10/12/2008 - 22:00

Chinese eye stake in Perilya

10/12/2008 - 22:00

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THE recent encroachment of Chinese producers into the state's resource sector has brought into question the value of shareholder returns, with cost plus off-take deals playing into Chinese hands.

THE recent encroachment of Chinese producers into the state's resource sector has brought into question the value of shareholder returns, with cost plus off-take deals playing into Chinese hands.

Over the past six weeks, a string of mining companies have announced multi-million dollar capital raisings and potential off-take deals with Chinese producers supposedly feeling the impact of the economic crisis.

However, the combination of falling commodity prices and diminishing share prices have brought about deals too good to resist for both sides of the negotiating table.

The latest company to strike a deal was base metals miner Perilya, which will receive $45.5 million via a share placement from Shenzhen Zhongjin Lingnan Nonfemet Co.

The placement prices Perilya shares at 23 cents each, a 15 per cent premium to the company's last traded price of 15 cents before it entered a trading halt.

However, the share price is a fair drop from Perilya's trading range of some 58 cents when the friendly merger deal with CBH Resources was terminated in July.

Perilya chairman Patrick O'Connor acknowledged the tough time his company was in, saying the offer was the "best alternative currently available to shareholders".

The placement will give Shenzhen a 50.1 per cent interest and representatives will comprise half of Perilya's board.

Both companies will also enter into "arm's length" off-take talks for lead and zinc concentrate from Perilya's Broken Hill mine, subject to existing contracts.

The Chinese control of Perilya follows Mount Gibson Iron's turn of events last month, when it announced it would sell its iron ore at cost to Shougang Concord and APAC Resources.

The off-take deal is in conjunction with a $162.5 million rights issue that could give both Shougang and APAC up to 40 per cent control of the company.

While the off-take deals are preferable to the mothballing of Mount Gibson's two mines, shareholders will have to decide on what upside they can be exposed to before approving the deals at a meeting this month.

The finalisation of Gindalbie Metals' off-take deals will also be under scrutiny, as major shareholder AnSteel injects a further $162 million.

In the wake of Mount Gibson's deals, Gindalbie said its iron ore from the Karara joint venture will be priced at benchmark prices plus attract a premium

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