Finding value behind the millions

When Chinese-Australian billionaire Shi Zhengrong, the founder of solar energy company Suntech, was asked recently about being one of China’s wealthiest people, he said he didn’t see it as meaningful.

“Reflecting on what produces value or change in industry and in society, that’s really instructive,” Shi replied.

WA Business News has adopted that approach in analysing the individuals who have generated enormous wealth – in many cases only on paper – during the mining and property booms.

The review focuses on directors and executives of listed companies, because they provide a very public measure of value.

The list is headed by Fortescue Metals Group founder Andrew Forrest, whose stake in the would-be iron ore miner is worth $2.16 billion.

FMG is a classic boom-time story. The company was only established in its current form four years ago, it does not earn any revenue, and faces some major challenges before completing its giant project, but it is being valued on its potential earnings as the ‘third force’ in the Pilbara iron ore industry.

Another rags to riches story is Paladin Resources, which has gone from a penny dreadful to one of Western Australia’s biggest companies by market value in just five years.

Paladin is poised to benefit from soaring uranium prices after recently completing construction of the world’s first major new uranium mine in more than a decade.

Its rapid rise has led to a massive jump in the paper wealth of its managing director, John Borshoff, whose shares in the uranium miner are worth about $173 million, and those of company secretary Gillian Swaby and chairman Rick Crabb.

While there are plenty of mining entrepreneurs on the wealth creators list, also included are people from a wide range of other industries, such as engineering, automotive, property, education, boat building and investment.

The list also includes many people – like Automotive Holdings Group’s former chairman Vern Wheatley – who quietly built their business in a mature industry over many years.

In many cases, the mining and property boom has created additional growth opportunities, which in turn has increased the value of their business.

A prime example is WorleyParsons’ managing director of Australian and New Zealand operations, Peter Meurs, who sits third on our overall list of wealth creators with a paper fortune of $429 million.

When Mr Meurs moved to Perth in 1988 to take over the former Worley Engineering, the office had 17 filing cabinets, some furniture and one staff member.

Today, the company has about 2,400 staff in WA and 30,000 globally and, with clients such as FMG, Woodside and BHP Billiton, is thriving.

Another notable finding is that there is very little ‘old money’ on the list.

Nearly all of the wealth creators started their working lives as engineers, geologists or in other salaried roles.

In some cases they got lucky – that is the nature of mineral exploration.

But in most cases they were entrepreneurs who astutely identified opportunities in the market.

People such as IBT Education managing director Rod Jones, who effectively created a new industry when he started providing specialist education services to foreign students, and Austal executive chairman John Rothwell, who has created a global niche in boat building.

While most of the people on the list are worth more today then they have ever been in the past, there are exceptions.

Construction giant Multiplex, investment company Great Southern, engineering firm Clough, communications company iiNet, building products manufacturer Schaffer Corp, and wine company Evans & Tate are all worth less today than at their peak, eroding the personal wealth of their shareholders.

These examples show how ephemeral paper wealth can be.

The difficulties facing mature businesses such as Multiplex, Clough and Schaffer also illustrate the challenge of sustaining growth and profits.

The mining entrepreneurs on the wealth creators list have benefited from the boom in commodity prices, particularly for nickel, coal and base metals like zinc.

Jubilee Mines executive chairman Kerry Harmanis is fourth on the overall list of wealth creators with a fortune of $379 million.

Jubilee has been ideally placed to benefit from the soaring price of nickel, which has risen five-fold since 2003 to more than $US21 per pound.  

Mincor Resources’ David Moore, Independence Group’s Chris Bonwick and Sally Malay Mining’s Peter Harold have also benefited from the soaring price of nickel.

The major shareholders in Aquila Resources – executive chairman Tony Poli and non-executive director Charles Bass – are two of WA’s wealthiest mining entrepreneurs.

Aquila is developing several iron ore and coal projects in Australia and South Africa, and its share price has soared from 25 cents in 2001 to $4.60 currently.

Like many other mining entrepreneurs, Messrs Poli and Bass vended tenements into the float of Aquila and in return were granted shares and share options, which have since soared in value.

Terry Streeter’s day job involves running a fruit and vegetable business but he is best known for backing some of WA’s most successful mining companies.

He was an early investor in Jubilee Mines and was able to sell out of that company after making a huge gain.

Since then he has invested successfully in nickel miner Western Areas, copper and nickel producer Fox Resources and gold explorer Midas Resources, which collectively give him a paper fortune of $185 million.

Kagara Zinc founders Kim Robinson and Joe Treacy have benefited by taking a counter cyclical view.

They floated Kagara in 1999 when zinc prices were languishing and most investors were focused on dot.com opportunities.

They assembled a portfolio of zinc prospects in Queensland and are now reaping the gains, with zinc and copper production set to rise further over the next few years.

The list of wealth creators also includes some very low-profile people, such as Sami El-Raghy and his son Josef El-Raghy, whose Applecross-based company, Centamin Egypt, is developing a gold project in its home country of Egypt.

Centamin is listed on the Australian Securities Exchange but is probably better known in Canada, where it is currently conducting a $C140 million capital raising.

Of all commodity prices, uranium has had the most spectacular run, and the biggest winners have been the team at Paladin, which pursued uranium projects at a time when nobody else was interested.

Way back in 2001, Mr Borshoff said: “No other junior Australian resources company is so well positioned to capitalise from the improving uranium market currently being experienced.”

Paladin famously bought the Langer Heinrich uranium deposit in Namibia – where it is commissioning its first mine – for just $15,000 in 2002.

Perth company Acclaim Uranium, which was chaired by former Liberal Party WA leader Bill Hassell and subsequently became iron ore miner Aztec Resources, spent $2.3 million on the project but was forced to sell when uranium prices fell to $US7 per pound.

Paladin has proceeded to develop Langer Heinrich and is moving toward development of its second mine at Kayelekera in Malawi.

The Langer Heinrich purchase followed a capital raising at 3.8 cents per share through now defunct broking firm Chartpac Securities, and occurred at a time when uranium prices were testing the $US10 per pound barrier.

Today, Paladin’s share price is about $9.50 and uranium prices are pushing towards $US100 per pound.

Paladin is using its strong share price to pursue further growth opportunities, particularly in Australia.

It acquired a 50 per cent stake in the Valhalla uranium project in Queensland last year and in February launched a hostile scrip takeover offer for Summit Resources, which holds the remaining 50 per cent stake. Paladin also plans to establish a uranium marketing subsidiary, which will establish its own uranium inventory.

• Additional research for this special report, including tables, by Anna Moreau.