Looks Like Crunch Time Is Coming For Clive And Company

Why has Clive Palmer and his party turned savagely on China?

The answer: he’s losing a critical court battle that could determine his financial future, and that of the Palmer United Party.

Palmer’s colourful tirade against the Chinese state on Monday night’s Q&A television program certinaly got tongues wagging. That’ll happen when a federal parliamentarian calls a key trading partner “bastards” and “mongrels” who “shoot their own people”.

One Chinese media outlet has already struck back, calling Palmer a “prancing provocateur”, which just goes to show what a wonderful generator of website copy the big man is.

For her part, Palmer United Party Senator Jacqui Lambie has issued an extraordinary warning about the threat of a Chinese military invasion, most of the details of which she appears to have cadged from an old strategy paper by ANU Professor Hugh White.

Lambie’s comments contain a grain of truth: it is true that China has embarked on a military expansion, coupled with a more assertive diplomatic stance in the South China Sea. At some point, Australia will have to make some very tricky decisions as the United States declines, and global power balances re-orientate.

But Lambie’s proposed response of reintroducing conscription and dramatically increasing Australia’s military spending has close to no public support (nor would the Australian Defence Force welcome the end of its professional, all-volunteer force).

Forget about Lambie and her armchair strategy. It’s all a sideshow to distract us from the real issue.

None of this is about China. This is all about Clive Palmer’s court case with Chinese mining company Citic Pacific.

The case is beset with complexities and legal minutiae, but the basics of it are very simple. Palmer is in dispute with Citic over just about every facet of a mining joint venture in Western Australia’s Pilbara region. Palmer is suing Citic for royalties he claims they owe him. Citic claims Palmer stole $12 million from a trust account.

Palmer doesn’t dispute that he transferred the money, telling the National Press Club on July 7th that the money was in a bank account controlled by Mineralogy, and that he was free to spend it.

At stake is the giant iron ore port at Cape Preston on the Western Australian coast. Currently managed and operated by Mineralogy, the port is technically owned by the government of Western Australia. Citic is the company exporting the iron ore, however, having paid Mineralogy $430 million for the right to mine and export the ore. Citic also built the port.

Citic subsidiary Sino Iron spent $10 billion on the magnetite mine, over $7 billion more than it originally estimated. It needs the port at Cape Preston to be able to export that iron ore.

Citic is a giant, state-owned concern. The company is majority-owned by Hong Kong-listed Citic Group Corporation. Citic Group is a state-owned investment conglomerate originally set up in 1979, at the dawn of Deng Xiaoping’s economic reforms. It is one of the 200 largest corporations in the world, with 2013 revenue of $US61 billion.

Citic has its own checkered past. In 2008, the company lost more than $2 billion on international money markets, after a couple of rogue executives botched their currency hedging against the Australian dollar. At least one executive has already gone to jail on insider trading charges related to those transactions.

The bank account at the centre of the legal controversy was supposed to be for the development and operation of the port. At some point, however, Mineralogy siphoned off $12 million. Palmer was the only signatory to the account. He also personally signed the original agreement with Citic regarding the intended use of those funds. 

Citic accuses Palmer of using that money for his 2013 election campaign, as well as to fund further legal action against Citic. In addition to the Port Preston bank account lawsuit, Citic and Palmer are simultaneously locked in a bitter dispute over mining royalties at the port, with Palmer accusing Citic of withholding tens of millions in iron ore royalties due to Mineralogy as the owner of the mining tenement.

The court case has largely been ignored by the mainstream media and the general public, but it has some very significant implications for the future of the Palmer United Party, and with it, the fate of key legislation in the Senate.

Palmer’s business interests are intimately tied to the health of Mineralogy, and Mineralogy is sweating on those royalty payments. According to the terms of their contract, Mineralogy claims Citic should have started paying royalties when the iron ore began to ship late last year.

But Citic is refusing to pay up. Using some clever legal maneuvering, the company is stalling because the original contract specified an iron ore price based on the Mount Newman benchmark price for concentrate. But when the big mining companies switched to a spot price system in 2010, that benchmark effectively ceased to exist. Citic is claiming this means it doesn’t have to pay royalties. 

That leaves Mineralogy and Palmer in a sticky situation. Without the ongoing royalty money from Cape Preston, Mineralogy is chiefly reliant on the fortunes of its nickel refinery in Queensland. A recent recovery in global nickel prices has put the refinery back into profit, but it racked up large losses in recent years.

The fact that Palmer appears to have used money from a bank account tied to the iron ore port at Cape Preston suggests that Palmer was strapped for cash in the middle of last year. It also means that the funding for Clive Palmer’s massive election advertising came, indirectly, from the Chinese government.

Yesterday, Citic had a couple of victories in Queensland and Western Australian courts. In Sydney, the full bench of the Federal Court upheld an appeal by Citic against a February decision that gave control of the port to Mineralogy. The federal Department of Infrastructure will now have to decide on a new operator.

Meanwhile, in Perth, the Federal Court threw out a separate application by Mineralogy to run a set of facilities at Cape Preston.

The final implications of these decisions are unclear. Litigation will continue, of course, in what has become a bonanza for law firms.

But the issue of control of Port Preston is ultimately one of money. How much will Citic eventually pay Palmer, and when? If Palmer loses these cases, or even if they drag on interminably, he will be left without the key revenue stream he was counting on in coming months and years.

At that point, the future viability of his business interests and political ambitions will be seriously threatened. Mineralogy has already argued in a Queensland court that the delay of Cape Preston royalties will threaten jobs at the Queensland nickel refinery.

The Citic versus Mineralogy drama illustrates just how clear and massive Clive Palmer’s conflicts of interest really are.

The fact that the man negotiating with the Abbott government over the passage of key bills through the Senate is also the major litigant in one of the country’s largest mining projects – one aspect of which will now be decided on by the federal government itself – shows why we need much stronger disclosure and divestment rules for federal parliamentarians.

After all, if the court documents are to be believed, it appears as though the major funder of Palmer’s electoral activities was a foreign mining giant, controlled by the Chinese government.

No wonder Palmer is trying to create a smokescreen of animosity against Citic and China.

This article is part of an ongoing New Matilda investigation into Cape Preston, Mineralogy and Citic Pacific. If you know more, please contact us here.