How Australia’s Iron Man forged his armor

Andrew Forrest of Fortescue Metals: self-made mining magnate, philanthropist, nation builder and an extremely tough man to bury.

As Australia’s richest man of metals, Andrew ‘Twiggy’ Forrest, all but single-handedly carved his fortune from the Pilbara red dirt to breaking apart the world’s iron-ore triopoly of BHP, Vale and Rio Tinto, and providing an alternate partner for China’s insatiable steel mills.

In a country where wealth and success comes with a target between the shoulder blades, the Iron Man, has needed his armor. He has enraged opponents in the highest corridors of power and beaten them back with their own playbook.

When the curmudgeonly ASIC (Australian Securities and Investments Commission) aimed their cannons at his back, he dragged an appeal through the High Court and turned those cannons back on what was until then seen as the last word on Australian company process.

And last year when a dip in iron ore prices threatened to sink his Fortescue Metals Group (FMG), he helmed his ‘Fortescue family’ out of trouble with an unyielding faith.

“China was going into a period of quietness as its leadership changed. He said in an interview with China Daily last year.

“I was predicting this 12 months ago, 12 months ago I was considered quite radical in that view, 9 months a little less radical now of course everyone is saying of course they were going into a period of economic quietness.

** Forrest's "Rags-to-riches" story **

Australia’s fourth richest person in 2012, with a net worth of AUD$5.89 billion, Forrest built his wealth – as he’s fond of reminding mining heiress Gina Rinehart – from the ground up.

Forrest grew up as a jackaroo (Australian cowboys) on his family’s cattle station, Minderoo, in the Pilbara the vast expanse of mineral-rich outback in Western Australia that he was to tap so deftly in the years to follow.

At Minderoo he formed close friendships with local indigenous people, including head stockman Scotty Black, whom Forrest credits as “believing in me when others didn’t. His hero made a lasting impression: Forrest is now an advocate for Aboriginal education and employment.

Young Forrest had a bad stammer, but joined the school debating team to convert this weakness into a strength. He grew into a big talker, capable of selling big dreams to big investors.

Graduating with a degree in Economics and Politics, Forrest began his career as a stockbroker in Sydney. But the lure of untapped nickel in Western Australia drew him back from the big smoke at age thirty to start his own company, Anaconda Nickel.

Forrest had ‘twigged’ to the big future of nickel. Demand was growing at 4 percent a year to feed the stainless-steel markets, and the desert around Murrin Murrin, northeast of Perth, was bountiful with the stuff – if only an entrepreneur had the savvy to extract it. Forrest independently sourced technology in Cuba to make the venture doable, and he rallied the investors to back it.

But technical difficulties meant production fell behind schedule, and internal politics drove Forrest to step down as CEO.

Today Anaconda’s Murrin Murrin project is a highly lucrative nickel producer under the renamed Minara Resources.

Forrest had shown that he could think big and make things happen. He’d gained a reputation as a man of action, turning around Athletics Australia as chairman in time for the Sydney 2000 Olympics.

Setting up The Australian Children’s Trust in 2001 for underprivileged kids, he proved his willingness to give back to the community.

He walked away from Anaconda with head held high, towards an even brighter future in iron ore.

**Iron ore empire **

In 2003 Forrest took over Allied Mining and Processing, a small-time miner in the Pilbara, and renamed the company Fortescue Metals. He began building his iron ore empire: went back to his childhood homeland, even bought back the family farm, and quickly began to spin that red dirt into gold.

Through Fortescue, Forrest discovered more than 10 billion tonnes of iron in the Pilbara region, and convinced investors to fund the infrastructure to extract and transport it: constructing a multi-user deepwater port, the world’s heaviest haul railway and two mines.

With the help of Chinese investors, Fortescue overtook BHP and Rio Tinto as the biggest exporter of iron ore from the Pilbara region. In its first full year of production, the ‘third force in iron ore’ mined, railed and shipped more than 27 million tonnes of the stuff to China.

A first wave of expansion took the company’s production capacity to 45 million tonnes per annum (mtpa). With an investment boost of US$8.4 billion, the second wave expanded production to 155mtpa. Fortescue’s operation in the Pilbara has since been called “one of the most impressive private enterprise projects in a generation.

Fortescue was on the rise.

In 2008 he was named Australia’s richest person, with a net worth estimated?at AUD$9.41 billion. But Forrest stayed down to earth, seemed more comfortable rubbing shoulders with his workers than in the boardroom, and slept on the streets for the 2010 and 2011 St Vincent de Paul Society CEO charity sleepouts.

Things were going well for Fortescue, and Forrest found he was spending more and more time and energy pursuing his philanthropic endeavours – particularly to improve the lives and employment of indigenous people with GenerationOne – than he was as CEO.

Gallant fight

In June 2011 he announced his intention to step down, while still holding onto Fortescue’s reins as chairman of the board of directors.

Then in mid-2012 China’s growth began to slow, iron ore prices plummeted, and Australia’s mining boom looked on the point of bust.

It wasn’t Forrest’s only fight that year.

Since 2006, he’d been in and out of court with the Australian Securities Investment Commission (ASIC), who wanted to ban him as a company director after making allegedly misleading statements.

In 2004, Fortescue had reached a 'Framework Agreement' with three Chinese state-owned utilities, to build and finance the Pilbara iron ore project. Forrest announced that the Chinese boards had given their approval, making the agreements binding.

However, ASIC argued that because they were not enforceable under Australian law, Fortescue had falsely claimed they were binding and so misled shareholders and investors.

The case was initially won by Forrest, but in 2011 the Federal Court overturned the decision. Forrest took his appeal to the High Court, and in October 2012 they again reversed the decision.

But as soon as he was out of the High Court, he was threatening to take the Australian Government there to defend Fortescue from the notorious ‘mining tax’, a proposed Minerals Resource Rent Tax designed to skim a percentage of profits from big mining companies.

Forrest famously described the tax as unconstitutional “economic vandalism, and went to war, lobbying members of government and heading protest rallies, threatening to mount a High Court challenge should the legislation go ahead.

Forrest argued developing companies, like Fortescue, would be disadvantaged by the tax as they would be paying more tax per dollar of profit compared to the big three miners. “It creates a penalty for being Australian, it creates a penalty for being a developing company, he told reporters.

The tax went ahead in July 2012, and so did Forrest’s High Court challenge. A decision is expected in 2013.

The Federal government managed to raise zero revenue in the first three months of its mining tax.

As if that wasn’t enough to deal with, the future of Fortescue Metals was looking tenuous with the drop in iron ore prices.

Mid-2012 saw Fortescue slashing costs, deferring expansion plans, selling a power station and re-financing the group’s US3.5 billion of bank debt. It also announced plans to buy back an unsecured note held by Leucadia Capital for US715 million.

**The U-turn **

The original plan was to raise US4.5 billion of new debt, with a cost of 6 percent per annum. But Fortescue actually managed to raise US500 million more than expected, and at a lower cost. By lowering its operating and funding costs, and improving its financial flexibility with that extra $500 m, Fortescue turned the crisis into an opportunity.

They just needed iron ore prices to recover from below $US90 a tonne – and Forrest was sure the Chinese economy could do it.

He has never lost faith in the China story, while those around him floundered.

“In terms of their economic model lets look no further than their record. He said.

“The record shows a China that has had less bumps and less bruises than most other developing economies. We need to look at China’s track record, need to understand they are an organization as a sovereignty which is going from good leadership to what I believe really good leadership. I think the best ten years of China is ahead of it.

By January 2013 the spot price of iron ore bounced back to $158 a tonne – a recovery of almost 90 percent from its lowest point in September.

The company’s December 2012 Quarterly Production Report shows an achievement of a rate of 100 million tonnes per annum - eclipsing the milestone target of 95mtpa by the end of 2012.

Shipments of 19.6 million tonnes that quarter show an increase of 22 percent on the previous quarter, and 32 percent up on the one before that. Fortescue’s production is back on track, and plans for expansion are again underway.

That’s the thing his detractors have discovered when wielding the axe - if you cut down a tree, a Forrest can grow back.