CBH-Perilya Merger Off.

And then there was no deal at all.

A week after CBH Resources revealed plans to cut $100 million dollars in costs and more than 230 jobs from its mining businesses and head office ahead of the proposed merger with Perilya Ltd, the deal is off, despite an attempt last Thursday by CBH to put an improved offer to Perilya directors.

It was a result that surprised the market, with CBH picked out as the big loser, its shares dropping 5c or 19% to 21c (after hitting a low of 20c) and Perilya losing 2c to 68.5c.

Perilya rejected the upgraded offer from CBH as inadequate, even though it had agreed to a previous proposal which offered less CBH scrip.

Last Thursday, June 19, CBH boosted the March terms in the offer to 3.5 shares for every Perilya share, compared with the previously agreed deal of three CBH shares per Perilya share.

Perilya advised in a statement released to the ASX yesterday morning that here was little point in continuing to pursue the merger with CBH in the current form and that it will not agree to a new sunset date.

The sunset date was August 25 in the original merger agreement, and Perth-based Perilya told CBH the merger was unlikely to be completed by then.

CBH said in a statement to the ASX that it continues to view the merger proposal as compelling because it would unify the ownership of the Broken Hill mining area, which would improve efficiency, and would create a globally significant zinc and lead producer.

CBH repeated in its statement yesterday that the merger, which both boards had unanimously recommended in March, would give the combined company greater equity market scale and liquidity, with a large portfolio of industrial metals at different stages of development.

CBH says it will now seek the $2 million break fee, which is in the original merger implementation agreement.

CBH said the Perilya board had rejected the new proposal without asking its shareholders and the reasons given for not advancing the merger were inadequate and in some cases “incorrect”.

Perilya questioned the benefits of CBH’s Rasp project yesterday and indicated it was not in a position to make a recommendation to shareholders until it fully understood the material changes to the Rasp and Endeavor operations.

It said in its statement yesterday that “Recently announced major changes to CBH’s Endeavor mine and Rasp project. Perilya has had limited opportunity to properly evaluate the changes and form a view as to the value impact or associated risks of the planned changes.

“Erosion of the anticipated short term merger benefits as a result of further technical evaluation of the Rasp project, the decline in commodity prices, and anticipated delays to CBH’s Rasp project approvals.”

Perilya also said that recently reported exploration results from Perilya’s Mt Oxide copper project and new resources in the Pinnacles region, together with the sustained improvement in operating performance of the Broken Hill mine, “has enhanced the value of Perilya’s assets.

“Lead and zinc prices have fallen 36% and 19% in AUD terms respectively changing the relative valuations of both company’s NSW operations, particularly with respect to the approximately $80 million in the money market position of Perilya’s hedge book, which means it is better placed to weather a low commodity price cycle than CBH, which is relatively unhedged.”

CBH rejected any idea that there were any adverse implications for the operations, adding that a Perilya technical team participated in a joint review of the Broken Hill assets.

“In CBH’s view, the rationale for the proposed merger with Perilya has not in any way changed or diminished.

“In contrast to this strong merger rationale, the reasons which Perilya has offered for not advancing the merger are inadequate and in some cases incorrect, particularly in light of the long term benefits that it will provide both companies.

“The questioning of the benefits that CBH’s Rasp project brings to the merger is particularly disappointing, given that Perilya’s technical team participated in an extensive joint review of the Broken Hill assets over 6 months ago with the assistance of independent experts,” CBH said in its statement to the ASX.

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