Perilya open to CBH takeover offer

Takeover target Perilya Ltd said it is open to CBH Resources Ltd's bid for the company, but advises a merger at a time of market volatility could expose shareholders to additional risks.

Perth-based Perilya today advised its shareholders to take no action in relation to CBH's second tilt for the company, saying it would formulate a recommendation once it had received the bidder's statement.

"While we believe that the prevailing market conditions today are still not favourable for any upsizing or significant investment into development of new underground ore sources, your Board remains open to considering what CBH has termed 'compelling financial and operational logic' for a merged entity," executive chairman Patrick O'Connor said.

Earlier this month, CBH launched a hostile takeover bid for Perilya, two months after the companies terminated a friendly merger proposal.

CBH is proposing a two-tiered, all-scrip offer, which took into account Perilya's intention to sell its Mt Oxide copper project in Queensland to Perth stock Chalice Gold Mines Ltd.

CBH is offering 2.8 shares for each Perilya share, assuming the Mt Oxide transaction goes ahead, or 4.2 shares for every Perilya share if the sale of the copper project is not completed.

Earlier this week, Perilya and Chalice signed formal agreements for the Mt Oxide transaction.

In a letter to shareholders today, Mr O'Connor added that a merger could expose Perilya shareholders to added risks including CBH's high cash cost at its Endeavour operation and some $200 million in debt.

"Exposure to these additional risks may not be in the best interests of Perilya shareholders," Mr O'Connor said.

Perilya and CBH have been hit by falling commodity prices, which have prompted both companies to scale down its Broken Hill and Rasp projects, respectively.

CBH's rationale behind the takeover is to combine both assets, located next to each other, to share infrastructure and realise cost savings.

Below is Perilya's release:

On 2 October 2008 CBH Resources Limited (CBH) announced its intention to make a takeover offer to acquire all of the shares in Perilya.

CBH's offer is unsolicited and proposes to offer CBH shares for Perilya shares on terms and conditions outlined in their announcement to the ASX. Until CBH lodges a Bidder's Statement your Board does not currently anticipate being in a position to make a final assessment of the merits or otherwise of the offer.

Perilya Shareholders are advised to take no action until the Board has had an opportunity to fully consider the offer and make a recommendation.

Perilya's Board is intimately aware of CBH's business and their challenges due to the failed Scheme of Arrangement proposed earlier this year when it explored the potential for synergies between the companies' respective interests at Broken Hill. The Board is therefore well informed and capable of formulating a recommendation to Shareholders and responding to CBH's offer.

Previous merger talks between Perilya and CBH failed when CBH failed to complete the proposed Scheme of Arrangement within the time agreed between the parties and where there had been a material adverse change in metal prices.

Since that time both companies have taken steps to resize their respective operations in response to market conditions. While we believe that the prevailing market conditions today are still not favourable for any upsizing or significant investment into development of new underground ore sources, your Board remains open to considering what CBH has termed 'compelling financial and operational logic' for a merged entity, the details of which we expect will be included in the Bidder's Statement.

During these times of world financial market uncertainty, a merger with CBH could expose Perilya Shareholders to additional risks; including CBH's high cash cost asset at its Endeavor operation and approximately $200 million in debt with the associated debt-servicing costs in the order of $15 million per annum. Exposure to these additional risks may not be in the best interests of Perilya shareholders.

Your Board shares my belief that CBH's interest in Perilya is a reflection of the inherent strength and value of Perilya's Broken Hill Operation and affirms that the difficult decisions we have taken in recent months have put Perilya in a strong position to weather a prolonged period of low metal prices.

Perilya is substantially debt-free. We have a clean and strong balance sheet that is a conservative reflection of the Company's reduced exploration and production activities prudent in the current market.

Together with fully-owned and established concentrator infrastructure Perilya is well positioned to rapidly ramp-up production, increase profitability and extend the life of its Broken Hill assets when metal prices are conducive to doing so.

Perilya is amenable to engaging with third parties to process external ore through the Company's concentrator in Broken Hill. This is an option that is available to CBH to consider, for the processing of ore from its Rasp operation, and one that we remain open to exploring along the lines of a commercial arrangement for the mutual benefit of both parties.

In the interim, it is business as usual at Perilya, as we work together with our reduced workforce at Broken Hill to focus on the sustainable and cost-efficient operation of Perilya's assets.

Our employees are also Perilya Shareholders, and we are appreciative of their initiative and support during the past year. The commitment of our employees has enabled Perilya to continue production at Broken Hill at a time when a number of base metal producers, both nationally and abroad, have been forced to close down their operations due to the current period of low metal prices.

Perilya will keep its Shareholders fully informed of developments as they occur and provide a formal recommendation on CBH's offer in ample time for Shareholders to make an informed decision.