A Palmer windfall could also be lucky for WA May 19, 2011 Ads by...

A Palmer windfall could also be lucky for WA May 19, 2011

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THAT loud ''ka-ching'' on Tuesday from the direction of Hong Kong was the sound of Clive Palmer's newly minted stake in Resourcehouse multiplying from $5 million to $3.8 billion - a point apparently lost in the rush to publicise the planned listing.

Palmer's overfilled coffers (once the float starts trading on its anticipated June 9 debut) might also be good news for philanthropy in Australia - given that Palmer (pictured) won considerable kudos three years ago when he said he would establish a charitable foundation and throw $100 million (at least) into medical research in Western Australia, off the back of iron ore mining at his Balmoral leases in the Pilbara.

Insider has to stop there and explain that the Pilbara iron ore development attached to the charity is Sino Iron, and being built by Chinese group Citic Pacific for $5 billion, with the first ore to be shipped later this year.

Advertisement: Story continues below There is also the Balmoral South development, by locally listed Australian Resource Holdings (a Palmer satellite company).

Finally, Resourcehouse has an iron ore project from the Balmoral leases, called China First Iron. That, and the $8 billion China First coal mine in Queensland, are the two Resourcehouse projects coming to market.

Perhaps Palmer might think about setting up another foundation with Resourcehouse once its $10 billion worth of projects start producing in 2014, given his windfall this week.

A week after Resourcehouse was set up in 2009, he pumped in $5 million in exchange for 6 million convertible notes. That meant that he paid 83.33? for each note. Each note was converted into 1100 Resourcehouse shares on Sunday this week.

Insider's calculator died when trying to work out the fractional price per share paid by Palmer for that stock, but just before it blew up the number looked something like 75 thousandths of a cent. Even if the decimal place is a couple of points out - Palmer is close to crystallising a paper fortune.

That is a pretty big payoff in terms of finder's fees and shifting the financial risk of Resourcehouse's planned $8 billion mine to public shareholders and a banking syndicate.

Presumably it was because Palmer converted his notes within 24 hours of Resourcehouse, filing its 502-page draft offering document with the Hong Kong exchange, that investigating accountants Ernst & Young Hong Kong did not have time catch up with the changes in the number of shares on issue - their report is based on $2 of equity.

What really mystified Insider, though, was that in the past year Palmer has twice announced that two partners in his Queensland-based China First Coal project, Metallurgical Corp of China and China Railway Group, had agreed to each put $US200 million ($A189 million) into the float to become cornerstone investors with 5 per cent each.

Both those names, and the same amount of money, are reportedly on the term sheet wafting through investment banks and fund managers' offices in Hong Kong. With the institutional investment community now bidding away in Hong Kong around an indicative price range of $HK4.48 to $4.93 (54? to 59?) for each Resourcehouse share, the ''cornerstone'' investors would be lucky to get a 5 per cent stake between them in the company.

It is also not clear whether their shares are coming out of the 5.72 billion offered in the float, or is separate stock. If it is in the float, they are not going to be able to get 10 per cent of the company for $US400 million - try closer to $US750 million.

Palmer and his crew are unable to discuss the offer for fear of prejudicing their listing application before the HK exchange. He is also believed to be in ''back to back'' meetings for the next fortnight - perhaps trying to explain to BOC International, which is bookrunner for the deal, and its subcontractors - HSBC, UBS and Royal Bank of Scotland - how it all works


Read more: http://www.smh.com.au/business/a-palmer-windfall-could-also-be-lucky-for-wa-20110518-1et2t.html#ixzz1MkST44PN