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Majority shareholder wants to buy out Perilya

Just only a few days after releasing its half-year report, Broken Hill miner Perilya (ASX: PEM) has received a takeover offer from its majority shareholder, Chinese miner Zhongin Lingnan.

The offer is for $0.35 per share, which the company states is a 59% premium to the closing price of $0.22 on the date that a trading halt occurred, 30 August.

Zhongin Lingnan owns 53.7% of the Perilya stock, which it bought in 2009 at the depth of the GFC. The strategic alliance assisted Perilya greatly since it was on the verge of shutting down its mining in Broken Hill, where it was among several silver mines.

At that time, the company was wanting to buy back a large amount of silver it has previously sold to another mining company for $55 million. Now the 11.2 million ounces of silver is worth about $300 million.

The directors of Perilya have given their unanimous support to the proposal, and have stated that it is in the best interest of the shareholders. It must also have the approval of shareholders, the Australian Foreign Investment Review Board, ASIC, ASX and Chinese regulatory approvals.

The Chinese miner has said that it intends to continue existing mining operations in Australia and the Dominican Republic as well as the ramp up plans for the Potosi deposit and the possible re-opening of North Mine, both located in Broken Hill. All key personnel at both the Australian and Dominican Republic operations, as well as the corporate and executive team, will be retained.

In the half-year report, revenue was down 14% from $161.3 million to $139.1 million. A net loss of $19.6 million resulted compared to $5.4 million profit in the previous corresponding period. This was the first loss since 2008. No interim dividend was declared.

Individual commodity sales were down, weakened by sagging commodity prices in zinc, copper, lead. Silver and especially gold have pulled back over the past year.

Foolish takeaway

The takeover may be the best thing for the company as mining and commodities markets have yet to recover. Securing financing to keep production and development up is the one of the greatest hardships for miners even when they are already producers.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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