China's Zhongjin Eyes 50% of Australian Zinc Mine

Shenzhen Zhongjin Lingnan Nonfemet, China's third-largest zinc producer, is offering A$45.5m ($29.8m) for control of Australian zinc miner Perilya Ltd, taking advantage of tumbling market values to secure supply.

The move, endorsed by Perilya's board, could lead to hundreds of thousands of tonnes of zinc and lead-bearing ore concentrates being shipped to China for smelting, starting as soon as 2010, Perilya's managing director, Paul Arndt said.

Zhongjin has agreed to pay A$0.23 a share for a 50.1 stake in Perilya, which along with other miners is wrestling with low metals prices.

The deal would leave Perilya without debt and place it "on the best footing possible," virtually ensuring jobs and productivity during a severe downturn in the commodities cycle, Arndt said.

"We are clearly in very challenging metal-price times and most of the industry is in a loss-making position," Arndt said.

Demand for zinc, used in galvanising steel, has waned sharply owing to a decline in world industrial activity, more than halving the metal's price since January to around $0.50 a pound.

The board of Perilya, which is also reviewing a takeover offer from fellow Australian zinc miner CBH Resources Ltd, has backed the transaction with Zhongjin, noting it's a 53% premium to Perilya's closing price on 5 December.

CBH company secretary Stephen Lonergan told Reuters it was considering its response to Zhongjin's move on Perilya.

CBH's offer of 4.2 of its shares for every Perilya share is worth around A$0.16 based on current prices, substantially less than the Zhongjin offer.

Zhongjin's president Zhang Shuijian said in a statement his company did not intend to sell to CBH.

In response to low prices, Perilya already has cut its output in half at its Broken Hill deposit to 55,000t of zinc and 50,000t of lead in concentrate this year.

Arndt would not rule out the possibility that production could suffer further if conditions continue to deteriorate but said that with Zhongjin's backing, no changes to productivity were being planned.

He also said separate negotiations were underway that could lead to supply agreements on commercial terms to ship lead and zinc concentrate to Zhongjin smelters in China starting after 2009 and 2012, respectively.

By James Regan, Reuters