Peter Ker of the AFR has written a couple of excellent pieces in recent days on Clive Palmer-CITIC stoush. In the first he nicely unearthed the causes:
…Amid the various fights over port access and royalties, the prime dispute remains over how to calculate the royalties owed to Mr Palmer’s company, Mineralogy, for the magnetite concentrate produced by Citic at the Sino Iron project in WA.
The two parties originally had a clear method for working out that royalty, which is commonly known as Royalty B, when they formalised their commercial partnership in May 2006.
…Royalty B would be a calculation of several things, including – fatefully – the annual benchmark iron ore prices received by BHP Billiton at its Mt Newman mine…
But since then, a revolution of sorts has occurred in iron ore pricing, with the industry largely abandoning the old system of annual benchmark prices in favour of “spot pricing”…Mineralogy and Citic could no longer rely on their contract to determine the exact amount of money owed under Royalty B.
…‘‘At that point, two mature parties would have sat down and worked out a fair and equitable solution for Royalty B,’’ noted one insider this week.
But no! And so we come to this today:
In a claim launched in the Perth register of the Federal Court on Friday afternoon, Mineralogy, Mr Palmer’s main company, sought to begin liquidation proceedings against Sino Iron Pty Ltd on the ground that it was unable to pay its debts and that its “normal payment patterns” had changed.
Mineralogy did not clarify which payments it was referring to, but one insider speculated it could be a reference to royalty payments known as ‘‘Royalty A’’ in the contract struck between the parties in 2006.
On Friday a Citic Pacific spokesman…said there was nothing new in Mineralogy’s claims and insisted Citic had already paid Mineralogy more than $400 million for the right to mine and develop the project, was continuing to make payments for Royalty A, but that Royalty B remained in dispute and needed resolution by the courts.
…The liquidation application comes as a report from Beijing-based J Capital Research said the Citic mine needs an iron ore price of $US158 a tonne to repay its debt, meet interest payments and account for depreciation, well above current levels and future projections.
At The Australian, CITIC hits back:
Citic stood by earlier comments that Mr Palmer had been talking “rubbish” about the dispute.
It said it categorically rejected the latest claims by Mr Palmer and would vigorously defend its legal position.
Citic was responding to Mr Palmer’s latest broadside in the increasingly heated dispute after he flagged on Friday a legal attempt to liquidate Sino Iron, the operator of the iron ore project — China’s biggest investment in the Australian mining industry.
Citic noted that in the last year there had been several other attempts by Mr Palmer to have the Sino iron ore project suspended or terminated. “All have failed before the courts,” the company said.
People! You can’t live with ’em and can’t live without ’em. What’s worse is nobody seems to think Sino can survive for long:
From the outset in 2006, the so-called Sino Iron project was foreign policy dressed up as commerce.
…Tim Murray, the managing partner of Beijing-based research firm J Capital, has provided a preview of sorts for what the court might be told regarding the viability of Sino Iron. But unlike Palmer, Murray does not believe the problem is Citic withholding cash from its Australian subsidiary. He questions if Citic has any cash left.
…Such a huge investment has crippled the Hong Kong-listed Citic Pacific. If Palmer’s suspicions and Murray’s analysis are right then it will require a bailout from its Beijing-based parent Citic Group, a state-owned enterprise.
Palmer is clearly betting that Beijing will do exactly this, partly to save face and also to fulfil its original aim of bringing down the iron ore price.
…When the investment decision was made, Beijing was facing heightened strategic competition for resources. With new supplies of iron ore coming online and China’s own development slowing down, the Sino Iron project is no longer of vital national importance.
And shutting down the project would also give Beijing the added satisfaction of potentially depriving Palmer of at least $250 million a year in royalties.
That might ease the loss of face.
Not of vital national importance? That’s a bold statement. If I’m Beijing and can choose between kicking Clive Palmer or Australia where it hurts, the latter wins hands down.
