Bloomberg News

Titanic Tycoon Sues to End to Mine Deal With Citic Pacific

April 23, 2013

Australian Billionaire Clive Palmer

Clive Palmer, Australian billionaire and mining magnate, has an agreement with Nanjing-based CSC Jinling Shipyard to build a 21st-century replica of the Titanic. Photographer: Matthew Lloyd/Bloomberg

Clive Palmer, the Australian mining entrepreneur who’s planning to build a replica of the Titanic, is suing to end a partnership with Citic Pacific Ltd. (267) in an $8 billion iron ore mine.

Palmer’s Mineralogy Pty sued Citic Pacific’s Sino Iron unit in the Supreme Court of Western Australia and in the Supreme Court of New South Wales claiming the company’s mining rights and site-lease agreements ought to be terminated for failing to pay royalties. A two-day trial started today in Perth.

“Citic Pacific is trying to avoid payments over the delayed Sino Iron ore project in Western Australia because it is in financial difficulties,” Palmer said in a March 27 statement. “They’ve made mistakes and now they’re trying to avoid making payments.”

Citic Pacific is “willing and able to pay royalties, when the liability to do so arises,” the company said in an e-mailed statement. “Our view on when a royalty becomes payable has remained consistent and reflective of current contractual agreements. We welcome a declaration from the court on this matter.”

The development, the biggest magnetite iron ore project in Australia, has been beset by problems including a more than four-fold budget blowout and wrong currency bets that cost HK$14.6 billion ($1.9 billion) in 2008. Last week, the company said the mine, originally slated to begin output in the first half of 2011, wouldn’t make its first shipment of iron ore concentrate until the second half of May.

Royalty Payments

Citic Pacific’s debt will continue to rise because its cash flow is insufficient to pay for the mine development, Alan Gao, vice president at Moody’s Investors Service, said in a March 6 report. Moody’s has a negative outlook on Citic Pacific’s Ba1 debt rating, Gao said.

Citic Pacific slipped 5.8 percent in Hong Kong trading to yesterday since the company said Nov. 19 it was fighting Palmer’s attempts to terminate its mining rights. The Hang Seng Index has risen 3.7 percent over the same period.

In the New South Wales lawsuit, Mineralogy claimed it was owed a A$200 million royalty payment, which was due yesterday. A hearing over whether the lawsuit should continue in Sydney or be moved to Perth is scheduled for April 30 in Sydney.

Citic Pacific, controlled by China’s biggest state-owned investment company, has disputed Palmer’s claims saying in its 2012 annual report that changes in the iron ore market make it impossible to calculate the amount owed under the contract with Mineralogy. Palmer said last year he expected to eventually receive $500 million a year in royalties from the mine.

Liability

‘‘Citic Pacific continues to assess its liability,” the company said in a statement to the Hong Kong Stock Exchange on March 22. “The date by which a payment under those clauses would be required has not yet been reached.”

The Supreme Court of Western Australia declined to provide any documents related to the dispute and today’s trial.

Citic Pacific has blamed Metallurgical Corp. of China Ltd., the contractor building the mine, for the delays and cost overruns, spurring another dispute with Palmer who has sided with the contractor, known as MCC. MCC agreed to contribute $858 million in January to cover some of the cost overruns.

“MCC has had to endure repeated changes to the project’s scope of works and has at all times acted in the best interests of their stakeholders, including Citic and Mineralogy,” Palmer said in the March 27 statement. “It is an indictment on Citic Pacific directors that they haven’t accepted responsibility for this matter which now has the potential to damage relations between Australia and China.”

Sundance Resources

The dispute between Palmer and Citic Pacific coincides with another failed Sino-Australian venture. Sundance Resources Ltd. (SDL) on April 8 terminated an agreement with Sichuan Hanlong Group after the Chinese company failed to secure funding to pay for its planned acquisition of the Australian miner.

“We’ve seen in the last weeks Sino-Australian tie ups continuing to implode with what we’ve seen with Sundance and Hanlong,” Evan Lucas, IG Markets Ltd. markets strategist, said in a phone interview April 19. “That was also a major headache with regards to relations.”

Palmer has urged Prime Minister Julia Gillard to expand ties with China, Australia’s third-biggest source of foreign investment in the year ended June 30, 2012.

“Calling on Julia Gillard to finalize trade agreement between Australia and China,” Palmer said in an April 8 posting on Twitter. “Two terms of talking about it isn’t good enough.”

Titanic Plans

China is Australia’s biggest trading partner, with February transactions valued at A$9.7 billion, according to the bureau of statistics. Gillard, visiting Beijing on April 9, said Australian and Chinese leaders made a “breakthrough” in relations agreeing to hold annual talks in an effort to boost ties.

Palmer has an agreement with Nanjing-based CSC Jinling Shipyard to build a 21st-century replica of the Titanic. CSC Jinling is also building four 64,000 deadweight tonne bulk carriers for the Australian entrepreneur, whose investments also include golf courses, hotels, a soccer team and a horse stud.

The Titanic II, scheduled to sail from England to New York on its maiden voyage by the end of 2016, will likely cost at least $500 million, Greg Johnson, an analyst with Shore Capital Group in London, said last year. The original RMS Titanic, whose popularity was underscored by the 1997 James Cameron movie that won 11 Academy Awards, sank on its maiden voyage in 1912 after colliding with an iceberg. The sinking caused the deaths of 1,502 people.

The mining magnate stopped short of calling his version of the Titanic unsinkable, as the White Star Line had referred to its original.

“Anything will sink if you put a hole in it,” Palmer told a New York news conference in February.

The Western Australia case is Mineralogy Pty v Sino Iron Pty. CIV 2338/2012, Supreme Court of Western Australia (Perth).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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