resourcehouse ipo june 9, page-30

www.businessspectator.com.au/bs.nsf/Article/BREAKFAST-DEALS-Resourcehouse-Clive-Palmer-Rinehar-pd20110531-HCSB9?OpenDocument

Wheels & Deals
Comment
BREAKFAST DEALS: Palmer ambition

Supratim Adhikari

Published 7:35 AM, 31 May 2011


Clive Palmer is on track to reap a $US55 million a year bonanza from the Resourcehouse float but there are concerns that the mining house?s valuation of US$7.5 billion may be a bit too pricey. Meanwhile, the $11 billion deal between Telstra and Canberra enters a critical stage, Charter Hall Office REIT?s hedge fund shareholders plot a change at the top and a Centro shareholder has a victory in the NSW Supreme Court. Elsewhere, things take a turn for the worst at REDGroup Retail, Westpac settles its legal stoush with most of the disgruntled St George bankers and the $183 million sale of Centrebet looks like a winner.

Clive Palmer, Resourcehouse IPO

A good look at Resourcehouse?s IPO prospectus gives one an idea of just how much a successful float will mean for mining magnate Clive Palmer and perhaps a glimpse into why the IPO process took so long to get started. The prospectus has already sparked concerns that the post float market valuation of $US7.5 billion may be a little pricey given that Resourcehouse has no commercial operations. Palmer is on track to earn at least $US55 million a year in royalties and administrative costs from the assets that he is listing in the float through his Waratah Coal and Mineralogy businesses. Palmer, who will be Resourcehouse?s chief executive and controlling shareholder with a 53.39 per cent stake, will also earn a $US45 million fee to access his iron ore tenements in Western Australia, paid in three annual $US15m instalments. The important thing to note here is that Palmer isn?t selling the assets but leasing them out to allow the mining of iron ore and coal. As The Australian points out that means that it?s Palmer and not the investors who will keep the value of any potential production growth beyond the three-year timeline handed out in the prospectus. Interestingly, there?s no mention of how much Palmer himself will be paid for running the show at Resourcehouse. Everything of course still depends on how investors respond to the float and The Australian Financial Review suggests that Resourcehouse?s valuation of its coal assets in the Galilee basin, the centrepiece of the company, may be inflated at $5 billion, given that the other coal players in the region have negotiated far lower prices for their projects. Linc Energy sold its coal project to India?s Adani Group for $750 million last August and Gina Rinehart?s Hancock Prospecting is close to selling its Kevin Corner mine to India?s GVK Infrastructure for $1.5 billion. The other unknowns are just how feasible Palmer?s plans to start production by mid-2014 are given that Resourcehouse is yet to secure a mining lease to develop the project or get the ball rolling on the infrastructure side of things. Resourcehouse is planning to sell 10 per cent of its shares on offer to investors in Hong Kong and the other 90 per cent to investors globally, including Australia. However, considering the highly speculative prospects for Resourcehouse it?s unlikely that any local investors will be game enough to put their money in.

Meanwhile, Assistant Treasurer Bill Shorten delivered a sharp rebuke yesterday to claims by Palmer that the Foreign Investment Review Board (FIRB) was an ?outstandingly racist? body. Shorten said that Australia?s track record on foreign investment was better than most and Chinese businesses are not short-changed in the local regulatory process. It?s unclear why Palmer would want to repeat his diatribe against Canberra given that Resourcehouse will need the FIRB?s blessing for any future acquisitions, if more than 40 per cent of the stock is held by foreign investors, a prospect that looks highly likely. However, Palmer?s statements were probably designed for the more sympathetic ears in China and, after all, it?s their money that's going to bank roll Resourcehouse?s and Palmer?s ambitions.