SYDNEY/SINGAPORE – Nathan Tinkler became Australia's youngest billionaire with a well-timed investment in mining.
But as China's slowing economic growth cuts demand for iron ore and coal, Tinkler's rise from obscure electrician to mining magnate, sports club owner and champion of a rejuvenated Australian industrial town could be unraveling.
Creditors are circling Tinkler, 36, who turned a A$1 million bet on an Australian coal deposit into a billion dollar fortune.
At least three companies within his stable of some 50 firms are being sued for about A$200 million ($205.5 million) in total, including for missed payments, according to court documents. In a bid to raise funds, hundreds of his racehorses will be sold at auction this month.
Tinkler's ability to pull off big deals means not everyone bets his difficulties will spell the end to his fortune. But his fate is being watched by investors who see his travails as a cautionary tale. Tens of billions of dollars sunk into Australia to build mines, ports and rail lines are hanging in the balance as China's hunger for resources falters.
"Mr. Tinkler was perhaps luckier than some. He was able to pull off two very good deals when the whole global economy was going down. Now that coal prices have deflated, that has exposed the risks to those highly leveraged deals," said Matthew Trivett, an analyst at Patersons Securities in Brisbane.
Benchmark prices for iron ore and coal, Australia's largest export earners, have fallen about a third in the past year as China slows. Miners including BHP Billiton, Rio Tinto and Xstrata have shelved expansion plans and cut production.
At risk is Tinkler's 21.4 percent stake in Australia's biggest independent coal company, Whitehaven Coal, which represents the bulk of his wealth. The value of his stake, worth about A$1.2 billion at its peak, has shrunk to less than A$700 million.
Tinkler has also borrowed heavily against the stake. Three sources with direct knowledge of the financing told Reuters that Tinkler has pledged a 19 percent stake in Whitehaven in return for A$600 million in loans from a group led by U.S. hedge fund manager Farallon Capital Management LLC's asset manager Noonday and Credit Suisse. The loans were granted in 2010 and 2011.
Sliding coal prices have hit Whitehaven's share price and the collateral now covers only about 80 percent of the loan plus accrued interest, pushing lenders to weigh up a sale of the holding to recoup their debts, one of the sources said.
Local media reports say Tinkler has asked wealthy friends to tide him over and tried to offload his entire racing business at a loss to a Gulf Arab sheikh.
Tinkler, who recently relocated to a leafy enclave in Singapore, declined repeated requests for an interview. His Sydney-based spokesman, Tim Allerton, also declined to comment on specific questions about Tinkler's finances.
Credit Suisse and Farallon declined to comment.
Potential buyers for Whitehaven, whose assets include a big undeveloped coal deposit the miner says is capable of producing almost 11 million metric tons a year, are coal firms or customers.
But a lack of immediate buyers has ramped up pressure to convert some of the loan into equity, an unattractive option given Whitehaven's shares have nearly halved in six months, a second source said.
"It is not obvious to me why lenders would want to sell at the current share price to the market, but I suppose that is one of the alternatives, as is selling to a single buyer," said the source.
Investment banks including UBS were sounding out investors on their appetite for a "good piece" of the stake and to see what sort of discount might be needed, the third source said. UBS declined to comment.
Tinkler has not spoken publicly on his situation for months and one of the sources with knowledge of his financing said he had not given any clear assurances on his plans to repay debt.
The three sources asked not to be identified because they were not authorized to talk to the media on the matter.
RIDING THE RESOURCES BOOM
Some analysts said it was not a foregone conclusion Tinkler would have to sell his Whitehaven stake, particularly if the shares can recover from speculative selling pressure by funds.
"The share price has been pressured by funds shorting the stock to test Tinkler's (debt) covenants. If it recovers from here, he can hold on to it but still find other ways to fulfill his obligations," said Andrew Pedler of brokerage Wilson HTM.
Only a year ago Tinkler was living the Australian dream.
The boy who had failed his senior school exams made his fortune literally from the underground up.
After working as a mining pit electrician in the Hunter Valley, a wine growing and coal region 150 km (90 miles) north of Sydney, Tinkler started his first business in 2002, providing electricians and maintenance workers to the mines.
His masterstroke was scraping together a A$1 million deposit for a coal lease in Queensland state that others considered overrated.
Tinkler sold the lease to Macarthur Coal, since bought by Peabody Energy, in return for 10 percent of the Australian miner. He then sold that stake to ArcelorMittal, the world's biggest steelmaker, at a time China's appetite for coal appeared insatiable. He made A$144 million.
Emboldened, Tinkler reinvested funds to establish his own firm, Aston Resources, which he floated in 2010. Aston was then bought by Whitehaven as part of a $3 billion deal that catapulted Tinkler into the ranks of wealthy Australian mining magnates.
In a rare television interview early last year, Tinkler bridled at suggestions his early success was a lucky punt.
"Overnight success: I think that's what other people determine when you've reached a point and they want to know you," he said. "It was a bit of a hard slog. It was a difficult four or five years to get to where we were."
After the string of audacious deals, things turned for Tinkler this year. A bold A$5.3 billion bid to take Whitehaven private fell apart after he failed to bring sufficient equity investors on board, sources with direct knowledge of the deal told Reuters at the time.
Tinkler's companies also face lawsuits over disputed payments.
Property firm Mirvac Group is suing Tinkler's Ocean Street Holdings and guarantor Buildev Group for A$17 million after a September 1 court deadline passed to pay for land for a coal terminal. An Australian court will hear the case on October 23-24 after lawyers for the Tinkler firms sought more time.
Mining services company Sedgman was asking a court to appoint liquidators to three Tinkler firms - Tinkler Group Holdings, Hunter Ports and Bolkm - over a A$2 million debt. On Friday, Sedgman said a confidential settlement had been reached ahead of a hearing scheduled for Monday.
Coal miner Blackwood Resources is also asking a court to wind up another Tinkler company, Mulsanne Resources, over A$24 million it says it is owed in a share deal.
Hamish Collins, a former CEO of Aston Resources, has sued the company for A$157.4 million after alleging Tinkler reneged on a promise to hand over the equivalent of 5 percent of the value of the company's main mining assets.
The lawsuit was before Aston's takeover by Whitehaven and Collins' lawyers have said they will pursue Whitehaven.
Whitehaven said it was aware of the action and was seeking legal advice. Tinkler's spokesman in Sydney declined to comment on any of the lawsuits.
Tinkler's shadow looms over his home town of Newcastle, which until recently was happy to adopt the nickname Tinklertown as the "local boy done good" splashed around his new-found wealth.
Initially, Tinkler splurged on the trappings of a rich young man. He bought two properties in an upmarket beachside suburb of Newcastle for A$8.8 million, promptly knocked one down and sought planning approval for a A$14 million redevelopment. He also bought a rare A$500,000 Ferrari that was last year stolen and discovered burnt-out in bushland outside Newcastle.
Tinkler invested in a business that leased exclusive cars to members for an annual fee, before the Australian Supercar Club went bankrupt with debts of $4 million.
A blaze of publicity accompanied his purchases of the town's struggling soccer and rugby league teams and his plans for a new residential and commercial development in the tired docks area.
The keen racegoer also sank an estimated A$200-$300 million into building Australia's biggest horse breeding and racing company, Patinack Farm, in the area.
"He rode in as a white knight," said Paul Murphy, chairman of the business and community group the Newcastle Alliance, describing how many businesses picked up contracts.
For some, Tinkler remains an asset.
"If he's going to spend his money in Newcastle and support soccer, that's fantastic," said Mark Henderson, a public servant who was with his children watching the Tinkler-owned Jets train.
LOVE AFFAIR GONE BAD
For others, the love affair is over.
Four businesses ranging from builders to the jockey club told Reuters they had spent months chasing payments they say are owed by Tinkler firms.
"This is an ongoing pattern that has not changed and trust has been completely eroded," Murphy said.
The A$55 million development near the docks is just a hole in the ground as Tinkler's Buildev Group faces a deadline for payment for land later this month.
Tinkler's situation may become clearer this month since court hearings due on the Mirvac, Blackwood and Sedgman lawsuits are likely to mean he will have to disclose financial details.
In Newcastle, builder Bob Jeffkins has appointed a debt collector to seek A$18,000 he says his family firm is owed, but which he is not confident of getting back.
"It doesn't matter how many millions you have got if you spend it all," Jeffkins said.
($1 = 0.9735 Australian dollars)
(Additional reporting by Melanie Burton in Singapore; Editing by Lincoln Feast, Ed Davies and Dean Yates)