Shares in Perth-based miner Perilya Ltd have dramatically reversed its recent losses, skyrocketing over 60 per cent in trade today after Credit Suisse labeled the stock as "too cheap".
Shares in Perth-based miner Perilya Ltd have dramatically reversed its recent losses, skyrocketing over 60 per cent in trade today after Credit Suisse labeled the stock as "too cheap".
The company's share price closed at 33 cents, up nearly 61 per cent and more than making up for yesterday's share price slide of 36 per cent to 20.5 cents.
Yesterday's share price slump followed an announcement by the company to spin-out its Mount Oxide copper project into a private company, which would then be bought by Western Australian company Chalice Gold Mines Ltd in a scrip deal worth $25 million.
Today Credit Suisse said the transaction, which values the asset at $22 million, is "somewhat disappointing as it does not strengthen PEM's (Perilya) balance sheet, being in scrip and not cash".
"However PEM is now trading well below cash and realisable investments: cash on balance is $26.5mn (13.6 cents per share), bonds held on balance sheet are $40.9mn (21c/share), current market cap is $40mn (20ยข/share)," Credit Suisse said.
"This excludes a 90kt inventory of mined zinc in direct shipping ore and any option value in Broken Hill and Flinders, as well as the A$22mn in scrip to be received for Mount Oxide."
Credit Suisse upgraded its rating for Perilya from Neutral to Outperform but have cut the 12-month target share price from $1 to 35c, based on net recoverable cash and securities on the company's balance sheet.
The broker added that it expects Perilya to distribute the Chalice shares to shareholders, and following due diligence and approvals, the company will hold a 73 per cent interest in the project.
In August, the company announced dramatic changes to its Broken Hill operation in New South Wales, cutting over 400 jobs and halving ore production on the back of falling zinc and lead prices.
Credit Suisse said that since the announcement was made, the zinc price in Australian dollar terms, has appreciated by 3.3 per cent while lead is up by 4.6 per cent.
The broker said Perilya's Beltana operation in South Australia should continue to generate cash.
"The Beltana operation should continue to generate cash via its mined stockpile of direct shipping zinc silicate ore," the broker said.
"PEM's interest revenue alone is likely to be sufficient to cover corporate costs.
"So, in what we would consider a worst case scenario, where zinc and lead prices do not recover, PEM management husbands capital.
"At the end of the current three-year life PEM shuts up shop, has $10mn in restricted cash to cover environmental liabilities (in addition to the $26.5mn in cash on the balance sheet we use as part of our target price) and remaining cash and salvageable value in land, equipment and scrap is returned to shareholders.
"We see this stock as too cheap."
