Commodities: Gina Rinehart is queen of Australia’s desert
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It has taken two decades to develop, $11bn of investment to build and is at the centre of a bitter family feud. But Gina Rinehart, Australia’s richest person, is finally poised to achieve her ambition and that of her late father, Lang Hancock, to develop, own and operate an iron ore mine.
“This is the holy grail she has been aspiring to her whole life,” says Michael Yabsley, a former adviser, of the Roy Hill project that formally opens next month. “It’s Gina’s crowning glory.”
The first ore exports from Roy Hill, 1,100km from Perth, will be a landmark moment for Hancock Prospecting, a private company controlled by the
61-year-old heiress who has earned the nickname “iron lady” as much for her uncompromising personality as the commodity that built her family’s fortune.
Up to now, Hancock Prospecting has earned most of its revenues by claiming royalties on iron ore tenements — government permits for the exploration and development of land — discovered in the Pilbara region of Western Australia, which were developed by mining companies such as Rio Tinto. But by partnering with steelmakers in Japan, Taiwan and South Korea and executing the world’s largest mine financing deal, Mrs Rinehart is transforming a company founded 60 years ago by her prospector father into a rival of Rio, BHP Billiton and Brazil’s Vale.
Following the biggest mining investment boom since the 1850s gold rush — a phenomenon driven by China’s rapacious appetite for steel to build its cities — these mining companies are now reining back investment and slashing costs.
Mrs Rinehart, in contrast, is making the biggest gamble of her career.
Critics say her prize project, in which she owns a 70 per cent stake, could not be opening at a worse time as a cooling Chinese economy dampens demand for the ore, the key ingredient in steel. Iron ore prices have fallen to $53 since peaking at $190 in 2011 and some analysts forecast Roy Hill will struggle to turn a profit. “It is a high hurdle given the significant upfront capital expenditure,” says Ivan Szpakowski, commodities analyst at Citi.
The rout in commodity prices and slowdown in mining investment are hurting the Australian economy, which is growing at an annual rate of 2 per cent of gross domestic product, below its long-term trend of above 3 per cent. It is also eating into Mrs Rinehart’s fortune, which BRW magazine estimates at A$14bn ($10.1bn), down from a peak of A$29bn in 2012 when it listed the executive chairman of Hancock Prospecting as the world’s richest woman.
“Everyone involved in our company at the time, and others outside our company also, thought it was the wrong decision,” says Mrs Rinehart, referring to Hancock Prospecting’s acquisition of the Roy Hill tenements in 1992. “I was acting against the recommendations of key staff . . . but I shared my father’s vision and desire for northern development.”
Her steely determination in developing Roy Hill is a feature of Mrs Rinehart’s business career but one that has caused her to fall out spectacularly with friends, advisers and even family.
On top of the challenges of financing and developing the mine, Mrs Rinehart is being sued by two of her four children, who are seeking to strip ownership of some of the most valuable iron ore tenements, including Roy Hill, from Hancock Prospecting and reduce her controlling stake in the company to 51 per cent, down from 76 per cent.
The bitter legal wrangle has become a distraction for the company as it prepares to move into production. If she suffers a defeat in the pending court case it could weaken Mrs Rinehart’s grip on Hancock Prospecting.
John Hancock, her only son, says his mother was “meant to look after our interests. Instead she transferred assets out of our trust”. A spokesman for Hancock Prospecting rejects this claim and says it will be strenuously defended in court.
In a separate legal action in May, Mrs Rinehart lost control of a multibillion dollar family trust at the centre of the feud, when a judge appointed her estranged eldest daughter Bianca as trustee. The family row has focused attention on the publicity shy mining magnate and this year inspired a television mini series, The House of Hancock.
Mrs Rinehart responded to the broadcast by suing Channel Nine and Cordell Jigsaw the production company that made the series. This case is still proceeding through the courts, along with others aimed at maintaining her control of the business, defending her reputation and challenging dissent.
“She is a very controlling person,” says Adele Ferguson, author of an unauthorised biography of Mrs Rinehart. “She is very litigious — not just taking action but also appealing cases all the way to the High Court.”
Following the death of her father Lang Hancock in 1992, Mrs Rinehart fought a legal battle over the iron ore magnate’s estate with his widow, Rose Porteous. Believing the former Filipino maid had somehow hastened Mr Hancock’s death, she spent years lobbying Western Australian attorneys-general for an inquest to be held into the death. When it was finally held in 1999 the coroner found Mr Hancock had died of natural causes. The two women settled their legal dispute in 2003.
“I’m not sure it’s fair to say litigation is an obsession [for Gina],” says Ron Manners, a friend of Mrs Rinehart. “I would say that a lot of the litigation matters that crop up she sees as a blowfly on a cow that needs to be swatted.”
Mrs Rinehart uses her wealth to defend her reputation, lobby politicians and promote free market ideology, according to Ms Ferguson. Angry with media coverage of her affairs and the climate change debate, an issue where she has supported the views of sceptics, Mrs Rinehart bought a stake in Fairfax — accumulating as much as 18 per cent of one of Australia’s largest and most liberal newspaper groups at one point — before selling out earlier this year.
As the company’s biggest shareholder she demanded seats on the board but was refused because she would not sign its charter of editorial independence. Hancock Prospecting sold the stake, but did not go quietly, issuing a statement that the media group had “no workable plan to revive the company”.
In 2010 the billionaire mining magnate co-financed a campaign against the then Labor government’s planned mining tax, which helped to weaken prime minister Kevin Rudd’s grip on power.
“Under [former prime minister] Tony Abbott never before was the Liberal Party so captured by vested interests and Gina Rinehart was part of that,” says Wayne Swan, Labor MP and treasurer in the Rudd administration.
“I opposed bad policies like any responsible citizen and business can,” she says, defending her opposition to the Labor programme. “The carbon tax and the mining tax were both bad policies that combined worked to make Australia more over-regulated and less cost competitive.”
Friends say Mrs Rinehart inherited her passion for iron ore from her father and her tough, uncompromising approach to business from the Pilbara, one of the harshest environments in Australia. She grew up with her parents Lang and Hope Hancock on a remote Pilbara cattle station where the rust red landscape is scorched by 50C heat and battered by cyclones during the summer.
“I think when you grow up — cement floors, tin roofs, having to amuse yourselves . . . you know, the importance of work — I think these are benefits that I’ve had,” Mrs Rinehart said in an interview with broadcaster ABC in July.
In 1952, according to company legend, Hancock discovered vast tracts of iron ore while flying low over the Pilbara landscape in his Auster aircraft to avoid a storm. He registered his tenement claims, which made the family fortune and, according to Mrs Rinehart, transformed Western Australia from a “mendicant state” relying on handouts.
Hancock had a vision of developing his own iron ore mine, a riskier but potentially more lucrative business than relying on royalty payments from miners. But by the time he died in 1992 he had not raised the vast sums required and the company was deep in debt.
“Mrs Rinehart was an heiress but she took the company from the edge of extinction after some bad decisions by her father and built it right up,” says John McRobert, her authorised biographer.
But while Mrs Rinehart inherited her entrepreneurial gene and similarly hands-on approach to business from her father, colleagues insist she is no gambler. She sold a 30 per cent stake in the Roy Hill project to Japan’s Marubeni Corporation, South Korea’s Posco and Taiwan’s China Steel Corporation to share project risk and lock in key customers in 2012, when the iron ore price was above $100 a tonne and bumper profit margins were expected.
The steelmakers have signed up to take half of Roy Hill’s iron ore while a further 43 per cent of its production is precontracted mainly to China. This leaves only a small amount exposed to spot market prices.
This hard bargaining was demonstrated early. In 2005 she dented Anglo American’s ambition of becoming a major player in the Pilbara iron ore market and won a legal battle to buy it out of a proposed joint venture, the Hope Downs mine project. She later partnered with Rio Tinto in a deal on Hope Downs, which generated billions of dollars of profits and laid the foundations for Hancock Prospecting to develop Roy Hill.
“Hard work is part of her DNA,” says Sam Walsh, Rio Tinto chief executive and a friend. “Nothing has been handed to her.”
Battles for control
But as she stands on the brink of achieving her life-long ambition, Mrs Rinehart’s difficult relationship with her two eldest children, John Hancock and Bianca Rinehart, threatens to diminish her fortune and loosen her grip on the company she has managed so effectively since her father died.
In May they won a bitter three-year court battle with their mother to gain control of a trust left to them by Mrs Rinehart’s father that controls almost 24 per cent of Hancock Prospecting. It was revealed in the case that Mrs Rinehart had secretly extended the date they could draw down the trust to 2068 without informing the children. She later warned them they would be bankrupted if they accessed the trust due to tax charges, sending them advice from PwC to that effect.
Judge Paul Brereton ruled Ms Rinehart went to “extraordinary lengths” to maintain control of the family trust and exerted “enormous pressure and great influence to do so”. He said some of the actions “closely approach intimidation” and found she “manipulated” PwC to provide advice, contrary to information it had already given.
But Judge Brereton dismissed a claim that Mrs Rinehart improperly amended the constitution of Hancock Prospecting in 2006 to the detriment of the trust’s beneficiaries.
“The problem is she has never been able to understand the differences in running Hancock Prospecting and of being the trustee to our trust,” says John Hancock, who complains his mother reduced payments from the trust when they fell out in the mid-2000s.
“In her mind, she can justify anything in order to get the iron ore mines developed but she could have achieved that without trampling on our rights and our grandfather’s wishes.”
The two children are now pursuing another lawsuit, which alleges Mrs Rinehart wrongfully transferred Hope Downs and Roy Hill — the two most valuable assets — from the trust to Hancock Prospecting. They also claim the trust should control 49 per cent of Hancock Prospecting, more than double the 24 per cent it currently holds.
If successful the children would receive the majority of the profits from these assets, rather than Mrs Rinehart who has unsuccessfully attempted to have the case dismissed.
In a statement Hancock Prospecting said: “These matters are presently before the court,” adding that “it is not appropriate that they be commented on. The matters will be strenuously defended in the appropriate forum.”
It adds: “It is with regret and disappointment that parties to litigation should choose to air their views outside court, particularly where those views show scant regard for accuracy or adherence to the actual issues in dispute.”
In the ABC interview Mrs Rinehart said the children did not appreciate her efforts in building the business and increasing the value of what’s in the trust, and implied her actions were geared towards making them stand on their own feet.
“They say that if you give your children too much, they don’t get the joy out of work. They just want the unearned things to keep falling from the sky,” Mrs Rinehart said.
Observers say the legal dispute cries out for a settlement, which would remove a costly distraction for Hancock Prospecting just as Roy Hill moves into production. But with tens of billions of dollars at stake and feelings running high on both sides it is impossible to predict the outcome.
“My relationship with my mother is complex: at times I think it is irreconcilable . . . especially when all the difficulty she has put me through was so unnecessary,” says Mr Hancock. “But Bianca and I recognise her contribution to the development of the family assets. I’ve always said we would operate very well as a team.”
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