Cockatoo Island, the focal point of a dispute surrounding collapsed miner Pluton Resources.
Source: Supplied
IN the crystal blue waters of the Buccaneer Archipelago, off Western Australia’s northern coast, sits Cockatoo Island — a long and narrow island distinguished from the dozens of others in the area by a rich band of iron ore running along its southern edge.
And it is also the focal point in a deepening dispute surrounding collapsed iron ore miner Pluton Resources, with the mine at the centre of legal battles dragging in parties from China, Hong Kong, Singapore and Australia.
Allegations of questionable conduct abound. The proceeds from a shipload of iron ore worth $3.2 million is unaccounted for; police have been called in a row over receivers; and the courts look likely to be kept busy for some time to come.
Central to the events unfolding at Pluton is General Nice Resources — probably the largest commodities trading house you’ve never heard of. The company emerged in China following the first privatisations in the late 1980s when Cai Sui Xin, the son of a decorated Korean War veteran, started the group with a single coalmine. From there the group branched out with a coke factory supplying the steel industry and then into commodities trading — first coking coal, then thermal coal, iron ore and manganese.
Last year, the company recorded $US18 billion ($ 21.9bn) in turnover and boasted 12,000 employees. Among its assets in Australia is a North Sydney office tower, soon to be renamed General Nice Towers, a 300-horse stud farm in Queensland, a small magnetite mine near Cowra in NSW and the Chalkers Crossing vineyard near Young, NSW.
GNR has also been an offtake partner for Pluton, and has pumped tens of millions of dollars of iron ore prepayments into the company.
GNR vice-president Rahul Goel, who has been the group’s representative on the Pluton board, is angry at how events have unfolded.
The key targets of his displeasure are Wise Energy Group Company — Pluton’s partner in the 50-50 Cockatoo Island joint venture — and Melbourne-based Chimaera Capital, Pluton’s former adviser, which is also closely linked to the group behind Pluton’s disputed iron ore shipment.
GNR’s initial involvement with Pluton came in the form of a $US24m loan, to be recouped as a partial prepayment on 20 shipments of iron ore. But with the Cockatoo Island mine battling to meet its production targets and the strain in its balance sheet starting to show, Mr Goel said GNR repeatedly eased Pluton’s repayment requirements to try to help the group trade through.
“A lot of people have preconceptions about how Chinese companies do business, but we never try to kill our partners. We want to do business on a commercial basis and make sure that other people are surviving as well,” Mr Goel said. “We kept funding Pluton and holding their hand even in tough times.”
By October, although iron ore prices continued to drag, GNR was starting to believe that Pluton would pull through. An entitlement issue had raised some capital while much of Pluton’s debt — including almost all of that owed to GNR — had been converted to equity.
But by the end of that month, Chinese state-owned entity Rizhao Port Group Logistics had pulled the pin and appointed receivers to Pluton.
Central to the collapse of Pluton was shipment number PLV 42. The shipment was originally scheduled to be allocated to Rizhao and its marketing partner Wise Energy.
Rizhao had paid about $32.2m to Pluton in exchange for offtake from the mine, with the payment to be recouped incrementally in a discount on the cost of each shipment.
But with Pluton’s cashflows under pressure, the company decided instead to sell PLV 42 to a third party that would pay full value for the ore. It was a fateful decision for a number of reasons.
First, it appeared to anger Rizhao and contributed to its decision to install receivers at Pluton.
Second, the promised cash from selling the ore to a third party never materialised. The company that took possession of PLV 42 was Singapore-based Silver Fir.
According to Singapore records, just under half the shares in Silver Fir are owned by Chimaera Capital, which at the time were advisers to Pluton and which is controlled by then-Pluton director Sal Catalano.
Sal’s brother, Angelo, is a shareholder and director of Silver Fir while Ian Pattison, Mr Catalano’s partner at Chimaera, is also a shareholder in the Singapore group. (Mr Catalano resigned his directorship of Pluton on December 12.)
When PLV 42 left Cockatoo Island, the 40,000 tonnes of iron ore on board would have been worth about $3.2m — money that would be critical to keeping Pluton in business.
Crucially, however, and without receiving a cent of payment, Silver Fir obtained the bill of lading and all documentation relevant to the shipment. Mr Goel described the handing over of the documents as effectively “signing a blank cheque”.
“If you have the bill of lading you own the cargo. It doesn’t matter if you have paid or haven’t paid; if you have bill of lading no one can stop you from taking the cargo,” Mr Goel said.
The terms of the deal, GNR says, were unusual in the context of an unproven counterpart with comparatively little trading history. Silver Fir has onsold the shipment to customers in Asia and should have the money from the sale sitting in its account, but has refused efforts by Pluton’s receivers to recover the payment.
“They still would have done very well even if they’d just taken their commission,” Mr Goel said.
The parties are headed for arbitration through the Singapore courts in what is shaping as a long and costly dispute.
Mr Goel said “$3m for any one at any time is big money, but especially now for Pluton it is huge. It’s very big money.”
A spokesman for Chimaera Capital declined to expand on the dispute given that the matter was before the courts. “Lawyers purporting to act for Pluton Resources have sought arbitration under the terms of the agreement between itself and Silver Fir and it would be inappropriate to comment pending the outcome of that arbitration,” the spokesman said.
A source close to Chimaera Capital said there was nothing unusual about the Silver Fir transaction. “The trading terms of the agreement between Pluton and Silver Fir were substantially similar, or more favourable to Pluton, than prior transactions undertaken by Pluton with other trading counterparties,” the source said. “Any suggestion otherwise would be mischievous.”
Pluton wouldn’t have foreseen its current predicament back in mid-2011, when the company was first introduced to Chenxi Wang.
At that time, Ms Wang was looking to build an international iron ore transportation business through her wholly owned vehicles Timeone and Wise Energy. Pluton and Timeone initially worked to strike a deal but the transaction was pulled by Pluton after Timeone’s Chinese partner tried to squeeze out extra concessions at the eleventh hour.
Within months of the Timeone deal falling over, Pluton had agreed to a new deal with Ms Wang’s Wise Energy. Wise, a Hong Kong-registered company that records show has a total issued capital of $HK1 (16c), had secured a deal that would see Pluton collect about $32.2m in funding as part of an offtake agreement with an arm of Rizhao. In return for introducing Pluton to Rizhao, Wise would pick up a 50 per cent stake in Cockatoo Island as well as a 3 per cent marketing fee on some shipments from the mine.
Without putting in any of its own money, Wise emerged with a major stake in an iron ore mine on the cusp of tapping the unprecedented boom in iron ore prices by virtue of its ability to secure funding from Rizhao.
It was, Mr Goel said, “a hefty clip of the ticket”.
Documents released at the time showed a connection between Wise and Rizhao — Ms Wang was the daughter of Jingbo Wang, a general manager within the state-owned entity.
Since the collapse of Pluton, GNR learned that Jingbo Wang had stepped down from Rizhao and had been arrested in China. The company says it has confirmed his arrest from “high-ranking Chinese officials”.
Jingbo Wang’s departure may have been the catalyst for some of the events that led to Pluton’s downfall as Rizhao’s new management reviewed its finances.
When Rizhao tipped Pluton into administration, it claimed in court documents to be owed just under $US32.1m. That compares with the initial loan of $20m plus $US12.2m, and raises the question of what happened to the $9m worth of iron ore Pluton believed it had delivered into the Rizhao prepayment.
Rizhao’s decision to tip Pluton into receivership prompted GNR to do the same and override Rizhao’s appointment of FTI Consulting with its own appointment of KordaMentha as receivers and managers. Police were called to the Pluton office when the FTI receivers first arrived, and it took a Supreme Court ruling to decide that KordaMentha were Pluton’s official receivers.
The amount owed to GNR was just $673,923.84 after a series of debt to equity conversions, but as GNR was Pluton’s first-ranking creditor its appointment of KordaMentha overrode the appointment of FTI Consulting.
In recent weeks GNR has struck a deal to guarantee Rizhao’s exposure to Pluton, agreeing to make a series of monthly payments that will ultimately total about $US23m.
The near-halving in iron ore prices over the past year has put pressure on the finances of all small iron ore miners, and even before the price reached its lows Pluton was struggling to turn a profit at Cockatoo Island. It begs the question whether the mine is worth fighting for. Is GNR simply throwing good money after bad?
Mr Goel is certain that Cockatoo Island is worth the effort. Cockatoo Island is logistically simple, with ore able to be taken straight from the mine and loaded on to a ship, while its position off WA’s north offers shorter shipping times to Asia than other Australian mines.
“Even in today’s market where everybody, even the big guys, are shutting down or cutting production, Pluton is one of those few projects that even in today’s iron ore price scenario can make a profit,” Mr Goel said.
“The one and only reason for that is the logistics, we’ve always loved the logistical solution. And having a big exposure in China, we know that this material is very widely acceptable. That’s been the major drive for us and we’ve kept on investing.”
For Wise, the circumstances and outcome of the Silver Fir transaction reflects poorly on the management of Pluton prior to its receivership, and raises questions about whether there were any discrepancies with other Pluton shipments. Wise argues it was kept in the dark about the performance of the joint venture. “The lack of transparency and the corporate governance was very bad,” said a Wise representative, who did not want to be named.
“We don’t have all the evidence yet, but we’re investigating the conduct of Pluton in managing the joint venture.”
The group also disputes arguments that it hasn’t covered its share of operating costs at Cockatoo Island, saying it has not been issued with any cash calls or approved budgets.
While GNR alleges that Wise owes the joint venture millions of dollars in unpaid operating cost contributions, Wise believes it is in fact owed money by Pluton.
“Pluton still owe us money, $7.9m, being funds provided by Wise to Pluton for JV operations. The $7.9m hasn’t been repaid to Wise,” the representative said.
Wise also questions the logic behind the decision to continue operating at Cockatoo Island, given the iron ore price continues to sit around five-year lows.
“I’m surprised and disappointed that the receivers still operate and produce,” the Wise representative said. “I’d be surprised if they can make a profit at the current price.
“It’s been a very bad experience for us to invest in this company.”
All parties appear to blame the others for contributing to Pluton’s woes. The widespread disharmony suggests the courts are likely to have a role to play for some time. Pluton’s legal and financial issues aside, a new mine plan had been drawn up to improve Cockatoo Island’s efficiency and lower its cost base to a level that GNR says would have allowed it to compete even in today’s lower price environment.
“The focus has been very much on getting back to operational efficiency and we really feel like we’re virtually there now with the full capacity of shipments,” Mr Goel said. “So we’re very keen for those disputes to come to an end so we can focus on business and trading this company out of its current situation.”
Given the number of legal entanglements surrounding Pluton, it seems unlikely those disputes will come to an end any time soon.
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