Shares in Perilya Ltd have dropped by over 40 per cent on news it will sell its Mount Oxide copper and cobalt project to West Perth-based Chalice Gold Mines Ltd in a scrip deal worth $25 million.
Shares in Perilya Ltd have dropped by over 40 per cent on news it will sell its Mount Oxide copper and cobalt project to West Perth-based Chalice Gold Mines Ltd in a scrip deal worth $25 million.
Both companies have entered into a heads of agreement for Chalice to acquire Mount Oxide Pty Ltd, the company that will own the project, for consideration consisting of 200 million Chalice shares.
Perilya executive chairman Patrick O'Connor said the spin-off of the project into a separate company is an important step in delivering shareholder value.
"The Board is of the opinion that there is significant unrecognised value in Mount Oxide, particularly having regard Perilya's share price, the recent drilling results at Mount Oxide and the high prospectivity of the project as a stand-alone operation," Mr O'Connor stated.
"By separating the Mount Oxide copper assets from the zinc and lead assets of Broken Hill, via the sale of copper assets to Chalice, the trading price of both Perilya and Chalice may in time closer approximate the underlying asset values.
"The depressed zinc and lead prices have overshadowed the valuation of Perilya's copper assets and other non-core assets.
"The Board is of the view that the spin off of the Mount Oxide project will facilitate the pursuit of opportunities for both companies going forward, ultimately affording shareholders a greater opportunity to realise the full potential of the Mount Oxide project in future."
On completion of the deal, which is subject to Chalice shareholder approval, Perilya will retain a 73 per cent interest in the project.
The agreement also includes an option for Chalice to acquire Perilya's 50 per cent interest in the Tampang copper and gold project in Malaysia.
Shares in Chalice fell one cent to 11c while shares in Perilya dropped 13.5c to a low of 18.5c before rallying to close at 19.5c.
Perilya has previously flagged the sale of the project following a review of its portfolio which saw the company cut 440 jobs and halve ore production from its Broken Hill mine in South Australia in the wake of declining commodities prices.
Below is the full announcement by both Perilya and Chalice.
Perilya Limited (ASX:PEM) today reported that it had entered into a Heads of Agreement with Chalice Gold Mines Limited (ASX:CHN) for Chalice to acquire 100% of Perilya's interest in the Mount Oxide copper and cobalt project located in the Mt Isa region in northern Queensland.
Under the terms of the agreement, Perilya will receive 200 million shares in Chalice and through this shareholding in Chalice, Perilya shareholders retain a 73% interest in the Mount Oxide project.
Following completion of the sale and a review of Perilya's capital management requirements for the resized Broken Hill Operation, a prudent capital management strategy will be initiated with a view to identifying the best way of maximising and returning value directly to Perilya shareholders.
Perilya's Executive Chairman, Patrick O'Connor said, that the spin-off of the Mount Oxide project into a separate focussed exploration company is an important step in delivering value to shareholders.
"The Board is of the opinion that there is significant unrecognised value in Mount Oxide, particularly having regard Perilya's share price, the recent drilling results at Mount Oxide and the high prospectivity of the project as a stand-alone operation," Mr O'Connor stated.
"By separating the Mount Oxide copper assets from the zinc and lead assets of Broken Hill, via the sale of copper assets to Chalice, the trading price of both Perilya and Chalice may in time closer approximate the underlying asset values."
"The depressed zinc and lead prices have overshadowed the valuation of Perilya's copper assets and other non-core assets. The Board is of the view that the spin off of the Mount Oxide project will facilitate the pursuit of opportunities for both companies going forward, ultimately affording shareholders a greater opportunity to realise the full potential of the Mount Oxide project in future."
"The transaction will position Perilya to focus on its zinc and lead assets at Broken Hill and Flinders and allow management to continue to concentrate their efforts more effectively in positioning the Broken Hill Operation to remain financially viable during these times of depressed zinc and lead prices and in pursuing opportunities to take advantage of any up turn in metal prices."
"Chalice is in a strong financial position to complete the current drilling program and resource upgrade and has a highly capable and focussed team to carry forward the Mount Oxide project," Mr O'Connor concluded.
The acquisition of Perilya's Mount Oxide project by Chalice and the issue of the Chalice shares in consideration is subject to certain conditions precedent, including mutual due diligence, Chalice shareholder and other regulatory approvals. Further details on the transaction will be provided in due course.
CHALICE GOLD MINES
Perth-based resource company, Chalice Gold Mines Limited (ASX: CHN; "Chalice"), has unveiled a significant growth initiative after reaching agreement with zinc-lead producer Perilya Limited (ASX: PEM) to acquire the advanced Mount Oxide Copper-Cobalt Project, located in Queensland's Mount Isa Region, for A$25 million in shares.
Chalice Gold Mines said today (Thursday) that it had agreed to acquire a 100% interest in Mount Oxide Pty Ltd, which will be the 100% owner of the Mount Oxide Project, for consideration comprising 200 million Chalice ordinary shares. The Company will seek shareholder approval for the transaction at its Annual General Meeting to be held in November 2008.
The Mount Oxide deposit, which is located 25km north of the Aditya Birla Minerals Limited's operating Mount Gordon Mine, and in close proximity to CopperCo Ltd's Lady Annie and Lady Loretta Projects, was mined intermittently between 1920 and 1971 by way of a small open pit and underground operation to a depth of 90 metres - producing over 50,000 tonnes of copper ore at a grade of +20% Cu.
Following completion of a drilling program in November 2007, Perilya increased its JORC-Code compliant Mineral Resource estimate at Mount Oxide by 80% in February 2008 to 15.5 million tonnes at 1.3% copper, 0.05% cobalt and 9g/t silver for 203,000 tonnes of contained copper, 7,750 tonnes of contained cobalt and 4.2m ounces of silver, at a 0.2% copper cut-off (see attached ASX release for full details).
Drilling re-commenced in April 2008, with over 11,500 metres completed to date in a program which is scheduled to continue through until November 2008, subject to the onset of the wet season. This program has delivered some outstanding results including intercepts of 22m @ 6.3% copper from 258m, 31m @ 6.2% copper from 346m and 23m @ 8.9% copper from 395m, 17m @ 4.2% copper from 248m, 12m @ 15.3% copper (uncut) and 161g/t silver from 345m (see attached ASX release for full details).
Two diamond rigs are currently working double shift at the project, with further results pending. Chalice Gold Mines believes that the results demonstrate good continuity of mineralisation below the area of the current JORC-Code compliant resource, with high-grade zones remaining open at depth. Initial metallurgical testwork on the Mount Oxide samples carried out by Perilya has yielded 90% copper recoveries, 50-60% cobalt recoveries and 75% silver recoveries for a range of economic grade samples tested.
Chalice Gold Mines' Chairman, Andrew Bantock, said the Company was well funded with approximately $10 million in cash reserves to progress the current drilling program, with the objective of increasing the Mineral Resource estimate in early 2009. "We are delighted to have reached agreement with Perilya to acquire the Mount Oxide Project," he said. "We have for some time been seeking exposure to exploration projects that offer potential for rapid resource growth and new discoveries," he said.
"We believe that Mount Oxide offers such potential from a starting position of over 200,000 tonnes of contained copper metal, a series of spectacular high grade intercepts below the known resource and an under-explored 800km² regional exploration ground package interpreted to lie on a major mineralised structure," Mr Bantock continued.
The agreement with Perilya also includes an option to acquire Perilya's 50% interest in the Tampang Porphyry Copper-Gold Project in Sabah, Malaysia, which is located 65km from the state capital of Kota Kinabalu.
Perilya will review its capital management requirements following completion of the transaction with a view to identifying the best way of maximising and returning value directly to shareholders from its shareholding in Chalice. On completion of the transaction, Chalice will have approximately 272 million shares on issue.
