Clive Palmer royalties ‘threat’ to Sino Iron project
The Chinese owners of the Sino Iron mine say royalty payments to Clive Palmer are putting the project in jeopardy.
The Chinese owners of the $US12 billion ($15.6bn) Sino Iron mine in Western Australia say they are paying Clive Palmer a stunning $US10 per tonne royalty after a January court loss and that this is the project’s major barrier to profitability.
Hong Kong-listed Citic has written down the value of the disastrous investment by another $HK7.2bn ($1.2bn) in its 2017 accounts, saying it is still loss-making despite producing 17 million tonnes of iron ore last year.
Its book value is now about $US5bn.
Citic also revealed details of a $1.81bn indemnity action Mr Palmer has made against the company, claiming delays to Sino Iron royalty payments led to the closure of his Queensland Nickel refinery.
Citic did not go into details of why it had taken the $HK7.2bn impairment.
But it comes after a January WA Supreme Court ruling in favour of Mr Palmer’s company, Mineralogy, where Citic was ordered to pay $US350m of late and due royalties, known as Royalty Component B of the project.
“Now, the major problem is the Royalty B lawsuit, which has impacted the cost by $US10 per tonne,” Citic executive chairman Chang Zhenming told investors late last week after releasing the results.
“It is a real threat to our sustainable development of the project.”
At that price and last year’s production rates, the royalty payments going to Mr Palmer are about $18m a month, or $216m a year.
Mr Chang said production would increase this year but not to the project’s full nameplate capacity of 24 million tonnes a year.
This was because extra spending necessary for expansion and cost saving had been stopped until there was “certainty” over the royalties.
Citic has launched an appeal against the royalty judgment.
“We want there to be a reasonable and fair solution,” Mr Chang said.
Citic did not break out the results of Sino Iron in its 2017 accounts. But its resources and energy division made a loss of $HK9.48bn, including $HK8.4bn of impairments.
Citic chief financial officer Zhu Gaoming said the Sino Iron project, which was years overdue and whose eventual cost more than tripled, now had a book value of around $US5bn after a string of impairments.
In the accounts, Citic detailed two recent indemnity claims Mr Palmer has made in the WA Supreme Court, totalling $4.5bn.
The first is a $1.81bn claim, down from an original $2.32bn, alleged to represent the loss of value of the Queensland Nickel refinery in Townsville, where 800 jobs were lost and where Mr Palmer is being sued by liquidators to recover debts.
Mr Palmer claims the delayed payments meant Mineralogy was unable to fulfil a November 2015 agreement to pay Queensland Nickel $28m from the Sino royalty stream, to help it operate during low nickel prices.
“Mr Palmer alleges that Queensland Nickel was subsequently placed in administration followed by liquidation, because it did not receive those funds from Mineralogy,” Citic said.
Citic has filed a defence, saying there was no breach of project agreements.
Mr Palmer has also made a $2.68bn claim that alleges Palmer Petroleum was wound up and lost rights to a Papua New Guinea exploration licence because Mineralogy did not receive payments.
The claim comes despite the leases not having had any discoveries or any drilling done.