The deal maker

Published 30 September 2010 04:15, Updated 22 September 2011 05:03

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NATHAN TINKLER

AGE: 34

BORN: Port Macquarie, NSW

LIVES: Brisbane

WEALTH: $610 million

SOURCE OF WEALTH:Resources (coal)

SECRETS OF SUCCESS: Seeing value in mining assets where original owners cannot. Having the confidence to raise funds to complete deals.

INTERESTS: Horse racing

In the making of every great fortune there’s a moment when it could have gone either way. It’s the point where ambition diverges from cash flow and for Nathan Tinkler, that moment came in May 2007.

His Custom Mining could not pay the bills and insurer GIO was seeking to wind up the fledgling coal company in the NSW Supreme Court. Seven months earlier, Tinkler had put down a $1 million deposit and agreed to pay $29 million over two years to buy the Middlemount coal project in central Queensland.

It was a highly prospective block of dirt but many years away from coming into production. The challenge for Tinkler in those intervening years was to keep control of the mine while securing the funds to develop it.

In May 2007, as his creditors closed in, this looked unlikely.

“The sheriff was at the door,” Tinkler says in a rare interview with BRW at his home base in Newcastle. “I had dug myself in so far, but failing was not an option.”

To save the project, Tinkler needed to execute a deal with a large, cashed-up backer and he needed to do it quickly. To achieve this, however, the world of international finance had to be negotiated.

For a man who had spent all his working life operating machinery in a coalmine, this appeared highly unlikely. But, like many glancing judgements, this one was dead wrong.

In the end, Tinkler proved to have a great poker face.

Despite having almost no available cash, he managed the rare double of using other people’s money to finance his project while at the same time keeping 60 per cent of the equity for himself.

This allowed him to execute one of the greatest corporate deals in Australian history by turning a $1 million downpayment into a $441 million fortune in just 18 months.

“I have never seen a deal where someone has made so much money so quickly,” says veteran mining investor Peter Woodford, who was an early-stage investor in the Middlemount project. He describes Tinkler’s success as “unprecedented” and adds: “Anyone could have done what he did but the fact is that he went ahead and did it.”

Not content with pulling off one deal of a lifetime, Tinkler is now attempting to repeat his Middlemount success through the $1.2 billion float of Aston Resources, which listed on the Australian Securities Exchange in August.

Tinkler holds 36 per cent of Aston, which pushed his wealth to $610 million this year and makes him the wealthiest person on the BRW Young Rich list after first topping it two years ago (Adelaide property developer Ross Makris was first last year.)

The similarities with the Middlemount deal – Tinkler put in $25 million of the $475 million that was used to buy the Moules Creek coalmine last year – is striking. And he has made another huge profit.

In early 2007, however, Tinkler’s vast fortune appeared a long way off. Like many mining entrepreneurs before him, his Custom Mining was a finely balanced affair. From the moment he agreed to buy the Middlemount project in November 2006, he was on the hunt for cash.

Under the terms of the deal, he had to come up with $7.5 million by June 2007 to make the first payment on the lease. He also needed money to firm up exactly what lay under the ground, 600 kilometres west of Gladstone.

Tinkler had already sold everything he owned, including his house and the maintenance business he started a few years earlier to raise $1.3 million. Of this, only $300,000 remained after he paid the initial $1 million deposit.

“I was not even close to having $7.5 million,” he says. “I reckon I knocked on every door in Sydney.”

Finally, boutique Sydney broker Martin Place Securities took an interest and 60 of its clients agreed to give Tinkler’s Custom Mining $1.5 million.

“I think they were impressed I had put the $1 million down,” Tinkler says. “They thought this guy is either a complete idiot or he is going to come up trumps.”

The cash from Martin Place Securities gave Tinkler the money to complete the first drilling program, even if it did cost him a “shitload” in terms of the equity he gave up – about 15 per cent.

This first capital raising showed Tinkler not only had a good eye for a prospective coal block but proved he was also capable of operating in the world of finance.

The project, however, needed yet more cash.

So, as GIO was trying to wind up Custom Mining in the NSW Supreme Court, Tinkler was negotiating with the Noble Group of Singapore and others to provide the money to develop Middlemount.

And it was not just a few million dollars this time. Tinkler was looking for $150 million.

Despite being virtually unknown and having no background in the mining game, the times did suit him.

The coal price had run from $US40 a tonne in late 2005 to $US60 in mid-2007 and there were big expectations of what was to come – the price eventually topped out at $US174 in mid-2008. Such expectations had hedge funds and commodity houses scrambling to get exposure to coal as a result of elevated demand from China and India.

But Tinkler still needed to cut a deal without giving up control. He did so by getting a $150 million financing commitment from Noble in June 2007. Asked how he did it, he says: “Never leave yourself with just one option.”

Yet one last loose end had to be tidied up: GIO was still trying to wind up the company. So on the day before Noble released its cash, Custom Mining settled with GIO and the application was dismissed. Tinkler was rich. In the space of seven months, he had turned a lease he bought for $30 million into a prospective coalmine worth about $400 million.

His deal making would not finish there, however. As the commodities super cycle gathered speed, Tinkler would show further deft touches and an elevated appetite for risk.

Six months after the Noble cash made the project real, Tinkler agreed to sell Custom Mining to Macarthur Coal for a mixture of cash and shares. His 60 per cent stake was worth $177 million. And this would prove just a downpayment as Tinkler backed his judgement and decided on one further roll of the dice.

In the next three months, he would make a further $263 million. His first play was to take no cash himself but take his share of the buyout in stock. His early partners, Matthew Higgins and Terry O’Reilly, wanted all cash, as did some who invested through Martin Place Securities.

But there was not enough cash to go around, so Tinkler borrowed the money to buy them out. These two decisions delivered him a further 7 million shares in Macarthur Coal and took his overall stake to 22.1 million shares.

That was in December 2007. By this time the coal price had pushed above $US100 a tonne and the frenzy to secure supply had brought a flurry of deal making and wild speculation.

The shares issued to Tinkler at $8.07 would double in value in just three months and, by the time he sold his stake in May 2008, the asking price was $20 a share. This deal would deliver Tinkler $441 million in cash.

“In my 35 years around the industry, I have never seen a deal like it,” Woodford says.

Within six months of selling his Macarthur stake, the global financial crisis would push the stock to a low of $2.36 (it now trades above $11). “You get lucky once but to do it more than once shows you are smart,” Woodford says. “I think Tinkler has immense confidence in his own ability.”

This confidence was quickly transferred from the coalfields to the racetrack as Tinkler sought to create a racing and breeding name rivalling the Darley-Godolphin empire owned by Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum. But despite pumping more money into his Patinack Farm – supposedly up to $200 million – in a shorter space of time than any Australian before him, Tinkler’s results have been patchy and he has been a controversial figure around the racecourses.

He has employed, then parted company with six trainers and many more Patinack staff. He is involved in at least two court battles over money, one with Sydney trainer Anthony Cummings and another with the owners of a horse named Sidereus.

The Sidereus dispute shows the kind of money Tinkler is prepared to throw around. He paid $2.5 million for the colt in the week leading up to the 2008 Golden Slipper so he could have a runner in the world’s richest two-year-old race.

The horse failed to run a place, was then injured and Tinkler is now in dispute with its former owners over the second instalment of $1.25 million, which was to be paid on the horse’s retirement.

Tinkler brushes aside such controversy, saying a long-term view is needed when judging Patinack Farm. He says that, while the operation costs him about $20 million a year to run, it should begin to break even in the next three or four years.

“We have three very good stallion opportunities that will hit the track next year,” he says. “That will be the first acid test for Patinack Farm, if you like.” The sheer size of the operation is hard to fathom.

Patinack has 400 brood mares that produce about 300 foals each year and leave him with 150 horses in work at any one time. This means he has 10 or 15 horses running every weekend. “It’s a lifetime investment,” he says. “I won’t get sick of this [and] the bastards won’t beat me. I love this game.”

There is little doubt he can continue to fund this passion as the listing of Aston Resources in August proved to be another deft Tinkler touch. From an initial outlay of $25 million, his stake is now worth more than $400 million.

But, like most deals associated with him, Tinkler put a lot on the line. Most of the $475 million purchase price of the Moules Creek mine in Queensland – Aston’s main asset – from Rio Tinto last year was funded through US dollar debt that came with an interest rate of 15 per cent for the first 12 months. This meant that if he couldn’t float the project quickly, he would be left with a huge debt on an asset that was years away from producing a tonne of coal.

As the equity markets wobbled through the middle of the year, the float looked increasingly unlikely. In the end, Tinkler was forced to lower the offer price by 20 per cent to get it away.

But it was hardly a crushing blow. While his paper profit was cut by $150 million, he had still made nearly $400 million in six months.

Spreading the wealth

Businessmen are judged not only by how much money they make for themselves, but how those who invested with them have fared. In this area, Nathan Tinkler has a good claim to success. Not only is he rich, but he has made others very wealthy too.

Matthew Higgins and Terry O’Reilly: Tinkler’s former business partner Higgins is thought to have invested about $200,000 in Custom Mining’s Middlemount project in 2007 and collected more than $53 million in just over 12 months. O’Reilly, now on the Macarthur Coal board, invested less but took out more than $11 million.

Martin Place Securities: The boutique Sydney broker raised $2.5 million in two tranches for Custom and profited handsomely. Documents filed with the Australian Securities and Investments Commission show Martin Place clients made at least $36 million from the sale of Custom to Macarthur in 2008. But it could have been nearly double this, depending on the timing. If they sold at the top of the market with Tinkler, their return could have been $60 million, from an outlay of just $2.5 million.

Todd Hannigan and Tom Todd: The chief executive and chief financial officer of Aston Resources respectively. Todd was chief financial officer of Custom Mining, Tinkler’s original investment vehicle, while Hannigan worked at Xstrata Coal before joining Aston. The pair make their debut on this year’s Young Rich list with combined wealth of $62 million, mostly from their Aston shares.

David Sharpe and Darren Williams: The owners of Newcastle property developers Buildev received a boost late last year when Tinkler paid $8 million for a 10 per cent stake in their company. Sharpe and Williams own the other 90 per cent stake, valued at $70 million.

Go to BRW Young Rich 2010

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