RICH PICKINGS: Counting Palmer's millions

A week can be a very long time in business – just ask Queensland's big mining baron, Clive Palmer.

Last week started with Palmer spruiking a 20-year coal supply deal that his company Resourcehouse estimated to be worth $US60 million. At the same time, he announced he'd handed a $US8 billion construction and project management contract to Metallurgical Corp of China, and secured $US5.6 billion in funding from Export-Import Bank of China.

Commentators – including yours truly – declared the deal would help boost Palmer's plans to float Resourcehouse on the Hong Kong Stock Exchange and set him on a course to become Australia's richest man.

Then things started going a little askew for Palmer, when China Power International Development, the company Palmer said he had done the big deal with, denied it had signed anything. Palmer was forced to admit he'd got the name of company wrong – it was in fact China Power International Holdings he'd signed a deal with (Palmer's faux pas, February 10).
Then there was some confusion over exactly what sort of deal Palmer had actually signed. CPIH claimed it was a "framework” while Palmer said it was a legally binding arrangement. Then there were issues about the $US60 billion estimate, which was questioned by analysts.

And then, despite numerous reports to the contrary, Palmer declared he had never actually said Resourcehouse was planning an IPO in Hong Kong. Reports that it would float in March were now declared off the mark.

Needless to say, this has not been the finest week of Palmer's career. At best, the kerfuffle over the details of the coal supply has created more than a little confusion for Palmer's customers, suppliers and lenders. At worst, the incidents may make investors wary if Resourcehouse ever does make it to an IPO.

But this week's problems shouldn't change the fact that Palmer has some exciting mining projects in the pipeline.

His quest to become Australia's richest person is not over just yet.

However, working out the value of Palmer's empire is extremely difficult. When I was editing BRW's Rich 200 list in 2007, Palmer made a spectacular debut with a fortune of $1 billion. Last year, BRW put him on the list at $3.42 billion, although a 60 Minutes report claimed Palmer was reportedly worth $12 billion.

Pinning down an exact figure is simply not easy, but one good way to get an appreciation for Clive's empire is break down some of his assets.

Australasian Resources

Australasian Resources is a listed iron ore miner in which Palmer's Mineralogy holds a 66 per cent stake, thanks to a deal back in 2006 in which Mineralogy sold some of his Pilbara iron ore reserves to the company. The stake is currently worth $155.6 million and the stock is up 35 per cent in the last 12 months.

Gladstone Pacific Nickel

Nickel miner Gladstone Pacific is an Australian miner listed on the Alternative Investment Market of the London Stock Exchange. The company is developing a $US3.65 billion long-life, nickel and cobalt refinery in Queensland. Palmer's stake is worth $10.6 million.

Kingsway Oil

An oil explorer established in 2001 to examine the Canning Basin region in Western Australia. According to Mineralogy's website, the company is the third largest lease holder of prospective oil and gas regions within Western Australia. Palmer owns a 50 per cent stake, although early reports about the Resourcehouse IPO indicated this asset could be part of that float.

Chinampa Exploration

An oil explorer focused on Papua New Guinea. Palmer owns a 50 per cent stake, but there is little publically available information on this business and as such it's difficult to value.

Cold Mountain Stud

Palmer's harness racing stud owns nine stallions and, according to its website, has 70 foals "on the ground" following the breeding season. Horse studs are typically more fun than profitable for wealthy entrepreneurs, but we're betting there are at least a few million dollars tied up in this venture.

Gold Coast United

Palmer has got a lot of publicity from his A-League soccer club, but given some of the issues he has had with the financial model of the world game (he infamously capped crowd numbers at 5000 for some games to save money) it's unlikely this is a big earner. An A-League licence is worth $5 million, although Gold Coast United's value could rise substantially as it expands.

Resourcehouse/Mineralogy

Getting a line on what assets are contained in Resourcehouse is difficult as there is very little public information around about the business – it doesn't even have a website at this stage. Many of the assets that Resourcehouse has been reported as owning are contained in the private group, Mineralogy, which lies at the heart of Palmer's empire.

There are three main parts to the empire – nickel, coal and iron ore.

The nickel division is built around the Yabulu refinery, which Palmer bought from BHP Billiton in the middle of last year for $500 million.

The coal division is centred on the giant China First project, which has been at the centre of this week's issues. The China First project was brought into the stable through Palmer's acquisition of Waratah Coal in late 2008 for about $125 million.

The iron ore division is the centrepiece of Mineralogy. Palmer says the division holds 160 billion tonnes of magnetite iron ore.

In 2006, Mineralogy sold a licence to mine six billion tonnes of iron ore to China's CITIC Pacific Mining to develop the $5 billion Sino project. According to the Mineralogy website, CITIC Pacific paid Mineralogy $US215 million for the right to mine an initial one billion tonnes, while Palmer's firm will also receive a royalty of $0.30 per tonne of magnetite ore taken and 6-10 per cent of the value of production by CITIC Pacific, "which is currently in the order of $US100 million per annum for 25 years for each one billion tonnes purchased". In other words, this is a huge and lucrative deal. The royalties alone would be worth $1.8 billion if the whole six billion tonnes of iron ore are mined.

Australasian Resources' $2 billion Balmoral has a licence to mine one billion tonnes or iron ore, while Mineralogy has three other projects pending approval. Exactly how many tonnes of the 160 billion tonne resource Palmer has under license is not clear, although it would appear Palmer still has plenty of scope to develop more projects.

Putting a value on Mineralogy/Resourcehouse isn't easy, but there was one clue provided a week before Palmer announced his big coal deal, when Metallurgical Corp of China said in a February 2 statement to the Shanghai Stock Exchange that it had invested $US200 million for a stake of up to 5 per cent in Resourcehouse when it floated. It is not clear whether this deal is subject to a float occurring.

However, on that basis Resourcehouse would be valued at $US4 billion, or $A4.5 billion. Palmer's stake would be $4.275 billion, although the original reports suggested Palmer would sell 50 per cent of the company to raise capital to pursue expansion.

Based on this valuation of Resourcehouse, $4.5 billion seems to be a reasonable estimate of Palmer's wealth, but even that doesn't give us a complete picture. One big question is what assets are in Resourcehouse and what assets might Palmer keep separate in the Mineralogy vehicle? Would all of the 160 billion tonnes of iron ore reserves be included? If not, Palmer's wealth could be much higher than $4.5 billion.

Of course, as critics are quick to point out, if any of Palmer's projects were not to go ahead, Palmer's empire would be worth far less.

In the end, pinpointing Palmer's wealth is impossible – the private nature of the group and the fact that so many projects remain in the development stage makes it difficult. When Palmer's mines start to produce, we'll get a much clearer picture, but until then the mystery will continue.