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Australian acquisition proves rich seam for SZLN
By Chen Jialu (China Daily)
Updated: 2009-07-07 07:56
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With the Australian mining industry particularly hard-hit by the international financial downturn, one enterprising Chinese business has managed to provide a lifeline for one ailing Perth-based metal mining company, whilst also establishing a bargain basement foothold in this hugely lucrative market.

The deal came as Perilya Limited, a 22-year old base metal mining company, saw its market value slashed from $1billion in 2007 to a low ...view middle of the document...

This will be a huge boost to the SZLN's annual output.

In 2008, SZLN produced 120 kilotons (kt) of refined lead and 239 kt of zinc. It also boasted a lead and zinc mining and dressing capacity of 180 kilotons per annum (ktpa) and a smelting capacity of 400 ktpa.

By contrast, Perilya had a turnover of 3.2 megatons (mt) of lead and zinc resources and a lead and zinc production capacity of 150 ktpa. Perilya also owns a lead-zinc-silver mine in the Broken Hill region of New South Wales, a high-grade zinc silicate oxide mine in Flinders in South Australia, and a copper-cobalt mine in Queensland.

Recipe for takeover

Zhang seems quietly confident as to the benefits of the deal, as he sits in his plush 26th floor office, looking out over a panoramic view of Shenzen's newly-developed Terra Business District.

Addressing himself to the timing of the deal, he says: "The financial crisis has proved a good time to acquire overseas assets. With the whole world in a perilous financial condition, substantial deals can be done at very low costs."

Prior to the deal, Perilya had already restructured and managed to substantially slow down the cash burn at its mining operations, however the company was still struggling to stay afloat amid depressed metals prices and unfavorable sales contracts.

In line with its cost-cutting plan, unveiled in August 2008, Perilya slashed its workforce from 760 to 320, mothballed two of its operations and virtually halved ore production to just 950,000 tonnes a year.

Perilya's managing director, Paul Arndt, convinced the Perilya Board to axe a proposed merger deal and actively began to seek partners to inject cash and prevent the mining group from going under. Speaking late last year, when the company faced its darkest hour, Amdlt said: "There are two scenarios, we either make this plan succeed or we stop operating."

Australian acquisition proves rich seam for SZLN

On February 5, Zhongjin Lingnan subscribed to a total of about 198 million of Perilya's common shares at A$0.23 each, via its wholly-owned Hong King subsidiary. Perilya's share price has now more than doubled to close at A$0.35 as of yesterday, up from a low of A$0.13 in November last year.

Zhang says: "If we were bidding now, we'd have to spend five times as much as we did in order to secure the deal."

Zhang's acumen was endorsed by Li Zuiyang, a metal analyst with CITIC securities. Writing in a report published in March of this year, Li said: "It [the Perilya acquisition] was the smartest deal with the most favorable price of any Australian resource acquisition by a Chinese mining company over the last two years."

Li is not the only analyst to applaud SZLN's initiative. Hong Jinyang, an analyst with Goldman Gaohua Securities, said: "The decision comes at an important time, with Australian mining observers and participants expecting more Chinese investments as the nation's...

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