Andrew Heathcote Rich Lists editor

Andrew is BRW's Rich lists editor and is responsible for the Rich 200 and Young Rich flagship issues. He also reports on matters relating to wealth and investment for BRW and The Australian Financial Review.

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Clive Palmer heads back to court over CITIC royalties fight

Published 11 February 2013 12:11, Updated 08 May 2013 09:19

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Clive Palmer heads back to court over CITIC royalties fight

Clive Palmer’s CITC deal puts his billionaire status on the line. Photo: Glenn Hunt

Clive Palmer has a lot at stake when a dispute with the Chinese-owned developer of his Pilbara mine site escalates to the Western Australian Supreme Court on Wednesday.

Palmer has a string of assets and business ventures but it is the $8 billion Sino Iron project that forms the bulk of his $3.85 billion fortune.

Palmer’s privately owned company Mineralogy has been in mediation with CITIC Pacific over the Sino Iron project since last year. The dispute concerns the payment of royalties from CITIC to Palmer, who has rights to the iron ore.

Delays and cost overruns have plagued the project and it is yet to start full-scale production.

Under the terms of the contract, construction costs are met by CITIC, which has ended up paying billions of dollars more than originally planned.

Royalties are at the heart of the on-going dispute. Palmer has already received about $600 million from CITIC but believes he is owed more.

A directions hearing in Perth is set to go ahead on February 13.

Palmer is believed to have been keen for the matter to reach court but understanding his reasoning is difficult.

Recent comments in the press were typically effusive.

“It’s about a clash of cultures,” Palmer said in The Australian.

“In China, companies are used to doing whatever they like because they don’t have the rule of law.”

Palmer stands to get about $300 million a year in royalty payments when the mine starts full-scale production, perhaps later this year.

While that prospect must seem highly attractive to Palmer, he may be eyeing a bigger prize.

In broad terms, Palmer is like a landlord who has the right to evict his tenant if they breach their rental agreement. Should he do this, then theoretically he would be left with an $8 billion mine he didn’t have to pay for and the chance to run it himself.

Given the scope of CITIC’s investment, it is unlikely they will ever allow this to happen.

Palmer also needs to be mindful that most of the ore is likely to be exported to China; Chinese buyers may not take kindly to the termination of his relationship with a Chinese government-backed entity.

It’s a dangerous game for Palmer. Much of what he does – such as threatened forays into politics and rebuilding the Titanic – has little impact on his net wealth.

But it’s this deal that gives him his ‘billionaire’ status.

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