Perilya Mines
Recommendation
Famous as the birthplace of BHP Billiton, Broken Hill continues to impress. Perilya produces zinc, lead and silver from its historic mines. Although the resource is no longer as rich as it once was, the company has produced impressive results.
As well as mining at Broken Hill, Perilya has interests in early-stage projects in the Dominican Republic and Malaysia. These projects may one day become significant but, today, it’s the Australian operations that contribute the bulk of value.
Revenue from the Broken Hill mine comes from zinc, lead and copper, which each contribute about 25%. The remainder comes from gold and silver. With so many metals present, processing is challenging but Perilya can boast an outstanding technical record.
Current low prices for zinc and silver have badly affected financial results, although the company still remains profitable with costs remaining low by industry standards. Mining at Broken Hill should continue for at least another decade and probably more, with the company continuously expanding nearby resources.
We note that a Chinese group owns over 50% of the company, which presents a risk of interference as much as an opportunity for a full takeover. Perilya isn’t the largest or most exciting miner on the market. Its resources do not inspire or impress, but it can boast a long history of profitable production. At over $130m, debt is a little higher than we’d like but probably reflects current low metal prices, especially zinc.
The fundamentals for the metal are attractive, with few new zinc mines opening and major mines due for closure in coming years. Yet predicting mine closures is always hard. A small jump in prices or resources can prolong mine life. As a low-cost producer, we’re happy to HOLD but without a more detailed look at the zinc market we're not offering a price guide.