Struggling zinc miner Perilya Resources has joined a growing list of Australian miners agreeing to hand control of their company to Chinese trading houses in exchange for agreements to buy their ore and provide cash for expansion.
Perilya, which was fighting off a hostile bid from its estranged former merger partner CBH Resources, will place $45.5 million of stock to smelting group Shenzhen Zhongjin Lingnan Nonfemet, which will amount to a 50.1 per cent stake in Perilya.
The Perth-based company, which along with CBH operates mines in Broken Hill, has been using a UBS team led by Richard Saywell as financial advisors and legal firm Cochrane Lishman.
The placement is priced at 23 cents a share, which is a 53 per cent premium to its last trade price, and nearly double the value of the unwanted scrip-based offer from an equally desperate and debt-laden CBH.
Earlier this year Perilya was keen to execute a merger with CBH on the basis of three CBH shares for every one of its own. At that time, its shares were worth $1 each and CBH around 35 cents.
However, the downturn in commodities and financial markets, as well as concerns about CBHs debt position, caused it to turn its back on that offer, and proposals to lift the deal's ratio to 3.5 shares.
CBH, advised by RBC Capital Markets and Clayton Utz, finally returned with a hostile bid of 4.2 shares for every Perilya share, valuing Perilya at 31 cents before another fall in the price of CBH now down to 3.8 cents.
Perilya describes the deal with Shenzhen Zhongjin as a 'watershed' event that will provide a funding boost and leave it well placed to withstand the turbulence in commodity markets and to proceed with developments such as the Mount Oxide copper project.
Shenzhen Zhongjin president Zhang Shuijian says the agreement represents a good opportunity to invest in Australia, a sentiment shared by Chinese trading houses Shougang Concord and APAC Resources, who have cut a similar deal with iron ore miner Mt Gibson, and others said to be negotiating similar deals.
Shenzhen Zhongjin, Chinas third largest lead and zinc smelter, has had no previous relationship with Perilya, but was involved with Indonesia's PT Antam earlier this year in a bid for Perth-based Herald Resources, owner of the Dairi lead and zinc project in Indonesia, but they were outbid by another Indonesian firm PT Bumi.
Shenzhen is receiving legal advice on the Perilya transaction from Blake Dawson.