Pierpont: Clive Palmer had barely a case to argue against CITIC...

Pierpont: Clive Palmer had barely a case to argue against CITIC
Pierpont has now read the 167-page judgment in the case of Clive Palmer's Mineralogy v Sino Iron. If there was one word of praise for Mineralogy's case, Pierpont missed it.


At first Pierpont thought the case brought by Clive Palmer's Mineralogy against CITIC was a case of chutzpah on a grand scale. Now he's not so sure. Alex Ellinghausen
by Trevor Sykes

At his only meeting with Clive Palmer a few years ago, Pierpont immediately realised we had a lot in common.
We were both overweight, enjoyed a good lunch and a drop of wine, and both had a hearty dislike for Kevin Rudd, then our deeply regrettable prime minister. So Pierpont thought Clive was a jolly good chap.
Pierpont was in favour of Clive becoming an MP, because your correspondent has long believed that the more millionaires we have in Canberra, the better chance we have of sensible government. Pierpont's admiration waned, however, as Clive became a thorn in the side of Tony Abbott. Pierpont is a long-term friend of Tony – indeed may be the only scribe in Australia who likes him – and Tony was already handling more thorns than Androcles' lion without Clive adding to his woes.
Clive's company Mineralogy is the partner of the Chinese giant CITIC in the development of the Balmoral iron ore export project in Western Australia. The project comprises a field of magnetite ore, which is turned into a concentrate before being slurried to Cape Preston (just west of Dampier) and shipped to China.

Mineralogy first acquired some exploration licences over the iron ore deposits at the end of 1990, when Clive was planning to use the magnetite as feedstock for a revived Newcastle steelworks. By 1993 Mineralogy also held exploration licences over Cape Preston and the areas that became the port terminal facilities for the export of the iron ore. Then Mineralogy transferred all the relevant licences to two of its subsidiaries, Sino Iron and Korea Steel, and signed facilities deeds with them. In 2006 CITIC bought Sino Iron and Korea Steel.
By September 2010 CITIC had spent $6 billion and by 2012 perhaps $6 billion more, The Chinese built the mine, installed the plant and built the port, including the causeway, breakwater, conveyor, stackers and reclaimers for the stockpiles, wharves, buoys, security fence and the desalination plant to provide water for the concentrate.
On May 11, 2012, Mineralogy sent CITIC a letter asserting that it owned "our port facilities" and sought information on how to run the port "prior to taking over operation".
Pierpont could scant suppress a cheer when he heard what had happened, because this looked like chutzpah on a grand scale. Let the Chinese spend billions building a big mine and port, then rip it all off them. Pierpont assumes that it was Clive's idea because he cannot imagine any of the underlings at Mineralogy taking such a decision without his authority.


Mind you, if Pierpont were going to pull such a coup, he'd make sure he had some sort of arguable case. If he didn't have a good case to argue, he wouldn't spend millions of dollars pursuing it through the courts. Further, Pierpont's lay opinion is that you have a better chance of winning a lawsuit if you don't keep changing your case. Clive seems to have a different attitude.
In April 2013 Mineralogy took CITIC to the Federal Court claiming it was entitled to possess and operate the port. In November 2014 Mineralogy issued four termination notices to CITIC to boot it out of the project management.
Justice James Edelman's judgment in the case of Mineralogy v Sino Iron was handed down on August 14 this year. Pierpont apologises for not reporting it earlier, but he's a slow reader these days. Anyhow, Mineralogy suffered an even worse loss than the Australian XI at Trent Bridge. Mineralogy's application was dismissed and it was permanently restrained from acting on the termination notices.
Justice Edelman said: "When there are billions of dollars at stake there can sometimes be an unfortunate tendency to attempt to raise any and every issue that might be thought to be arguable. It is even more unfortunate when the case presented is constantly shifting.

"There were a number of attempts by Mineralogy to change its case during the trial, often in major respects, and sometimes without any attempt to change its pleadings. Even as late as the final day of the trial, after millions of dollars had been spent on litigation, Mineralogy sought to amend four of its five grounds of relief".
Mineralogy's primary application to the court was for a declaration that the termination notices were valid. However, the termination notices were not issued until the trial had been going for some time. Also, the termination notices would have booted out CITIC before the trial had finished.
Justice Edelman described the termination notices as "astonishing" and "farcical".
The first notice accused CITIC of not complying with bylaws that had not been promulgated. The second alleged CITIC had committed a "serious and persistent" breach by defending itself against the termination notices.

The third asserted CITIC had committed a breach by disputing the validity of a notice that Mineralogy had approved Australian Resources (ARH) to use the port facilities. ARH had no mine, had not announced any decision to mine, did not have the billions of dollars necessary to start a mine and was effectively insolvent. It had only $130,000 in the bank and was kept afloat by loans from Clive, who was its 70 per cent shareholder.
The fourth was that CITIC had not provided Mineralogy with shipping schedules. CITIC had been providing Mineralogy with notices, but Mineralogy didn't think they were proper schedules.
ANOTHER TINY FLAW

Another tiny flaw in Clive's case was a claim that under the facilities deeds signed between Mineralogy, Sino Iron and Korea Steel (when they were subsidiaries of Mineralogy) Mineralogy was entitled to possess the port. Whatever those deeds (made between Mineralogy and what were then its subsidiaries) provided, Justice Edelman found they were overridden by later agreements.
There were about four such later agreements, the most important appearing to have been with the WA government. One of the realities of mining in Australia is that you have to pay a bit of attention to what the state government says you can and can't do. In the words of the late, unlamented Bernie Cornfield: "They may be schmucks, but they're the government".
Unfortunately, Mineralogy behaved in the case as though the WA government was an irrelevant outsider. The government was not called as a party to the action. Indeed, Mineralogy even opposed a late application by the government to join the case.
The first state agreement was between Mineralogy and the WA government in 2001 and gave Mineralogy – alone or with another party – the right to submit a proposal to develop the iron ore field and to demonstrate how it could be funded. After CITIC took over Sino Iron and Korea Steel, several such proposals were submitted by CITIC's subsidiary CPPM.
Justice Edelman observed: "The many statements which represented that CPPM would manage the project, including the port and export facilities, are reinforced by the complete absence of any reference to Mineralogy being the manager or operator of any part of the project."(84) Under the state agreement, the parties were obliged to implement all proposals agreed to by the government "in accordance with the terms whereof".
After reading all those proposals the judge gave 29 reasons why CPPM was the legitimate operator of the project and Mineralogy wasn't. He said: "If Mineralogy had any right to operate or maintain the company facilities (which it did not) then … the state agreement would have varied any such right in the facilities deeds so that Mineralogy no longer had a right to operate company facilities of Sino Iron or Korea Steel".
At snail's pace, Pierpont has now read the 167-page judgment. If there was one word of praise for Mineralogy's case, Pierpont missed it. Instead, the judge's description of Mineralogy's claims included words such as "wrong", "false", "misleading", "misconceived", "bizarre" and "nonsensical". The case cost millions of dollars in legal fees and Clive may have to pay CITIC's costs as well as his own.
Faced with these sorts of bills Pierpont would have retired from litigation for life, but Clive, undaunted, leaped back into the courts on September 1 with a $10 billion lawsuit against CITIC for royalties over the life of the Balmoral mine.
Pierpont's only advice is that Clive might consider using a different expert to testify in this case. In the case before Justice Edelman, Arnold van der Heyden appeared as Mineralogy's geological consultant. Arnold estimated the Balmoral field contained 6 billion to 16 billion tonnes of iron ore, but the whole of his evidence was excluded by the judge.
Justice Edelman said that (1) significant parts of one of the geologist's reports were based on unidentified data; (2) in one area he had based his conclusions on a minuscule number of drill holes; (3) one of his reports was "an extremely confusing document"; and (4) he had not checked or verified any of the historical data on which he had relied.
For practical purposes the size of the field is irrelevant, because after the first billion tonnes you're really proving up reserves for your great-grandchildren. More important is whether the field is economic, which Balmoral almost certainly isn't.
To begin with, the Balmoral field is magnetite ore averaging 22.6 per cent iron. Magnetite is fine blast-furnace feed, but needs processing.
The ore is hard, making it expensive to crush. After being mined, it is processed into a concentrate grading 68 per cent iron. To form the slurry, water must be pumped 29 kilometres from a desalination plant at Cape Preston.
After the concentrate has been slurried to the wharf, it has to be dewatered and loaded into barges which take it to ships 7 kilometres away and transshipped. The barges carry 15,000 tonnes, so they would have to make seven or eight trips to load the 115,000-tonne ships, and preferably not in rough seas.
Over the past two years, iron ore prices have crashed from $US100 to $US50 a tonne. BHP Billiton and Rio Tinto, which mine hematite containing around 62 per cent iron, can survive the fall. They dig out the ore, run it through a crusher, load it onto a mile-long train, run it down to their ports and pour it straight into 200,000-tonne-plus ships at a cash cost of less than $20 a tonne. Transshipping is slower and costlier.
Cape Preston is supposed to ship 27.6 million tonnes a year, but is only doing five. At that rate – and current iron ore prices – Pierpont suspects CITIC must be making a loss – and if you include depreciation of the fixed assets, it would be a thumping loss.
Clive should be OK, because Mineralogy ought to be collecting royalties. Maybe he even has legal grounds for collecting future royalties, but if Pierpont is right, the current value of the mine, which CITIC reportedly spent $12 billion developing, is zero.
Pip! Pip!
Pierpont