Former Macquarie Men, Wily Stockbrokers Strike Gold In Coal Deposit
The Age
Friday August 8, 2008
Seasoned team manages to generate almost $60million from NSW taxpayers' pockets.
EVER since BHP agreed to give the late Dr Lewis Weeks a perpetual 2.5% royalty agreement over oil and gas production from Bass Strait - and Lancelot watched the likes of Robert Holmes a Court and Sir Ron Brierley rake in the cash from subsequently buying the income stream - Lancelot has kept a weather eye out for such lucrative opportunities.But Lancelot was too slow out of the starting blocks back in 1998 when a crew of seasoned ex-Macquarie Bank men, and a couple of wily stockbrokers, laid claim to some rights over a coal deposit just south of Muswellbrook in NSW.The likes of Macquarie Bank co-founders Mark Johnson and Robin Crawford, three other former colleagues in John Rendle, the bank's one-time tax whiz John Caldon, and former Sydney Swans director John Gerahty, along with stockbrokers Richard Mews and Peter Burrows, have managed to generate more than $60million between them - and most of the money came courtesy of the NSW Government.Almost a year ago, venerable Adelaide institution Argo Investments revealed it was buying an unlisted, and unnamed, investment company that had assets of about $62 million. Argo would buy the company for cash and shares - with a $12.1 million ceiling on the cash paid. When Argo announced the shares it was issuing, it revealed the company it bought was Ramrod Holdings, and the vendors were getting just a shade under 6 million shares issued at Argo's net tangible asset backing a share at August31 last year, or $8.07.Fascinatingly, Ramrod was only incorporated on September 4 last year, a mere 10 days before the timing of the Argo acquisition. For a new company, it had a complex structure of "D-class", "E-class" and ordinary shares.All the "E" shares , and most of the "D", were owned by John Rendle, who left Macquarie nearly 20 years ago and has kept a low profile since. He specialises in annuity stream investments, and put together the Ramrod deal.Rendle was reticent about discussing the deal with Lancelot, but it's safe to assume what he does, he does well, given he bought what was reportedly the most expensive house in Cremorne last year for about $9.5 million.Robin Crawford, who these days is seen doing more charitable work than office work, held the balance of the "D" stock and the biggest chunk of ordinary shares. As Lancelot hears it, the money originally came from a company called White Brothers Pty Ltd, which changed its name to Ramrod Assets in early September last year as the Argo deal was finalised.White Brothers was one of about 100 groups fighting a move by Bob Carr's NSW Labor government in the late 1990s to wrest residual coalmining rights from private individuals and companies, and vest them in the state so all the royalties would flow into Treasury coffers.This was the second time Labor in that state had tried this. Neville Wran had a crack in the early 1980s to seize the rights, but Nick Greiner allowed the owners to seek restitution or compensation, all of which gave rise to the creation of the NSW Coal Compensation Board (and not a few legal claims in the courts).Come 1997, when Carr's team was again changing the law, the compensation board had paid out $400 million to claimants. When the doors finally closed at the board last year, that had about doubled to nearly $800 million - which was a lot more than politicians predicted at the time of the law change. But what's new in that?Lancelot presumes those costs were offset by the royalties the government extracted from miners, and the psychological one-upmanship of choking off what would otherwise have been tax paid by private royalty owners to federal Treasury coffers.Somewhere in between, White Brothers, which in 1997 was pursuing the largest claim for restitution of coal rights, received three or four payments and triumphed in its last court case last year, to finish with what one former insider describes as one of the largest payments under the scheme.White Brothers was originally offered $3 million for its rights over the Mount Arthur North coal reserves by the government, but had independent assessments saying they were worth closer to $25 million.The steaming coal leases, just south of Muswellbrook, are these days owned, and mined, by BHP Billiton. A Billiton subsidiary won the deposit with what was reportedly a dirt-cheap tender to the NSW government in early 1998 after the law change.Later that year, Crawford, Rendle and the others bought out the White family. As Lancelot hears it, a consultant representing the White Brothers went doorknocking various merchant banks, including Macquarie, working on the theory that if someone was keen on mining the areas, then a bigger price could be extracted from the government.Alas, no one backed the mine concept, but certain of the Macquarie people apparently decided to buy White Brothers, and then spend some money backing court cases to get a better deal.By the time Ramrod knocked on Rob Patterson's door at Argo in Adelaide last year, its investors apparently wanted a deal that gave them relief from capital gains tax. So one investment company sold itself to another investment company, largely for shares, keeping the taxman at bay.Since the deal, Argo's shares have come down about 16% to about $6.80 - so even with the fall, that's lower than the bite the Tax Office might take.On Lancelot's calculations, Crawford would have received about 2.4 million shares in Argo, and Rendle 1.25 million, which would easily put them on the list of Argo's 20 largest shareholders when the annual report comes out in a few weeks. Lancelot will be watching closely to see whether they held the stock or sold out.As for the $12 million in cash, it's not clear whether Argo distributed that pro rata to Ramrod's shareholders, but, oddly enough, the number of Ramrod shares it bought was 750,000 fewer than the investment company had on issue.Those "missing" shares, 22% of the capital, correspond exactly to the stake Ramrod's records show were held by Harreson Company Ltd, which is based in Hong Kong and under a different tax regime.By Lancelot's calculations, that stake was worth about $12million using the price paid by Argo for the other stock.
© 2008 The Age
