The weekend collapse of Clive Palmer’s latest attempt to float his Resourcehouse in Hong Kong shouldn’t have surprised anyone who glanced at the group’s prospectus. Regardless of the state of equity markets this was an attempted float that should have been destined for failure.

The first paragraph in the 30-page statement of risk factors associated with the float said it all:

“We are an early-stage development company, have no operations and may not develop our business as planned at all.”

The statement went on to say that it didn’t have several of the licences and approvals needed to develop the planned coal and iron ore projects, wasn’t the legal titleholder of the tenements and would need additional funding beyond the $3 billion-plus it proposed raising through the float.

While Resourcehouse had letters of support from prospective Chinese customers and financiers it had no legally binding agreements for the two projects, with estimated capital costs of $10.7 billion.

And, had the float been successful, within its first three years — before the projects were producing anything — more than $1 billion would have been transferred from Resourcehouse to other companies within Palmer’s group.

Resourcehouse has accumulated losses of more than $37 million and a deficiency in net assets of about $18 million. Its “assets” are rights to mine specific quantities of coal and iron ore granted by other Palmer companies that are the titleholders for the exploration tenements, which means it is dependent on those companies gaining the appropriate licences and permits that would enable it to mine and also on those companies remaining solvent.

Even the rights to mine are compromised by the existence of other exploration rights on the tenements, granted to third parties, that Resourcehouse said could adversely affect its ability to extract the coal and iron ore.

What Palmer was trying to sell to investors was a vision of an almost exclusively China-backed new, somewhat virtual, and extremely high-risk coal and iron group that isn’t even yet at the development stage.

It would have been a miracle, even in more stable equity market conditions, if he could have found enough investors prepared to stump up more than $3 billion for a minority of Resourcehouse’s capital. Or it would have said something telling about the state of the market for resource shares that investors would capitalise a vision rather than a business. Instead, the prospective investors demonstrated some commonsense.

If there is to be a fifth attempt to float Resourcehouse, it will actually have to house some resources that it has proper title over, the relationship with the rest of the Palmer group will need to be more arm’s-length and clearly defined, there will have to be less leakage of cash and value of the wider Palmer interests and there will need to be much firmer sales and financing contracts in place.

*This article first appeared at Business Spectator.