Last week, Australia’s richest man Andrew Forrest realised a five year dream when he shipped his first load of iron ore to China, breaking the stranglehold of rival mining giants BHP Billiton and Rio Tinto in the process. While BHP and Rio circle each other in a round of hostile bids, Forrest’s Fortescue Mining Group goes from strength to strength. They are now shipping ore in a lucrative and lengthy contract with China’s largest steel company and are doing it on their own infrastructure: the project integrates several Pilbara mines, a 250km railway line and port facilities at Port Hedland.
On 15 May, Fortescue commenced loading its first shipment of iron ore from Western Australia to China. The 180,000 tonne loading occurred at “Herb Elliot Port” which is named for the Australian Olympian who also happens to be Fortescue’s non-executive chairman. In a press release (pdf) to ASX, Fortescue CEO Forrest described the event as historic bringing an end to three and a half years of planning since his company first found iron ore in the Pilbara region. “It has been a testament to Australian ingenuity, persistence and hard work that Fortescue has managed to achieve this feat in such a short time,” he said.
This persistence is now being felt on the balance sheet. Fortescue Metals Group will make its maiden profit this year and had its 2009 profit estimate doubled by JP Morgan Chase & Co. because of higher forecast iron prices and production. Iron ore prices are set to gain 10 percent to a new record high in 2009 continuing six straight years of rises. The share price has tripled in the past 12 months and was at $9.24 at close of business today.
According to Forbes, Forrest jumped 600 places in the world’s richest list adding five billion to his personal wealth. Forrest went from the 745th wealthiest person in the world in 2007 with $1.3 billion to 145th in 2008 with a net worth of $6.5 billion. Forbes puts his rise down to Chinese demand for steel and to “red-hot speculative interest in iron ore mining companies in general.”
The 46 year old Forrest is a Western Australian blueblood. He is a descendant of the first premier of the state, Sir John Forrest (presumably indirectly, as he died childless). Sir John commissioned the world's longest water pipeline into the Kalgoorlie desert goldfields, borrowing six times his State's budget to do it. Andrew Forrest has inherited many of his great-great-great-uncle’s visionary tendencies. He was born in 1961 graduated from Perth’s Hale school and after university embarked on a career in stockbroking and mining. He founded his first mining company Anaconda Nickel (now called Minara) in 1994.
Anaconda borrowed heavily to invest 60 percent in the world’s fifth largest nickel mine at Murrin Murrin in WA. But after operating delays and shortfalls in production targets, Forrest was forced to step down as CEO in 2001. After Anglo-American bought a major share of Anaconda, they expressed their lack of confidence in Forrest’s leadership. Forrest bounced back and in 2003 acquired Allied Mining & Processing who owned tenement sites at Mt Nicholas in the Pilbara. His new plan was to ship iron ore from the Chichester Ranges to China.
Forrester’s first act was to rebadge the company as Fortescue Metals Group. His second act was to acquire Iron Ore Pty Ltd. He was quickly building the infrastructure for both the mining of iron ore and its transportation to port. Forrester's timing was perfect as the Chinese boom was about to explode. Within 12 months he had signed sales agreements with two Chinese iron ore companies. In 2005 they raised $70 million through a convertible note issue. This allowed them to build their port at Port Hedland and the railway to serve it.
As Forrest’s plans to ship the ore to China came closer to fruition, Fortescue’s share price went through the roof. At the end of December last year, the price soared eight per cent in one day alone, pushing his personal wealth close to $7 billion. By March 2008, The Age crowned him “Australia’s wealthiest man” overtaking James Packer with Forrest's personal wealth now in excess of $8 billion.
March was a good month for Forrest. His ship came home when he signed a deal with Shanghai-based Baosteel Group Corp, China's biggest steelmaker. The state owned Baosteel will take between 20 and 30 million tonnes of ore this year alone before increasing their order to 55 million tonnes. Founded in 1998, it is now one of the most profitable steel enterprises in the world. Baosteel are desperate to get steel from any source (including World Trade Center debris) for use in the supercharged Chinese economy.
Their relationship with Fortescue is likely only to become more cosy as Forrest announced last week they were "most welcome" to buy shares in the company. “We are in talks with Baosteel all the time because they are a major customer,” he said. “I'm not here to say they have a particular interest in buying shares but they are most welcome to.”