Citic Pacific Says ‘Ludicrous’ to Avoid Palmer Royalty

Clive Palmer, the Australian mining entrepreneur planning to build a replica of the Titanic, is using a dispute over A$400,000 ($409,500) to try to seize control of an iron ore mine that Citic Pacific Ltd. (267) has spent A$7 billion to build, the Chinese company’s lawyer said.

Palmer’s Mineralogy Pty sued in Western Australian state court in Perth to terminate Citic Pacific’s Sino Iron unit’s mining rights and site-lease agreements at Palmer’s Pilbara property for failing to pay royalties.

“$7 billion has been spent on this mine,” Charles Scerri, Citic Pacific’s lawyer, said at the start of a two-day trial in Perth today, referring to the project that’s estimated to cost $8 billion. “We’ll pay the royalty,” he said adding it would be “ludicrous” to try and avoid it.

The dispute centers over a 2008 agreement giving Citic Pacific the right to develop the biggest magnetite iron ore project in Australia on Palmer’s land. Citic Pacific agreed to start paying royalties when it had taken possession of the ore, which it says occurs after it’s crushed and weighed. Palmer claims the royalty is due when the ore is removed from the ground.

Justice James Edelman, who is presiding over the dispute and will make the final ruling, said he was struck “by the unreality of these proceedings,” since Citic Pacific will pay the royalty, the amount in dispute is only the outstanding interest based on when the payments ought to have started.

“It’s more than that,” R. J. Lee, Mineralogy’s lawyer, told the judge. “Mineralogy has the right to terminate them and put other people on the site,” she said of the mining agreements.

Separate Ruling

Edelman said he’d rule on whether Mineralogy has the power to terminate the mining rights because of the nonpayment. He said whether Palmer’s company can exercise those powers would likely form the basis of another hearing.

The Citic Pacific development has been beset by problems including a more than four-fold budget blowout and wrong currency bets that cost HK$14.6 billion ($1.9 billion) in 2008. Last week, the company said the mine, originally slated to begin output in the first half of 2011, wouldn’t make its first shipment of iron ore concentrate until the second half of May.

Citic Pacific slipped 5.8 percent in Hong Kong trading to yesterday since the company said Nov. 19 it was fighting Palmer’s attempts to terminate its mining rights. The Hang Seng Index has risen 3.7 percent over the same period.

In a separate New South Wales lawsuit, Mineralogy claimed it was owed a A$200 million royalty, which was due yesterday. A hearing over whether the lawsuit should continue in Sydney or be moved to Perth is scheduled for April 30 in Sydney.

Counter Claims

Citic Pacific, controlled by China’s biggest state-owned investment company, has disputed Palmer’s claims saying in its 2012 annual report that changes in the iron ore market make it impossible to calculate the amount owed under the contract with Mineralogy. Palmer said last year he expected to eventually receive $500 million a year in royalties from the mine.

The Supreme Court of Western Australia declined to provide any documents related to the dispute and today’s trial.

Citic Pacific has blamed Metallurgical Corp. of China Ltd., the contractor building the mine, for the delays and cost overruns, spurring another dispute with Palmer who has sided with the contractor, known as MCC. MCC agreed to contribute $858 million in January to cover some of the cost overruns.

“MCC has had to endure repeated changes to the project’s scope of works and has at all times acted in the best interests of their stakeholders, including Citic and Mineralogy,” Palmer said in a March 27 statement.

Titanic Plans

Palmer has an agreement with Nanjing-based CSC Jinling Shipyard to build a 21st-century replica of the Titanic. CSC Jinling is also building four 64,000 deadweight tonne bulk carriers for the Australian entrepreneur, whose investments also include golf courses, hotels, a soccer team and a horse stud.

The Titanic II, scheduled to sail from England to New York on its maiden voyage by the end of 2016, will likely cost at least $500 million, Greg Johnson, an analyst with Shore Capital Group in London, said last year. The original RMS Titanic, whose popularity was underscored by the 1997 James Cameron movie that won 11 Academy Awards, sank on its maiden voyage in 1912 after colliding with an iceberg. The sinking caused the deaths of 1,502 people.

The mining magnate stopped short of calling his version of the Titanic unsinkable, as the White Star Line had referred to its original.

“Anything will sink if you put a hole in it,” Palmer told a New York news conference in February.

The Western Australia case is Mineralogy Pty v Sino Iron Pty. CIV 2338/2012, Supreme Court of Western Australia (Perth).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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