Nathan Tinkler wants back into the coal industry. But with three days left to raise some $40 million, has he bitten off more than he can chew?
As he prepares to front the Independent Commission Against Corruption once more, former billionaire Nathan Tinkler is in a last-ditch scramble to pull off a spectacular coal industry comeback and turn a $5 million cash deposit into almost $80 million. Feedback from potential investors is not good.
Tinkler has already missed two deadlines to close a deal, first announced in May, in which his Singapore company Bentley Resources would buy the mothballed Wilkie Creek coal mine in Queensland from US giant Peabody.
Documents obtained by Crikey (available here and here) show Tinkler will create a new vehicle to buy the mine, to be named Blamey Resources, and is hoping to raise $45 million from investors to buy Wilkie and another project, Horse Creek, with resources of more than a billion tonnes of coal combined.
Tinkler will be executive chairman of Blamey, and a “proposed” director is the legendary Wall Street economist Jim Rogers, a onetime partner of George Soros. Also proposed as a director, but not pictured in the offer document, was long-standing right hand man Troy Palmer, who was reported to have quit the Tinkler Group on Sunday.
Bentley has already paid a $5 million deposit to Peabody to put its foot on Wilkie. In what could be his final roll of the dice, Tinkler is trying to raise $40 million via interest-free notes that will quickly convert into shares in Blamey at 40c each, giving investors a 36% stake in the company. Blamey would use $20 million of this to pay the rest of the $25 million purchase price to Peabody and take the asset off Bentley. The rest would be used to restart production at the mine. Another $5 million would be raised in a public share offer on the ASX at 50c a share, giving float investors a 4% stake. The notes would convert to equity once the company was listed on the ASX, giving investors a quick 25% uplift, assuming the stock stayed at the issue price. At 50c the company would be worth almost $140 million.
Blamey will be formed by renaming a private WA shell company, Urban Land Estates, which itself was formerly known as SAS Global and was placed into receivership in 2009. Urban Land, chaired by Ian Macliver, has just over 500 shareholders, and an issue in February was priced at a low 2.5c a share. The offer documents say after a consolidation to “align with 40c per share valuation”, Urban Land shareholders would emerge with almost 8 million shares or 3% of Blamey, worth $4 million at the float price.
After selling Wilkie, Tinkler’s Bentley would emerge with 57% of Blamey worth $78.6 million at the 50c float price. Having effectively paid just 3c a share, it would be a handsome payback indeed for Tinkler.
The offer documents, circulated by broker Patersons, indicate an initial single commitment for $20 million worth of notes has been made, leaving half to raise by the end of this week. Sources indicated Tinkler has had mixed success in meetings in Hong Kong in recent days, with potential investors struck by what they perceived as rude and arrogant behaviour. Tinkler apparently walked out of one meeting before it began.
Potential investors also say the parameters outlined in the Blamey documents are extremely ambitious, with just $10 million allocated to restart the mothballed mine, and escrow conditions including bullish assumptions about getting production costs at Wilkie Creek down as low as $60 a tonne simply by cutting overheads, and ramping up quickly to 10 million tonnes per annum despite very depressed coal markets. One potential Hong Kong investor said simply: “These guys are dreaming … There is no way.”
It is unclear whether the deal laid out in the Blamey offer documents has been recut since announcement of the original deal, which Peabody told the market was worth “approximately US$70 million in cash and the assumption of rail/port obligations and other liabilities”. At the time Tinkler told The Australian the deal was worth almost $150 million.
The timetable for the Blamey capital raising has been complicated by Tinkler’s return to the witness stand at ICAC, scheduled tomorrow. Tinkler is due to speak about the wheelings and dealings of his part-owned development company Buildev in New South Wales, which brought him before the commission earlier this year.
A return to the coal game would be a spectacular comeback for Tinkler after a tumultuous period since his biggest asset, a 19% stake in Whitehaven Coal was taken off him by his major lender, hedge fund Farallon Capital, in June last year. The former mine electrician from the Hunter Valley was crowned Australia’s youngest billionaire at the age of 35 in 2011 but lost his fortune after an epic spending spree on horses, football teams, private jets, supercars and mansions around the world, funded by heavy debts against his largely paper wealth.
The forced sale did not clear Tinkler’s debts to Farallon, but well-placed sources say the fund manager booked substantial losses on its loans to the onetime coal baron and may have written off the chance of further recovery.
Tinkler has recently lost control of the Newcastle Knights and has put the Newcastle Jets up for sale. As Crikey has reported extensively, the sale of the Patinack Farm horse stud to a mysterious Middle East consortium supposedly led by Cibola Capital has failed, and billionaire Gerry Harvey has moved to recover $40 million in loans by winding up and selling off the operation in what will be the country’s biggest reduction sale at the Magic Millions auctions later this year, with some 550 horses to be sold without reserve.
It is a challenging backdrop to Tinkler’s fundraising effort, to say the least.