resourehouse, page-4

http://www.businessday.com.au/business/a-professor-prone-to-grand-visions-20100202-nb3x.html

A professor prone to grand visions
February 3, 2010


Australia's alleged richest man, Clive Palmer, has been making headlines over the past six months - again. And happily for Palmer, who uses the generous honorific ''Professor'', the news has been mostly positive.

It started with a well-placed leak to the Australian Financial Review last year that Palmer was set to list his massive but undeveloped West Australian iron ore holdings. Yesterday the publicity was focused on a major upgrade to his coal deposits in Queensland.

But almost as soon as the ink is dry on such ''good news'' media releases, analysts are wondering whether the hype will become reality.

It may be that Palmer has his foot on immense coal and iron ore deposits and it may also be that Chinese investors are keen to help him finance their development. But there are too many assumptions that need to be factored in before the Palmer dream can be realised and he can assume the mantle of Australia's richest man.

Before any of these issues are tackled, Palmer has to list his mining operation, Resourcehouse, which will contain the West Australian and Queensland mineral projects. Since the marketing splash last October the start date has been postponed twice. The latest intelligence is that nothing will happen until after Chinese New Year. That's in mid- February and will introduce the year of the tiger.

Unlike most companies with Australian assets, Resourcehouse, will not list on the local market but instead seek equity from Asian investors.

Palmer's critics point out that the risks associated with the company would not be acceptable to Australian investors.

And there are plenty of them. In the first instance, Palmer needs to negotiate a deal with a cornerstone Chinese investor. Nutting out such a deal is never easy - one need only ask Andrew Forrest, the chief executive and major shareholder in Fortescue Metals.

Forrest and his directors were the subject of an unsuccessful ASIC legal action alleging he and the company made misleading statements to the market about an agreement with the Chinese to build and partly finance a rail line and port for its iron ore projects. The deal subsequently fell over when the Chinese parties insisted on attempting to buy a majority stake in the project.

The next issue that investors have highlighted in Palmer's quest to raise up to $3 billion is the value of the coal and the iron ore projects.

Palmer tried to answer the sceptics yesterday by issuing a media release on Waratah Coal, saying that new drilling had doubled its resource estimate at its central Queensland tenements. It said the company had a coal resource of about 7.4 billion tonnes, making it the biggest in the Galilee Basin.

And finding or upgrading reserves appears to be the ticket to investor support. Xstrata announced on Monday that it had plans to build a 100 million tonnes a year thermal coal operation in Queensland, costing $15 billion, which would rival the Hunter Valley as the nation's biggest coal producing region. It was accompanied by a 10-year lead time.

While most view the Xstrata plans as ambitious, the company does have operational form. Palmer, on the other hand, has something of a chequered history of ambitious developments.

The most memorable for Palmer historians was the infamous NSW project for his company Austeel to bring steel back to Newcastle.

The NSW premier at the time, Bob Carr, signed a deal in which the government would spend $240 million on transport and infrastructure and cut red tape so the project could grow some legs.

But the rot started to set in not long after the fanfare of the signing. It ended in mud-slinging, with Palmer claiming the government was in league with BHP. A settlement was eventually reached, the terms of which were not disclosed.

But it isn't just the NSW government that has been at loggerheads with Palmer, nor is it his first attempt at a listing.

Some investors will remember a previous attempt to float. That was ultimately unsuccessful and resulted in Palmer suing the ANZ Bank for $500 million.

Sadly, history does not record the outcome of this action.

Maybe Palmer will have better luck next time.