quarterly report

For the three months ended 30 September 2008

 

Highlights

 

Broken Hill

· A successful transition to the resized operation has been achieved with a focus on a lower tonnage and cost profile. 

· Productivity improvements of over 80% in development rates and over 50% in tonnes of ore mined per man, have been achieved since the commencement of this calendar year. This has been reinforced with exceeding planned rates under the resized operation which bodes well for achievement of the new operating plan.

· The Resource and Reserves statement update is in progress and is expected to show a significant increase in the life of mine from the previously advised two to three years, at conservative metal price assumptions. 

· New operating plan retains flexibility to rapidly increase production and extend the life of mine, should metal prices and margins improve in the future. 

· Future cash operating costs will reduce significantly under the new operating plan. Net cash costs are expected to move towards US$0.60 to US$0.65 per pound of payable zinc from January 2009. 

· The operational and productivity improvements together with lower cost parameters will ultimately reposition the Broken Hill Operation well down the industry total cost curve.

· Quarterly metal production of 34,700 tonnes of contained zinc and lead in line with plan. 

Beltana

· Positive cash flow contribution from sales of 25,863 tonnes of ore during the quarter. 

Mount Oxide Copper Project

· Significant high grade intercepts reported, which are outside of the current resource.

· A resource update is in progress and expected to show an increase as a result of the drill program completed this year.

· Chalice Gold Mines Limited (“Chalice”) terminated the proposed sale of the Mount Oxide Copper Project on 24 October 2008, citing the severe downturn in capital markets.

· Mount Oxide Copper Project has the potential to be a robust and stand-alone operation. 

· A number of expressions of interest have been received from interested parties in participating in the further development of Mount Oxide since Chalice requested termination.

Corporate

· Cash and investments at 30 September 2008 of $73.6 million ($0.37 cents per Perilya share). No corporate debt. The bulk of one-off costs associated with the resizing were completed and paid in the September quarter. 

· On 2 October 2008, CBH Resources Limited (“CBH”) announced its intention to make a takeover offer to acquire all of the shares in Perilya. Perilya Shareholders are advised to take no action until the Board has had an opportunity to consider the Bidder’s Statement and make a recommendation. 

· CBH’s interest in Perilya is a reflection of the inherent strength and value of Perilya’s Broken Hill Operation, including a 2.8mtpa concentrator plant.

· Hedge book closed during the quarter realising $60.3 million in cash. Proceeds used to fund the resizing of the Broken Hill Operation, reduction in working capital and pay down of all corporate debt.

· Paul Arndt to be appointed to the role of Chief Executive Officer and Managing Director, subject to shareholder approvals at the Annual General Meeting.

 

Chairman’s Overview

 

We are pleased with the progress made by Perilya’s Broken Hill Operation in respect of its resizing objectives during the September quarter.

 

Under the leadership of Paul Arndt, your Board’s Managing Director designate, Perilya has not only remained operational while a number of Australian and global producers have been forced to close their doors, but has also realised significant production and cost efficiency improvements that will reposition Perilya on the industry cost curve in months to come as the resizing program is fully implemented.

 

Importantly, the new operating plan at the Broken Hill Operation, which is based on annual production of 55,000 tonnes of zinc in concentrate and 50,000 tonnes of lead in concentrate, is based on the re-sequencing of mining areas and not a short-term high-grade approach, which would undermine the long-term value of the resources at the Broken Hill Operation. 

 

As a result of the ongoing improvements at Broken Hill, Perilya is moving steadily towards zinc production cash costs in the US$0.60 – US$0.65 range. We are not there yet however. Resizing costs were incurred during the September quarter, and therefore do impact on the Company’s financial performance for the period under review.  

 

This said, the resizing process was largely paid for in the September quarter, and, having taken the difficult decisions in terms of appropriate write downs in the past financial year to accurately and honestly reflect the current market, Perilya has a strong balance sheet, no corporate debt, and cash in hand; and is in a safe position to weather the transition to a more profitable price environment in coming months.  

 

During the quarter we received notice from CBH of their intention to make an all-scrip offer for Perilya shares. Perilya has advised shareholders to take no action, until such as time as the Board receives, and has opportunity to assess CBH’s Bidders Statement, which we expect to receive by mid November.  



Due to the downturn in capital markets and the recent fall in the copper price, the Directors of Chalice Gold Mines Limited (“Chalice”) requested that Perilya and Chalice terminate the companies’ sale agreement for Perilya’s Mount Oxide Copper Project, by mutual consent. Under the circumstances Perilya consented to the request and a Deed of Termination and Release has been executed. 

 

Subsequent to the close of the quarter, more encouraging assay results have been received from the current drill program at the Mount Oxide Copper Project further enhancing what your Board continues to consider a significantly valuable asset located in the world class Mount Isa mineral province.

 

Perilya has also since received expressions of interest from other parties for the development of the Mount Oxide Copper Project, which expressions are at an early stage and will be communicated as and when they are progressed.

 

Perilya’s share price is currently substantially lower than its underlying asset value as a result of recent market turmoil. Perilya has cash and investments at 30 September 2008 of $73.6 million, or $0.37 cents per Perilya share.

 

Perilya has responded transparently and appropriately in the context of the current metal prices and global financial markets, and as a result is well-positioned to both weather a prolonged period of low metal prices, and equally important, to respond rapidly to opportunities to increase production when market economics improve.