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Clive Palmer and the Sino Iron Project: the Disaster that Keeps on Giving

By  +Follow September 19, 2013 2:52AM
Tickers Mentioned:

When reading about Australian multi-millionaire Clive Palmer, one could perhaps be forgiven for receiving the impression that the man is an Australian version of Donald Trump.

Indeed, the mining tycoon-cum-politician is often described, by himself and others, as a successful businessman who has made a fortune from a number of shrewd moves in Australian hard commodities, particularly through his Mineralogy Pty Ltd.’s holdings in coal, nickel, and iron-ore. For what it is worth, Forbes Magazine estimates the 59-year old’s fortune at just shy of a billion dollars.

But Palmer’s very public and frequently bizarre outspokenness, especially when it comes to personal beef with various rivals, is also a significant aspect of the mythology that surrounds the man.

It doesn’t help matters that his performance during these high-profile incidents often takes on a distinctly unsavory quality. For instance, only two weeks ago, Palmer threatened to sue Rupert Murdoch, whose newspaper The Australian published a piece questioning just about every aspect of the man’s claims about his own success. The article’s author unequivocally characterized Palmer’s most recent foray into Australian politics during the current election cycle as nothing less than a threat to the country’s democratic process.

In a riposte that would likely garner scant attention had it originated from Donald Trump himself, Palmer took to Australia’s morning talk-show circuit the next day to blast Murdoch, referring to him as “this foreigner who tries to dictate what we do.” And then, as if to make sure that everyone was clear about the deliberately xenophobic nature of this remark, he took it an improbable step further by claiming that Murdoch divorced his wife after discovering that she was spying for the Chinese. The scenario reads like a strange photonegative of Trump’s dalliance with birther theology during last year’s presidential election.

Another incident from recent memory involves last year’s accusation that the well-known environmentalist organization Greenpeace was actually on the payroll of the Central Intelligence Agency. According to Palmer, who perhaps fittingly has made his fortune in part off of this most pollutant of energy sources, the most feared group of spooks in the world was keenly interested in destroying Australia’s coal-mining sector (Greenpeace called the accusation “ludicrous,” while the CIA for its part issued the standard denial).

But this synopsis of the unsavory actions of one man in the public eye becomes relatively insignificant when considering Palmer’s oft-vaunted business acumen. The story here stretches a little further back, to 2006, when he sold the mineral rights to a magnetite iron ore site to Hong Kong’s Citic Pacific Ltd. for $391 million and royalties.

Citic Pacific is actually the Hong Kong-based segment of China’s largest state-owned steel-centric investment vehicle. The prospective iron-ore mine, located in the country’s rugged northern Outback region, is called the Sino Iron Project. China is the world’s largest consumer of iron ore, and Sino Iron is its largest foreign magnetite iron-ore mining and production venture.

Iron-ore production has boomed in recent years, primarily as a response to astronomical Chinese economic growth that has lifted untold thousands out of poverty, and been a mainstay of the global economy since the turn of the millennium. The construction boom in the world’s most populous nation has vacuumed up large amounts of natural resources, particularly hard commodities such as copper and iron-ore, and has been one of the main reasons that the world’s biggest mining companies, such as Vale SA (VALE) , Rio Tinto (RIO) , and BHP Billiton (BHP) have recalibrated their production strategies to focus on these two metals in particular.

Thus, the 2006 deal between Citic Pacific and Palmer can be seen in the context of China’s desire to become more independent in terms of natural resources; currently, the country relies on the major miners for its commodities as those companies are on China for their revenues and profits. The only problem, however, is that the Sino Iron project has yet to produce one ounce, much less one ton, of magnetite iron ore.

Sino Iron, in actuality, has been an unmitigated disaster for the Chinese government in terms of its ostensible goals in entering the deal, as well as from the perspective of public relations. The project has been hampered by all manner of complications. Repair work for construction of the mine’s first two production lines should have been complete months ago, though it is now estimated that the necessary fixes will take at least another two years, at an estimated additional cost of some $1 billion.

But this extra billion brings the total spent on Sino Iron to some $8 billion. Unfortunately for the Chinese Government, it would be impossible, from the standpoint of public perception, to have abandoned the mine at any point after having shelled out $2.5 billion, so the project continues. Citic Pacific has at least taken the step of taking Palmer to court in Australia over the royalties agreement they signed with him.

The bad news doesn't end there for China however. After several years druring which the mining industry has directed its efforts towards the iron-ore rush, we are now in a situation where the metal is expected to hit record surplus by next year, which many banks, including Deutsche Bank (DB) and Goldman Sachs (GS) , have predicted will force prices lower for the foreseeable future. If an when Sino Iron does start producing metal, it is doubtful the project will ever really be able to pay for itself.


***correction: the original version of this article stated that Citic Pacific bought the mineral rights to Sino Iron for $2.5 billion. In fact, that figure was much lower, at $391 million. The article has been amended to reflect the correct figure***

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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Results for vale
Kym L
24 Oct 14 19:00:59
24 Oct 14 16:04:43
RT @StockSignaling: After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.c…
David (no relation)
24 Oct 14 16:03:13
RT @StockSignaling: After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.c…
24 Oct 14 16:01:36
RT @StockSignaling: After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.c…
Stock Signaling
24 Oct 14 16:01:18
After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.co/Vtx6dLy0Nw #finance
24 Oct 14 13:03:40
$EWZ 4,34% $PBR 6,77% (previo a balance) $ITUB 4,09% $BBD 3,78% $VALE 3,05% esperando nueva presidenta
TP Strategic Partner
24 Oct 14 12:47:33
TPHedgegroup is calling a Dilma Roussel win by 4.1% in the Brazil Election $PBR $VALE
Kevin B
24 Oct 14 11:37:46
@61point8 Election in Brazil Sunday - see anything in $EWZ, $PBR, $VALE? Thanks!
TP Strategic Partner
24 Oct 14 11:07:22
$VALE Going long. Neves is going to pull this off.
Despicable Draghi ™
24 Oct 14 10:56:36
Following lunch as we embark upon final 2 hours Losers- $SDRL $TEVA $PIO Winners- $EWZ $VALE $PG
24 Oct 14 10:41:59
@colemanrod interesting $VALE DB and reverse also
Ronny Castro
24 Oct 14 09:57:12
@Stephanie_Link @jimcramer Should we trim into strength on $VALE today?
Poor Will
24 Oct 14 09:50:51
$vale in the green, starting to distribute
Livevol Community
24 Oct 14 09:00:05
IV30(TM) GAINER $VALE +14.93% $SODA +14.46% $LGF +9.18% $ANF +8.93% $FRAN +8.44% $EWZ +8.16% $PBR +7.39% http://t.co/gwzPxhnztr
Stoxline Investing
24 Oct 14 08:35:20
$VALE Looks like a breakout at $11.82 with a short term target of $13.81. http://t.co/lMix22UWHW
24 Oct 14 08:29:19
BLOCK TRADE: $VALE-P 250,000 shares @ $9.73 [11:29:17]
24 Oct 14 08:13:52
Brazil soars ahead of weekend election http://t.co/vjYKAdEUtp $EWZ $PBR $VALE $ITUB”
24 Oct 14 08:11:28
Brazil soars ahead of weekend election http://t.co/66V4QCJVeg $EWZ $PBR $VALE $ITUB
Large Void Bot
24 Oct 14 08:00:33
24 Oct 14 07:51:13
$VALE nice dbl bottim bullish pattern- no position
Ben Silverberg
24 Oct 14 07:45:39
"@VectorVictor: @silverjet2 I like the way you think!" $VALE
Jennifer smith
24 Oct 14 07:33:06
Nice move on $VALE up over 4% waiting on election win or loose we might have seen the bottom. Trailing stop in force with profits locked in
Maralyn Burstein
24 Oct 14 07:31:26
RT @CthruHD: Thru the first hour Losers- $SDRL $PIO $SEA Winners- $EWZ $VALE $PG
24 Oct 14 07:28:26
@Stephanie_Link $VALE has only been good for day trades for awhile, but may be worth a shot holding over the weekend.
Despicable Draghi ™
24 Oct 14 07:23:35
Thru the first hour Losers- $SDRL $PIO $SEA Winners- $EWZ $VALE $PG
Ben Silverberg
24 Oct 14 07:13:38
$VALE up +3.6% and showing Bullish MACD and STO indicators, new S at 11.17, close over 11.81 opens path to 12.60; Swing Position
24 Oct 14 07:01:12
$VALE up 2.0% to 11.04 after bullish trade setup #stocks #options #trading http://t.co/eFcoZR23g6
Alexander Morris
24 Oct 14 05:42:28
$VALE: GapUP 0.22[+2.0%,fill:31%], PrvCl:10.83, PrvHi:11.00, 3NewHi, PrvCLo, 19:4Accel+, tf:0111111, HiPctSht[5%:4d], p$vol:8.72M
23 Oct 14 23:17:21
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23 Oct 14 23:16:55
VALE 10.83 Stock Charts $VALE Vale S.A. ADS (NYSE) Last Updated: 10/24/2014 01:16:55 VALE Stock Chart - 1 Mont http://t.co/KdE1b4JSk4
23 Oct 14 20:46:29
RT @Mantrellbolsero: @dilmabr asumió mandato y $PBR estaba 32 hoy 12, $VALE 27, hoy 11, $EWZ 70 y hoy 40, cómo reeleción va a revertir eso?…
23 Oct 14 16:53:07
RT @Mantrellbolsero: @dilmabr asumió mandato y $PBR estaba 32 hoy 12, $VALE 27, hoy 11, $EWZ 70 y hoy 40, cómo reeleción va a revertir eso?…
23 Oct 14 15:55:18
RT @Mantrellbolsero: cuando asumió @dilmabr , $PBR era 32 , hoy 12, $VALE 27, hoy 11. $EWZ 70, hoy 40. la re de Dilma continuará tendencia …
P. Ricatti
23 Oct 14 15:35:22
RT @Mantrellbolsero: cuando asumió @dilmabr , $PBR era 32 , hoy 12, $VALE 27, hoy 11. $EWZ 70, hoy 40. la re de Dilma continuará tendencia …
Nestor Gutierrez
23 Oct 14 14:54:58
cuando asumió @dilmabr , $PBR era 32 , hoy 12, $VALE 27, hoy 11. $EWZ 70, hoy 40. la re de Dilma continuará tendencia de largo
23 Oct 14 14:24:49
VALE 10.83 Stock Charts $VALE Vale S.A. ADS (NYSE) Last Updated: 10/23/2014 16:24:48 VALE Stock Chart - 1 Mont http://t.co/O77E7EnyIK
Michael Saville
23 Oct 14 14:03:53
@jimcramer what catalyst does $vale need to get out of its price slump? Still LT dividend value?
cecy fernandes
23 Oct 14 13:56:14
$VALE A PENA VER DE NOVO! William Bonner tem q anunciar Dilma 54% e Brasil c a Menor taxa de desemp. da história 4,9% #13rasilTodoComDilma
Nestor Gutierrez
23 Oct 14 13:12:17
@dilmabr asumió mandato y $PBR estaba 32 hoy 12, $VALE 27, hoy 11, $EWZ 70 y hoy 40, cómo reeleción va a revertir eso?solo aecio
23 Oct 14 11:30:13
@tphedgegroup What do you guys predict for $EWZ $PBR $VALE etc come Monday post vote, down, up, or flat?
TP Strategic Partner
23 Oct 14 10:55:48
$PBR $VALE Neves seen gaining in polls in Sao Paulo region by up to 4%
Paul Loffarelli
23 Oct 14 10:43:17
$VALE just slashed their upcoming dividend payout.
Dividend Master
23 Oct 14 09:57:12
iron ore now $79+ in China today ... insane bulls can't get $VALE $RIO $CLF $BHP green with that sticking in their face
23 Oct 14 09:17:34
RT Options Scanner shows Vale $VALE March 12 call option implied volatility decreased 3% to 33
Jennifer smith
23 Oct 14 07:13:09
j.p.morgan thinks we might be at the bottom for mining. $VALE $CLF hmmmm
Stocks News&Markets
23 Oct 14 06:40:17
$VALE - Report of Foreign Issuer (6-k) http://t.co/t2wds5jd4e
H Peter Josiger
23 Oct 14 06:40:15
$VALE - Report of Foreign Issuer (6-k) http://t.co/D097chBV3e
23 Oct 14 06:40:10
$VALE - Report of Foreign Issuer (6-k) http://t.co/KBiXZzoy7g
23 Oct 14 06:40:04
$VALE - Report of Foreign Issuer (6-k) http://t.co/vxJxLUKLgO
David Dierking
23 Oct 14 06:12:47
Commented on: "Cliffs Natural Resources: A Dividend Cut Is Imminent" http://t.co/xhf8WpljOm $CLF $RIO $VALE
By  +Follow September 19, 2013 2:52AM



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