Behind the billionaire blowhard
Billionaire mining magnate Clive Palmer. Photo: AP
WHEN Clive Palmer announced his plans to join with a Chinese shipyard to build a replica of the fabled Titanic, his announcement met with equal parts of excitement and incredulity.
It was classic Clive Palmer: attention-grabbing and more than a little eccentric.
It produced well over 1000 news reports worldwide and resulted in approaches from the BBC, National Geographic and others to document its construction.
Illustration: Andrew Dyson.
In China, though, the immediate reaction from the media was sceptical. Palmer, one report opined, was an "Australian cowboy who likes making grand statements".
The sentiment would resonate with many Australians, now accustomed to the flamboyant entrepreneur's incendiary rhetoric about business and political opponents, as well as his conspiracy theories such as his contention that the CIA was funding anti-coal activists.
In the end though, Palmer's promise to build the Titanic II proved correct, at least to a point.
China's CSC Jinling Shipyards confirmed it had signed a memorandum of understanding with Palmer's new shipping line, Blue Star.
Even so, said Li Wenbao, an official at the state-owned company: "Details about its budget and design have yet to be decided … a construction contract has not been signed, either."
The Titanic II may yet come off in time for its planned maiden voyage in 2016, but its bold unveiling when the project is, at best, half-baked, fits a pattern for Palmer.
He has a long record of making claims about his rivals and his own business that may not stack up, unravel quickly or prove to be wildly premature.
To be sure, Palmer can confound the naysayers. He has pulled off two brilliant business deals - the purchase of the Yabulu nickel refinery from BHP Billiton and a deal with a Chinese state-owned enterprise to build an iron ore mine near Cape Preston in the Pilbara.
But a BusinessDay investigation has uncovered that his most ambitious project of all, the construction of the world's biggest coalmine in central Queensland's Galilee Basin, is in deep trouble.
It has also discovered that one of Palmer's mining companies signed highly unusual contracts that would have earned two shelf companies about $1.6 billion.
Palmer can be uncommonly generous, giving away 55 Mercedes and 1500 Fijian holidays to staff at his Yabulu nickel refinery in Queensland near Townsville. He plans to funnel $100 million to Aboriginal health and welfare programs once his Pilbara iron ore mine comes on stream and he has made donations to schools and charities.
But for those who stand in the way of Palmer achieving his objectives, the experience can be eye-opening and, in some cases, distressing.
With almost all his riches held in private companies - and most of his assets still buried in the ground - getting to the bottom of Palmer's wealth is difficult.
His main private company, Mineralogy, has reported losses for the past three years - leading to a perception that appears to get under Palmer's skin.
In an unsolicited comment to BusinessDay, Palmer noted: ''All of the companies in the Mineralogy group pay their debts when due and have no claims from creditors.''
BRW magazine rates him as Australia's fifth-richest with assets of $5 billion.
Forbes estimates his wealth is a meagre $795 million. Palmer contends he is far wealthier than even the BRW estimate.
Much depends on how his thermal coal tenements in the remote Galilee Basin are valued. Palmer says his share of the estimated 100 billion tonnes of low and mid-grade coal is worth $12 billion even as they lie in the ground.
Standing alongside then Queensland premier Anna Bligh in 2010, Palmer announced he had secured the "biggest export contract in Australian history", revealing a Chinese state-owned enterprise, China Power International Holding, planned to buy 30 million tonnes of coal per year from the proposed mine worth $60 billion.
There was a measure of exaggeration and error from Palmer. He misnamed the company he was doing the deal with and failed to disclose that it was a framework agreement and no price had been agreed.
But later that year China First Coal signed a contract for CPI Holding to buy half the mine's production of 20 million tonnes of coal a year for 20 years.
Also in 2010, Palmer's China First Coal signed a deal with the Swiss-based energy giant Vitol for the other half of the mine's production.
All up, the mine's production of 40 million tonnes a year for two decades would have generated as much as $80 billion.
But a spokesman for Vitol this week confirmed its agreement had been terminated.
Palmer maintains the project is still a goer, but Jason West, a former investment banker who is a senior lecturer at Griffith University specialising in the energy sector, says the project is "extremely shaky".
Some 500 kilometres from the coast, the Galilee Basin is remote and the quality of the coal is not high. About $8 billion of infrastructure, including a 500-kilometre rail line and new port terminals, will be required.
Without the infrastructure, says West, ''Palmer may as well be mining on a passing asteroid.''
Palmer has repeatedly failed to raise money from investors to build the mine, including a failed attempt to float on the Hong Kong Stock Exchange last year.
The termination of the agreement by Vitol to buy half the mine's coal is the latest blow to the project.
Palmer shrugs off any concerns, saying the cancellation of the contract has ''no impact on the project'' and it was his company that terminated the contract with Vitol.
PALMER is undoubtedly well-connected in China and a pioneer in doing business with the authoritarian state.
He spent nine months there as a boy in 1962, just after the disastrous Great Leap Forward brought famine and misery throughout the country.
Palmer's father George, a former adviser to the 1930s prime minister Joseph Lyons, was there as an "unofficial representative of the Australian government", Palmer told The Australian Financial Review in 2009.
Palmer's personal history in China, his careful cultivation of Chinese leaders and larger-than-life persona all served him well, although his most compelling attraction is his access to bountiful resources.
"Clive's style works well in China because he's visionary, he's very bright and he's a larger-than-life character," says an investment banker familiar with Palmer who wished to remain anonymous.
"I have seen him with very senior Chinese business leaders - he does have a very good rapport with them. His problems are probably more in Australia where he takes very combative views, perhaps to make his point."
No matter how close the relationships, last year's prospectus used to sell Palmer's projects to investors in Hong Kong left them underwhelmed.
An unreported and highly unusual feature in the document was two "coal marketing and agency agreements", awarding two shelf companies payments of up to $1.6 billion from the China First Coal project.
Such marketing fees are usually paid by smaller miners to much larger players in the mining industry such as BHP or Glencore to find customers and smooth the way for their shipments.
In this case though, the two companies were Fumel Investments, a $1 company whose head office is a modest Brisbane law firm Creagh Weightman, and Global Coal Trading, a $3 company sharing its office address with a Singapore shelf company registration business.
What made the arrangements extraordinary were the sums these tiny businesses were to receive. Each was to have gained 2 per cent of the sums paid by the two big coal buyers Vitol and CPI, resulting in payments of about $800 million each over 20 years for their role in brokering the deals with the energy giants.
Daniel McGrath, 36, a Cambridge-educated lawyer, is Fumel's managing director. His brother, Maurice McGrath, 39, is still a director of Fumel.
Maurice McGrath is hardly your archetypal resources bigwig. He is the managing director of Britax Australia, a Melbourne-based company that sells prams and car seats for children.
From the time Daniel McGrath joined Fumel as managing director on July 1, 2010, it took just 35 days for him to put his new company into the deal of a lifetime, signing up to the 2 per cent cut while working from a desk at Creagh Weightman's modest digs in central Brisbane.
By email, Daniel McGrath said he helped sign the agreement with Vitol but that details of his contractual arrangement with China First was "commercial-in-confidence".
"I am very experienced in these activities but the level of my expertise is a matter between me and my clients," he said.
"Clive Palmer has no beneficial or legal interest in Fumel," he added. "Fumel's relationship is purely one of independent adviser/principal."
Asked whether there would be any financial benefit to him or his companies from the payment to Fumel, Palmer replied: ''No.''
Global Coal Trading sounds like an experienced mining player but it was only incorporated on June 16, 2010, three months before it signed its lucrative contract with Palmer's China First.
Its three shareholders are Hong Kong resident Chan Sat, $HK1 Hong Kong-registered company Caspian Energy Group, and British Virgin Islands-registered company Luckyfield Group Holdings.
The closest link that can be found to a substantial business among the shareholders is Luckyfield Group sharing a business address with China Haidian, a listed Hong Kong company that manufactures "watches and timepieces" and distributes yachts.
Felix Fong, the CFO of China Haidian, said he had no knowledge of Luckyfield Group or why it had used China Haidian's long-standing office address.
"I'm very surprised about this," he said. "I'm the company secretary of China Haidian; I don't allow anybody to use our premises as a registered office as a rule of thumb."
Hong Kong-based accountant Benjamin Yen is a director of Global Coal Trading and a manager of the shelf company registration business that Global Coal Trading uses as its address.
When contacted by BusinessDay he said he was only a nominee director and not at liberty to discuss the company.
Palmer, for his part, said Global Coal Trading was awarded the contract ''based on their performance''.
After building a $40 million fortune in the Gold Coast real estate boom in the 1980s, Palmer retired briefly before buying up mining licences covering huge tracts of minerals in remote areas.
It was a prescient move, the remoteness of the tenements and the poor quality of much of the resources meant he picked them up on the cheap.
For decades there was no prospect of them being developed. Then the rise of China and India, their voracious demand for energy and the accompanying surge in commodity prices made them viable.
To great fanfare, and with the Chinese Premier Wen Jiabao present, Palmer revealed he sold the mining rights to his iron ore to Citic Pacific, picking up a cool $400 million-plus at the outset and a share of future earnings.
It was up to Citic - a company managed by the progeny of Communist Party leaders with no experience in mining - to build the mine, known as Sino Iron.
It was a magnificent deal for Palmer but not so good for Citic.
The initial cost of the mine blew out from $2.5 billion to $7 billion and production has been delayed for years, even though it should begin later this year.
Chinese investors are "pretty pissed off about how Sino Iron has come about and they are pulling a rein on investment in Australia," says West.
Insiders describe Palmer as mercurial and erratic, running his diverse holdings in mining, real estate and tourism ''like an emperor''.
Unquestionably, he can pursue his business interests ruthlessly.
For families who own timeshare units at the Coolum Golf and Spa resort, purchased by Palmer last year, their encounter with the billionaire has been a brutal experience.
''A complete ratbag'', ''megalomaniac'' and ''bully'' were some of the epithets thrown at Palmer by owners, some of whom have been visiting the 160-hectare resort with its championship golf course, $4 million spa, bush tracks and pristine beach since the 1980s.
The problems for the timeshare holders began in September, two months after Palmer bought the resort, formerly known as the Hyatt Regency Coolum.
Without informing timeshare owners beforehand, Palmer withdrew the timeshare scheme - the Presidents Club Limited - an Australian Securities and Investments Commission deed that exempted the scheme from the Corporations Act.
His actions meant the scheme was non-compliant with the law, and Palmer used this as justification to strip owners of many of their entitlements: discount green fees, free tennis court hire and, most importantly, the ability to book multiple units for holidays.
Dozens of bookings were suddenly cancelled on the grounds ''it may be a breach of the law'', including a 60th birthday party for some 30 guests flying in from all over Australia.
Palmer responded to BusinessDay: ''Coolum Golf & Spa looks forward to resolution of the timeshare owners' issues brought upon themselves by the failure of their directors to comply with the … legislation.''
For many owners, Palmer's coup de grace was a takeover offer to the timeshare owners of $55,013 per quarter share of a standard villa, substantially less than the $90,000 that many timeshare owners had paid and less even than what Palmer had paid for a handful of villas only months before.
ASIC has raised concerns about the takeover offer because, as originally lodged, it breaches the Corporations Act, not least because a bidder cannot make an offer below the value paid for similar shares in the previous four months.
Allegations of hardball dealings by the magnate's companies are not isolated.
Across the Nullarbor, Palmer's wholly owned Mineralogy has been accused of dirty tricks by a small mining company, Rey Resources.
According to a 2010 judgment from Western Australia's Warden Court, which deals with disputes over mining tenements, Rey Resources subsidiary Blackfin alleges Mineralogy learnt about the status of the licences after it had purchased shares in Rey Resources and was invited by its management to develop ''corporate transactions or asset deals'' that might benefit both companies.
Mineralogy has applied for Blackfin to forfeit two exploration licences in the coal-rich Canning Basin in Western Australia because it did not spend the required amount on drilling and exploration to maintain the licences.
While no one disputes that the small miner has failed to meet the expenditure threshold, it had received exemptions regarding its underspend in the past, a common occurrence.
It is, however, the manner in which Mineralogy obtained the information about the underspending, that has raised the ire of Rey Resources.
At the time, Rey was the subject of two hostile takeover offers and wanted to raise $15 million to fund a detailed feasibility study about developing its Canning Basin assets.
Mineralogy was allegedly invited into Rey's ''database room'' and ''gained access to confidential information''.
Soon after, Rey alleges, Mineralogy began selling down its stake and, the day it sold its last shares, launched its bid for the licences to be suspended.
''The applicant suggests the information supplied to [Mineralogy] in confidence by Rey had been utilised by Mineralogy to, in effect, attack the licence,'' said Western Australia's mining warden, Paul Roth, in his judgment.
Mineralogy's director of geology and exploration, Mark Strizek, submitted to the court that he came across Rey's problems with the exploration licences only through publicly available information, including announcements to the stock exchange.
Mineralogy was applying to the Warden's Court for an extension of time to challenge the licences.
Strizek said he missed the 35-day deadline because he was ''extremely busy'' and unaware of the deadline.
Rey Resources, in contrast, contended that the need to sell its shares explained the delay.
Roth expressed sympathy for this contention: ''In my view, this unexplained concurrence of events does cast a shadow over the veracity of the explanation given by [Mineralogy] for the delay.''
However, he said he would grant Mineralogy the extension of time, saying that the shortfall in expenditure on the exploration licences by Blackfin was undisputed and it would not ''suffer any prejudices as a result of time being extended''.
The matter is due back in court in June, where Mineralogy's application for the licences to be forfeited will be heard.
With PADDY MANNING