BILLIONAIRE Clive Palmer is a year away from his third big iron ore windfall from Citic Pacific, the Chinese state-controlled company that has set aside a $HK1.51 billion ($183 million) royalty payment for the magnate.
The payment will be made regardless of whether Citic's beleaguered Sino Iron magnetite project, for which Citic has already paid Mr Palmer $US415m, finally gets into production before its latest target date of August this year.
A Citic spokesman confirmed that under a 2006 agreement, Citic has to pay a royalty on 12 million tonnes of iron ore concentrate and pellets by March 31 next year, regardless of how much has been produced. In its 2011 profit report, released this month, Citic made a provision of $HK1.5bn for the royalty, much more than a $US42m potential minium payment estimated in the original 2006 agreement between Citic and Mr Palmer's private company, Mineralogy.
The payment will be the start of what will become a gushing cashflow stream for Mr Palmer if the Sino Iron project achieves full production.
Most of Mr Palmer's existing cash comes from the sale to Citic of rights to mine some of his magnetite iron ore tenements in Western Australia's Pilbara region.
In 2006, he received $US215m for the sale of the mining rights to 1 billion tonnes of magnetite iron ore and a year later another $US200m for the rights to another 1 billion tonnes.
Development of the project has so far been a disaster for Citic, with costs blowing out from an estimated $US2.5bn when the deals were signed to $US6.1bn ($5.7bn) at the last estimate. First production was originally targeted for 2009.
Mr Palmer's future visible income stream is mainly around what are very generous royalties from the project.
He negotiated a 6-10 per cent royalty on production from Sino Iron, based on prevailing market prices for iron ore fines and pellets.
If Sino can achieve its targeted production rate of 27.6 million tonnes a year, an achievement many are sceptical will be reached, Mr Palmer could receive up to $US440m annually in the unlikely event prices stay at current levels.
If Citic sticks to its current timetable, it will be producing at a rate of about 5 million tonnes a year at the start of 2013. The big royalties, which Citic will have to pay on top of state royalties, have some questioning how much profit will be left for Citic.
Costs at the mine will be much more than those experienced by BHP Billiton, Rio Tinto and Fortescue, because of the large amount of energy-intensive processing needed to get magnetite ore ready for export.
The estimated minimum payment Mr Palmer will receive in early 2013 has grown from the original $US42m payment because of the sale of the second billion tonnes of ore and because of gains in iron ore prices.
Big royalty payouts to Mr Palmer were a feature of the failed float of his other mining assets under the guise of Resourcehouse last year.
One of the reasons investors baulked was the more than $50m a year in annual payments and royalties to Mr Palmer and his private companies, despite his being a controlling shareholder.
If Citic somehow manages to overcome delays, cost blowouts and what is thought to be Australia's most expensive domestic gas contract to make a decent return out of Sino Iron, or if China just wants to secure more supply, Mr Palmer could be in for more windfalls.
On its project website, Citic still talks up the options it has to buy the rights to mine another 4 billion tonnes of iron ore from Mr Palmer at $US200m a billion tonnes.
ARH Price at posting:
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