The Palmer mystery

As usual, the latest edition of BRW‘s Rich 200, out today, is the most comprehensive picture of Australia’s wealthy business people. It also contains some great little surprises, including the debut of little-known Chinese-born entrepreneur Chau Chak Wing, who joins the list with $920 million, and the return of “Diamond” Joe Gutnick.

Although I was correct in my predictions about the total wealth of the list bouncing back (it was up 19% to $136 billion) and who would rank number one (Frank Lowy, with a tick over $5 billion) I was very wrong in my prediction that the wealth of mining magnate Clive Palmer would fall.

BRW‘s valuation of Palmer has increased $500 million from $3.42 billion to $3.92 billion.

That comes as something of a surprise given the difficult year Palmer has had, and the fact that Forbes magazine’s list of Australia’s richest entrepreneurs valued Palmer at $US600 million ($A727 million).

The $3.2 billion difference between the BRW and Forbes valuations raises some interesting questions about the art of valuing wealthy entrepreneurs and suggests that wealth can really be in the eye of the beholder.

Clearly, Palmer is a difficult target to value. While he holds some stakes in publically listed companies (including Australasian Resources and Gladstone Pacific Nickel) the bulk of his empire is privately held and thus not so easy to value.

In addition, the bulk of Palmer’s assets are as yet undeveloped – while he owns vast tracts of resource-rich ground, in most cases they are not yet producing dollars.

It appeared we would get a better insight into Palmer’s wealth with the float of his holding company Resourceshouse on the Hong Kong Stock Exchange, which was originally scheduled for late last year and has since been delayed. On February 2, Metallurgical Corp of China said in statement to the Shanghai Stock Exchange that it had invested $US200 million for a stake of up to 5% when the company floated, which would have valued the company at $US4 billion. Under this valuation, Palmer’s stake would be worth $3.8 billion, although the original reports suggested Palmer would sell 50% of the company in the float to raise capital to pursue expansion.

But the float now appears to be off the radar and the volatility in global markets and the uncertainty created by the introduction of the Resources Super Profits Tax may well have delayed the plans further.

Having worked on rich lists for BRW and Forbes (I worked on valuations for the Forbes list earlier this year, although not Palmer’s) I can say there is a marked difference in the approaches the two magazines take.

BRW is more likely to make an attempt to conservatively value undeveloped assets, based on industry estimates, published information about deals and expert opinions. It’s a completely legitimate approach and something that happens every day in the business world when one party runs the ruler over another’s assets.

On the other hand, Forbes takes an ultra conservative approach. Tim Treadgold, who worked on Palmer’s valuation for Forbes this year and has freelanced for BRW in the past, says Forbes valuation style can be summed up by the phrase “show me the money”.

“If you can’t see it, and it’s not crystallised, you can’t put a value it.”

Treadgold describes Palmer’s fortune as “opaque” but says he could make an argument for a valuation of Palmer’s fortune at $3.92 billion or $727 million.

“He is heading towards some sort of big payday, but that the date of the payday is stretching out. It is very hard to see what Clive’s recurrent revenue is.”

This will change as projects such as CITIC Pacific’s Sino iron ore project come on stream (Palmer will receive a generous royalty for iron ore extracted from this mine), although delays at this mine have pushed a production start back to later this year.

Treadgold has also raised some questions about how the introduction of the Resources Super Profits Tax might impact on Palmer in the future.

When this uncertainty is combined with the wider squeeze on credit still weighing on global markets, getting the funding needed for Palmer’s big projects will not be easy, with foreign investors likely to take a cautious view on the Australian mining sector.

“Anybody who bought a resources assets in the last 12 months demonstrably paid too much. If you’re not in production today… you’ve just had several years added to your start date, if your project hasn’t been killed off.”

Putting your finger on Palmer’s wealth is clearly a difficult task – the Forbes valuation looks too low, and given recent uncertainties surrounding the mining sector and the float of Palmer’s empire, BRW‘s valuation looks too high.

As Treadgold says, Palmer’s big pay day will happen, but right now the uncertainty hanging over the Australian mining sector is also casting a shadow over his fortune.