Times Get Tougher For Perilya

Sydney Morning Herald

Saturday November 1, 2008

Jamie Freed

THE Broken Hill miner Perilya is doing it tough. The zinc producer, a takeover target of CBH Resources, appears to have bled nearly $40 million in cash in the September quarter, not counting funds applied to debt repayments and redundancies.

Perilya, which produced zinc at an average cost of $US1.36 a pound - up from $US1.01 a pound in the June quarter - lost $US49c on every pound sold.

During the quarter, Perilya began scaling down its Broken Hill operations and hopes its cash costs will fall to $US60c to $US65c a pound from January. But at those production costs, the mine would still be uneconomic at the spot zinc price of US52c a pound.

Perilya ended the quarter with $22.3 million in cash - $4.2 million lower than the June quarter.

During the September quarter, Perilya received $67.8 million from closing out its hedge book and selling some of its illiquid commercial paper at a discount.

It applied $10 million to repaying debt and $20 million to redundancy charges, meaning its operations appear to have been cash-flow negative to the tune of about $37.8 million.

If Perilya's mine fails to be cash-flow positive soon, the company's $22.3 million in cash and $22.6 million in hard-to-sell commercial paper may only last it a few quarters before it is forced to seek more funding or close its operations.

Perilya's executive chairman, Patrick O'Connor, said the cash burn rate during the current quarter would be "nowhere near" the rate during the September quarter.

"We have reduced the size of the operation to put us in a break-even situation going forward," he told the Herald, although he admitted the operation would not break even at the spot zinc price. He was hopeful that production cutbacks by other zinc miners would lead to a boost in the zinc price.

"Fifty per cent of the world's production is uneconomic," he said. "Something will give."

Perilya has told shareholders to take no action on a hostile scrip bid from CBH. It had previously expressed concerns about CBH's debt levels, but the predator has rebought some of the debt at cut-rate prices.

© 2008 Sydney Morning Herald

Back to News Index | Back to Home