‘Billionaire’ Clive Palmer struggles to save Queensland Nickel

Clive Palmer in the press gallery corridor at Parliament House in Canberra.

Two months ago, as the reality of his perilous financial plight began to dawn on him, Clive Frederick Palmer — rogue politician and self-proclaimed multi-billionaire — attempted to reach out to a giant of the Australian corporate world. As the federal MP scrambled to find cash to prop up his ailing Queensland Nickel refinery near Townsville, Palmer asked to meet National Australia Bank’s chairman Michael Chaney.

Inquirer can reveal that the request for a meeting with Chaney was made during a face-to-face meeting between Palmer and Dallas McInerney, NAB’s general manager of government affairs and public policy, on October 14.

Having banked with NAB for more than 45 years, Palmer hoped Chaney and the bank would reward a loyal customer by lending him the money he needed to keep the refinery in business and save 767 jobs.

However, the rejection was swift. McInerney told Palmer the bank would not lend any money to his struggling companies Queensland Nickel and Mineralogy.

And Chaney, a member of the business establishment with a reputation for probity, would not even deign to meet the desperate Queensland businessman.

(Coincidentally, Perth-based Chaney is the brother of West Australian Supreme Court judge John Chaney, who is overseeing several of the legal disputes between Palmer and his estranged Chinese business partner, Citic).

The episode — detailed in a raft of legal documents released this week — is emblematic of Palmer’s increasing isolation in business and politics.

His outsider status has been an asset, at times, particularly politically. Despite an almost lifelong devotion to the conservative side of politics, when campaigning for his newly formed Palmer United Party in 2013 he was able to portray himself with some success as the classic political interloper who could shake up Canberra.

Palmer has always been a maverick in the world of business and rarely shied away from a courtroom fight — he once famously listed “litigation” as one of his hobbies in Who’s Who.

There never appeared to be any fear about burning bridges, be it with the Liberal Party or with his business partners.

And for years it barely mattered. At least it didn’t matter while there was still plenty of cash in his pockets.

Now that is starting to change.

Extraordinary courtroom revelations in recent months have highlighted what Palmer’s own lawyer and senior employees describe as the “dire” state of affairs in the MP’s private companies.

The cash inside those companies is almost gone, leaving Palmer’s Queensland refinery on the brink of collapse and the jobs of ­almost 800 workers hanging in the balance just days before Christmas.

Palmer’s flagship company Mineralogy is now struggling to pay its legal bills.

His two coal companies, Waratah Coal and Fairway Coal, don’t have the money to maintain their exploration leases and risk losing them altogether in the months ahead.

His Palmer Coolum Resort on Queensland’s Sunshine Coast, home to his dinosaur park and motor museum, remains closed for renovations. Two of his four private jets remain parked on a tarmac at Brisbane airport and a third is up for sale.

The rate at which Palmer’s cash has evaporated is extraordinary, and perhaps unprecedented in Australian history.

It was not even a decade ago that Palmer struck the deal of a lifetime, selling the rights to two billion tonnes of low-quality iron ore in Western Australia’s Pilbara region to the Chinese government-owned Citic.

That 2006 agreement led to Palmer collecting an up-front payment of a whopping $US415 million — the equivalent of $570m at today’s exchange rates — with the promise of hundreds of millions of dollars in future royalties once the Chinese-built mine went into production.

“It’s probably the most significant export deal in Australia’s history,” he said at the time in his now trademark bombastic style.

“It’s a bit of holiday money. It’s worth me going to the pub and having a beer. I’m going to do that now.”

Pretty soon, the former Gold Coast real estate agent had embarked on a spending spree and he began to be described in fawning media reports as Australia’s wealthiest man, even earning the moniker “Mr China” for his apparent intimate knowledge of the Middle Kingdom.

Like any entrepreneur on the make, Palmer talked himself up at every opportunity, claiming he was richer than even the most optimistic estimates published by BRW or Forbes.

It was about this time that he also adopted the honorific of “professor” on his company letterheads and legal documents — until Gold Coast’s Bond University, which had bestowed the honorary accolade on Palmer, told him to stop using the title.

Nine years after he struck the $US415m deal with the Chinese, the jackpot has all but disappeared.

Tens of millions have been sunk into follies such as the notorious dinosaur park, a short stint as the owner of the Gold Coast United A-League soccer club, and Palmer’s high-profile but ultimately stillborn proposal to build a replica of the Titanic.

In 2008, he blew a lazy $10m on buying 55 Mercedes-Benz sedans, 700 holidays for two in Fiji and 50 weekends in Port Douglas for his workers at Queensland Nickel.

Plenty of the money, however, was spent on himself: he amassed a fleet of luxury boats, vintage cars and private jets to rival those of any proud billionaire.

At the height of his hubris, he created the Palmer United Party and spent $30m on campaigning to win himself a seat in parliament in the 2013 election.

Much of Palmer’s windfall also has been invested in new res­ources ventures that have now been rendered all but worthless by the devastating slump in commodity prices.

Michael Komesaroff, a veteran Australian consultant specialising in China and commodities, says Palmer’s squandering of his wealth during the past decade ­rivals the profligacy of other colourful, and often failed, entrepreneurs such as Alan Bond and Christopher Skase.

“One of his big errors is that he just didn’t worry about his expenditure,” Komesaroff says.

“Mining is a very cyclical business, so in the good times you don’t go and buy $10m worth of cars and holidays for your employees, you put money away for when the cycle turns down.

“Instead, Palmer used his businesses as a piggy bank for his own interests, including his political interests.”

Komesaroff says he believes Palmer failed to realise how extraordinarily lucky he was to have negotiated such a lucrative deal with Citic, which makes it even harder to understand how the partnership has ended in litigation and a public slanging match.

“He got a hefty sum, an ongoing royalty and he retained ownership of the tenements,” he says. “He was so bloody lucky — all the more reason to look after your partner.”

The ugly reality of Palmer’s business affairs was laid bare in affidavit material filed by two of his most senior executives as part of last week’s failed court attempt to win an urgent cash injection from Citic.

The sworn affidavits from Daren Wolfe, the group financial controller of Palmer’s companies, and Clive Mensink, Palmer’s nephew and the head of Queensland Nickel and Mineralogy, show a network of companies that effectively have bled one another dry.

Budget papers filed in the affidavits show that Queensland Nickel sustained accumulated losses before interest and taxation of $275.8m across the past four years. Those losses were made when the price of nickel was considerably higher than it is today.

Mineralogy, which received about half of that initial $US415m payment from Citic, was down to its last $491,899 at the end of June. It has been spending about $29m a year keeping itself and its subsidiaries in business.

Waratah Coal, bought by Palmer in 2008 for $125m, had only $21,195.63 to its name on October 30. About 51 jobs at the company already have been axed and seven of the remaining 10 are poised to go if cash can’t be found from somewhere else.

The undeveloped iron ore and coal deposits within Mineralogy and Waratah Coal were once at the centre of Palmer’s plans for a Hong Kong-listed mining company called Resourcehouse, which the businessman boasted would be worth more than $10 billion.

Now those same companies are struggling to meet their bills.

Palmer has been reduced to going cap in hand to the Queensland government, seeking financial intervention that would allow Queensland Nickel to keep its refinery going.

The Queensland government is apprehensive about stepping in — primarily, Treasurer Curtis Pitt says, because of concerns about setting a precedent for government bailouts of private businesses. Those concerns surely must be complicated further by the fact in this instance it would involve the bailout not only of a federal politician, but of one who gets about in a Rolls-Royce and a private jet.

Besides, any bailout risks being seen through the prism that Palmer in a way helped deliver Queensland to Labor through his aggressive campaign against the former Newman government.

While the government will desperately want to save the jobs at the refinery, it also will be wary of setting the foundations for a Queensland equivalent of WA Inc.

Palmer can blame his present problems on the meltdown in commodity prices that is affecting mining companies big and small right across the world. On that front, he is by no means alone.

Many of those who have seen him do business say that, despite his public persona and occasional acts of election trail buffoonery, he possesses a shrewd mind for business and law.

“People can underestimate Clive’s intelligence because of his personality but that unpredictability can be an asset in a negotiation,” says one lawyer who has worked with Palmer in the past. “He’s one of the shrewdest commercial and strategic negotiators I’ve worked with. He’s very calculating and his legal arguments are rarely without foundation.”

But that shrewdness hasn’t protected him from the commodity price crunch. In fact, he has compounded his challenges with a ­series of extravagant purchases and, most crucially, a combative approach towards his Chinese business partners, whom he has underestimated.

It was not long after Palmer struck his original $US415m deal with Citic that problems began to emerge. It quickly became clear that the project’s original target of a $US2.5bn development that would be in operation by 2010 was grossly over-optimistic.

The project was hit hard by the difficulties of building such a large and complex project during the peak of the boom, when labour costs were high and skilled workers were hard to find, and the use of a Chinese contractor unfamiliar with the working environment in Australia.

As it turned out, it was not until December 2013 that Citic finally shipped its first production from Sino Iron. Nearly two years later, the mine is still producing no more than a fraction of its original targeted capacity.

That original $US2.5bn budget has quadrupled to more than $US10bn. It has been an ongoing disaster for Citic, costing a number of senior executives their jobs, but the scale of the investment made to date means Citic is staying the course and continuing to push on with the project.

There has been no sympathy for Citic’s plight from Palmer. Instead, he hit the struggling group with a suite of lawsuits demanding hundreds of millions in damages related to unpaid and disputed royalties.

Where others may have recognised the mutual benefits that could come from working hand in hand with Citic to negotiate a new royalty regime, Palmer opted for the bellicose approach that had served him well in the past.

“Clive is the sort of bloke who will give someone a bloody nose in the courtroom and think about the negotiation later,” the lawyer says.

“But in this case he might have taken the relationship a bit far, given how the project is going.”

In his disputes with Citic, however, Palmer appears to have ­forgotten the first rule of litigation: always have the biggest chequebook. As Palmer himself has noted, Citic — which is effectively underwritten by the Chinese government — has cash on its balance sheet to cover Australia’s annual defence budget five times over.

Yet even as the relationship with Citic soured and a protracted legal fight loomed, Palmer continued to believe that big fat royalty cheques were imminent.

In his affidavit, Wolfe describes a June 2013 visit by Palmer to the nickel refinery to address the workforce.

“I recall Mr Palmer saying words to the effect that mining royalties were expected to be received soon from the Citic parties and that those funds would be used across the Palmer Group companies for various projects,” Wolfe said.

“I recall that the impact of this announcement to the workforce was extremely positive, based on my discussions with staff following the announcement.”

The depth of the legal disputes with Citic and the twisted path towards any resolution should have been abundantly clear to Palmer at the time of that 2013 address to the refinery workers.

At the same time, his impatience for the royalties was understandable, given the expected scale of the windfall.

In February 2012, Palmer received a report from accountants EY forecasting the likely royalty payments that he could expect to receive from the Chinese in the years ahead.

EY estimated that between 2013 and 2016, Mineralogy would receive $2.8bn in royalties and other payments from Citic.

Instead, only a few million dollars in royalty payments have trickled through to Palmer amid ongoing legal disputes and the continuing production issues at Sino Iron.

Although last week’s court case shed new light on the parlous state of Palmer’s businesses, his legal team was careful to avoid divulging too much detail about Palmer’s personal financial situation.

There was no affidavit from Palmer and no formal information about his affairs.

The only insight came when the judge hearing the case, Paul Tottle, asked why Palmer wasn’t simply extending money to Queensland Nickel from his personal reserves.

Palmer’s lawyer, Simon Couper QC, said Palmer would need to conduct a “fire sale” of his assets to get the cash together, a process that would likely involve the MP having to wear a big discount on their true value.

Given that, it would seem that whatever remaining wealth Palmer does have is tied up in assets rather than sitting in bank accounts. Palmer is either unable or unwilling to borrow against those assets and prop up the refinery himself.

He now finds himself in a position where his businesses are low on cash and no one seems willing to step in and help.

The prospect of Queensland Nickel collapsing because of outstanding debts of less than $22m seems extraordinary, given the scale of the business.

Sacking 767 workers and putting the refinery into administration over a relatively small sum — primarily money owed to rail group Aurizon and the Australian Taxation Office — is like drowning in a cup of water.

Despite the high stakes, it fell to Wolfe rather than Palmer or Mensink to try to find a solution to the cash crisis at Queensland Nickel.

On September 16 and 17, Wolfe went to Brisbane for a series of face-to-face meetings with local bank executives. On Wednesday he held talks with NAB and the Commonwealth Bank, and the following day he sat down with ANZ and Westpac.

The response was tepid, with NAB’s director of natural res­ources taking less than 48 hours to knock back the refinery.

“We are going to struggle to convince (our credit department) of the merits of this structure, particularly given there is no certainty over a price recovery … all of the above is going to make it impos­sible for us to argue to credit with conviction that the overdraft will only be in place until June next year. If prices don’t improve as expected, it could be longer,” says an email from the unnamed employee reproduced in Mr Wolfe’s affidavit.

The response from the Commonwealth Bank’s head of natural resources was in a similar vein.

“(Queensland Nickel’s) proposal is not aligned with the bank’s strategy … it’s a policy decision … the bank does not finance nickel smelters or nickel refineries.”

The banks’ key issues, Wolfe says, centred on the unpredictability of the price of nickel and an unwillingness to carry risks over Queensland Nickel’s future cashflow, based on a focus on this cashflow rather than the company’s net asset position.

Palmer consistently has been touting the net asset position as a key indicator that Queensland Nickel is healthy.

“With assets of almost $2bn, Queensland Nickel’s balance sheet is strong,” he said this week.

What he doesn’t explain, however, is the basis for those numbers. The valuation of the assets was an accounting decision, signed off in September by Mensink even after Wolfe had discovered that the refinery was running out of money.

Its accounts show that Queensland Nickel decided during the year to lift the carrying value of its plant and equipment assets from $414m to $1.7bn.

The dramatic increase in value was entirely due to a change in accounting methodology, and the firm’s inability to secure a comparatively small loan against those assets suggests that the banks place little to no weight on those numbers.

Although Palmer in the same statement hit out at what he said was “misinformation” about Queensland Nickel’s health and its uncertain future, the sworn statements of his most senior employees are perfectly clear.

“I am advised by Mr Mensink that if the Citic parties continue to ship iron ore concentrate to China and not pay the Mineralogy royalty, that the employment of remaining 767 employees will be terminated in the first week of December 2015,” Wolfe has said.

Mensink swore in his affidavit he had formed the view “that unless (Queensland Nickel) receives $28m by December 2015 I will terminate all employees”.

Both the politician and the businessman within Palmer would understand the importance of ­optics and the need to project ­success.

It helps explain some of his indulgences, including the vintage cars and private jets.

All that work to cultivate that image of wealth and success will unravel, however, if Palmer can’t find a way to save those 767 jobs in Townsville.