is likely this mine will continue producing for longer, as each mine manager has been saying this for ages). But current short mine life combined with high costs of production and relatively lower margins compared to its peers clearly justifies why it trades at a discount and inturn on a low PE multiple. Add the poor performance of the Zn price of late with the grim outlook from brokers for the rest of 2007/08 and things aren’t looking so crash hot. I think the fact that PEM has only managed profit margins of 19.5% (06) and 21% (07) in a major commodities bull market speaks loud and clear.

As I said before I did not get into the nitty gritty of their exploration and development, just had a brief glance, so could be missing something here, feel free to elaborate on this if there is anything important. Nevertheless brokers seem to like it and think it is undervalued so maybe your short term view will pay off.

 

[mishu]

They have active ongoing exploration and hold many promising sites Greens. Did you see yesterday's announcement? They had drilling results showing a doubling of their copper resource at Mt Oxide - and good suitability for open cut mining.

 

[michael_selway]

They have active ongoing exploration and hold many promising sites Greens. Did you see yesterday's announcement? They had drilling results showing a doubling of their copper resource at Mt Oxide - and good suitability for open cut mining.

Hi in terms of mine life.how much would that be?

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 43.1 61.0 69.7 56.5
DPS 11.0 15.4 16.4 15.0

thx

MS

Date: 12/11/2007
Author: Michael Vaughan
Source: The Australian Financial Review --- Page: 16
On 8 November 2007, listed Australian miner, Perilya, purchased five millionsshares in Herald Resources from Renaissance Capital. It is not expected thatPerilya will launch a takeover bid at this stage, although CEO Len Jubberrecently indicated that Perilya aims to purchase a base metal miner by 31December. Herald Resources is valued at $A310 million. There is speculation thatPerilya could ask Herald Resources for access to due diligence and couldpotentially appoint a board member to the group. Shares in Herald Resourcesclosed $A0.08 higher on 9 November, at a record $A1.58, while Perilya fell$A0.03 to $A3.60

15 November 2007
Excellent new drill intercepts at Mount Oxide copper project

Perilya Limited (ASXEM) are pleased to announce further significant results from recent drilling at the Mount Oxide copper project in Queensland, Australia. Highlights include:


Drill hole MOXD59 intersected 171 metres at 1.0% copper from 111 metres downhole, which includes 26.6 metres at 1.7% copper and 18 metres at 2.6% copper on the northern margin of the current resource

Drill hole MOXD62 intersected 80 metres @ 0.8% copper that includes 28 metres at 1.8% copper from 23 metres down
hole, north of the current resource

Drilling further north of the existing resource continues to intersect visible copper mineralisation.

Len Jubber, chief executive officer, said that this was an exciting result that has highlighted the potential of the current drilling program to increase the inferred resource to 250,000 - 300,000 tonnes of copper. “Our confidence in what is likely to initially be an open cut mining project is increasing with each drill hole,” he said.
Mount Oxide Project (100 per cent owned)

The Mount Oxide project is located in the Mount Isa region
western succession that includes major sediment hosted
breccia copper deposits and uranium mineralisation. The
deposit was intermittently mined between 1920 and 1971 by
way of a small open pit and underground operation. The project
lies 25 kilometres north of the existing Mount Gordon mine
operated by Aditya Birla Limited.

The deposit is a chalcocite dominated system associated with strong silica-hematite alteration and copper mineralisation developed on the margins of the hematite core. The mineralisation is hosted in a sedimentary package associated with a strong structural control along the northeast trending Mount Oxide fault and cross cutting faults. The current Mount Oxide resource (4 million tonnes at 2.8% copper) is 112,000 tonnes of contained copper (see Perilya’s 2007 Concise Annual Report

).

 

[mishu]

I am not sure why you are stuck on mine life. Obviously new resources and interests in various other companies add to the company life and mine life.
Take a look at the diversity and intelligence of the management of the resources they have and the way they are expanding.

They have at least 6 years mine life in the Broken Hill mine. They have an ongoing interest in Silver Lakes. They have another operating mine and they have now found a good site for open cut copper mining. They have other good drilling results in other locations. And they have the stake in Herald.

 

[mishu]

Nice for companies that mine zinc and lead that lead is apparently going into deficit according to a recent article. Particularly with zinc prices falling as they have.

 

[Tye]

just wondering how you guys are coping with perilya. I dont know anything about T.A or Fundamentals. But to an untrained person like myself it looks as perilya has had it for good. The market is so strong but perilya is so weak. (what a crap share, considering my broker told me to buy it at over $5, bloody dick head)

 

[legs]

just wondering how you guys are coping with perilya. I dont know anything about T.A or Fundamentals. But to an untrained person like myself it looks as perilya has had it for good. The market is so strong but perilya is so weak. (what a crap share, considering my broker told me to buy it at over $5, bloody dick head)

The market is anything but strong, with ALL resource commodities down to 3 mth lows. This stock has been hit hard but look at similar cap stocks such as Oxiana that copped a 6% fall today, not as bad as PEM. MRE 3.8% down, ZFX 3.73% down, etc etc. It will rebound in my opinion and when it does I will be all smiles as I seem to buy more each day it gets lower.
I must say $5 is my target however, so maybe he was a bit over enthusiastic about it.

 

[countryboy]

you have a wins and losses Tye. PEM above $5 maybe a bit hard to swallow.The guys are still pulling plenty of tonnage out of the mine and management is looking for a merger ,aquisition or take over. The lousy 1c dividend recently didn't help the share price but gave PEM a small warchest to go after something. i know your not allowed to post targets on this site but for me its current price says buy- undervalued ( PE etc) I aim to exit above $4 which PEM has bounced off several times this year.