Shares of the Week Perilya (PEM)


Shares of the Week Perilya (PEM)|ASX PEM Stocks NewsPerilya (ASX:PEM) is a mining and exploration company and is among the top 20 global producers for zinc and the top 10 for lead production.

PEM is investing substantially in the development of its three major projects located in the Broken Hill (New South Wales), Mt Isa (Queensland) and Flinders (South Australia) regions as well as exploration in the surrounding tenements.

The group is 52%-owned by Shenzhen Zhongjin Lingnan Nonfemet, China’s third largest zinc producer.

The company has rapidly grown from a junior explorer to a company with two operating mines, substantial cash reserves, and investments in other resource companies.

It has also been one of the hot stocks since late February, having surged more than 40% from that month’s lows.

PEM has a wide exposure to base metals and gold. Whilst most commodities have gained strength of late, this diversification helps PEM flourish during bearish economic times (which drives up gold demand) and during times of economic strength (which drives up copper prices).

Regional operator

PEM is the operator of the Broken Hill zinc, lead, silver mine in NSW and the Flinders zinc silicate project in South Australia.

The company’s Broken Hill mine went through a resizing in 2008, resulting in a significant improvement in productivity and cashflows and an extension to the mine’s life by at least 10 years.

Perilya has an active exploration and development program covering Broken Hill and Flinders (in South Australia, in the vicinity of its Beltana zinc silicate project).

At present, PEM is reviewing options for the development of the Mount Oxide Copper and Cobalt Project in the Mount Isa region in Queensland.

PEM recently announced a new mineral resource estimate for the Moblan Lithium Project in Quebec, Canada, which has more than doubled the earlier mineral resource for the project.

Diversified resources

PEM, especially now with its acquisition of Globestar, is exposed to a very wide range of metals, including lead, zinc, lithium, nickel, silver, copper and gold.

Copper price has been steadily strengthening on signs of a global economic recovery, whilst nickel prices on the London Metals Exchange averaged US$9.49 a pound this year against US$5.67 last year.

Copper prices should rise as mine production fails to keep up with rising global demand, creating supply-and-demand issues.

Gold has gained significantly this year, reaching an all-time high of $1,624 an ounce last night, as the US debt crisis remains unresolved.

The Globestar acquisition further diversifies PEM’s metals portfolio. The Moblan Lithium Project in Quebec is looking to benefit from forecast future demand for lithium in electronic products, particularly in electronic car batteries.

Demand from China is set to drive the boom. Lithium usage in electronics has already grown 25%-30% from 1999-2008.

Quarterly report

For the June quarter, PEM saw net cash costs at its Broken Hill operation come in at below market guidance.

Production levels for the quarter saw combined metal production of 30,000 tonnes of contained zinc and lead coming in line with guidance.

PEM reiterated annualised production guidance of 110,000-120,000 tonnes of combined zinc and lead.

At June 2011, PEM held cash, deposits and investments totalling $117.9 million.

Looking ahead

PEM’s diversification and growth strategy has reduced its reliance on the Broken Hill Operations as its sole source of revenue and increased its ability to withstand external shocks.

The miner does not feel the proposed carbon tax will have any material impact on its Australian operations.

PEM is a low-cost mining and exploration company which is invested heavily in Australia but also has overseas exposure, most recently via its acquisition of GlobeStar.

GlobeStar’s Canadian lithium operation adds to PEM’s already-impressive metals portfolio.

The company has rapidly grown from a junior explorer to a company with two operating mines, substantial cash reserves, and investments in other resource companies.

PEM is one of the stocks to watch.

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