Aussie billionaire to form China-focused resource giant

An Australian billionaire plans to launch his private company, Resource Development International (RDI), as a resources giant that would supply iron ore, nickel and energy to China.

Iron ore magnate Clive Palmer, who claims he was conservatively valued at A$1.5 billion by Australian magazine Business Review Weekly, has been busy lining up companies for RDI to swallow.

Success depends on a proposed A$1-5-billion initial public offering on the Hong Kong Stock Exchange and a possible listing on the Australian Stock Exchange. The IPO is being managed by Macquarie Bank and UBS.

RDI has entered a scheme of arrangement to merge with Gladstone Pacific Nickel (GPN-T, GPN-L), a company in which Palmer has a 13.95% stake. Under the deal, RDI would acquire all Gladstone shares for 2.20 per share — 3.14 times the AIM closing price of Gladstone shares on Aug. 7.

Palmer has stepped down as chairman of the Gladstone board to avoid any conflicts of interest. Another Gladstone director, connected to Palmer’s private company Mineralogy Pty. Ltd., also stepped down. RDI has the rights to extract 20 billion tonnes of iron ore from Mineralogy’s Balmoral project in the Pilbara region of Western Australia.

Gladstone plans to build a US$3.65-billion long-life nickel-cobalt refinery at the deepwater port of Gladstone in Queensland.

The refinery would treat high-grade nickel laterite ore from New Caledonia and other southwest Pacific islands, as well as ore from Gladstone’s own Marlborough deposits. The project would produce 126,000 tonnes of nickel per year (8- 10% of global nickel demand) and 10,400 tonnes of cobalt per year.

Earlier this year, the company signed a memorandum of understanding with China Metallurgical Construction to accelerate financing and construction of the Gladstone project.

A feasibility study put the project’s after-tax profit at US$538 million for the first year of full production.

The merger with Gladstone is a long way from closing; RDI has until the end of March 2009 to complete its IPO but hopes to finish it by the end of the year.

Gladstone held a meeting on Aug. 14 to obtain shareholder approval for another one of Palmer’s companies, Dasines Pty. Ltd., to convert its convertible shares in Gladstone subsidiary Marlborough Nickel Pty. to ordinary shares. This entitles Palmer to a 25% interest in Marlborough before the Gladstone-RDI merger goes through.

Palmer has also made a proposal to merge RDI with junior iron ore explorer Australasian Resources (ARH-A), a company in which Palmer holds a 66.4% interest, for an estimated A$327 million ($303 million) or A$2.20 per share. No formal offer has been made.

Australasian’s main project is Balmoral South — part of Mineralogy’s Balmoral tenements. Australasian has the rights to mine 1 billion tonnes of iron ore from the Susan Palmer deposit of the Balmoral South block, which currently has a probable reserve of 680 million tonnes of iron ore.

To help develop the property, and demonstrating Palmer’s Chinese connections, Australasian has an alliance with China’s fourth-largest steelmaker, Shougang Corp. Shougang has a 6.3% interest in Balmoral South, which is expected to cost A$2.7 billion to develop. Shougang has an option to increase its interest to 50% by funding 100% of the project through an interest free project loan and guaranteeing the purchase of all of the iron ore produced from the project.

According to the Sydney Morning Herald, Palmer’s company Mineralogy has also signed deals allowing Hong Kong-based CITIC Pacific to acquire the rights to develop up to 6 billion tonnes of magnetite iron ore from the George Palmer deposit at Balmoral. Independent geological consultants have estimated that Mineralogy’s Balmoral claims have the potential to host 60-100 billion tonnes of iron ore.

Palmer made his first millions in real estate, retiring at age 29. After a few years of living the good life in the mid-1980s, he started three companies focusing on oil trading, research and development and mining. He refers to himself as “Professor Palmer” due to a nonpaying adjunct professorship at Deakin University in Melbourne.