Mining entrepreneur Andrew Forrest has hit the hustings again. Jim Hawtin reports that this time he’s selling his need for infrastructure access.
Mining entrepreneur Andrew Forrest has hit the hustings again. Jim Hawtin reports that this time he’s selling his need for infrastructure access.
A year after listing his $1.8 billion Pilbara iron ore mining business and infrastructure fund, Andrew Forrest is noticeably stepping up his promotion of the business – arguably the West Perth-based businessman’s greatest talent.
The volume from his venture, Fortescue Metals Group, has been turned up a few notches as Mr Forrest energetically seeks to garner the support he needs for his project to succeed.
He has hit out at the giants of global mining as he aims to tweak the emotional dials of stakeholders, especially the political forces to whom he is appealing.
But with the increase in activity comes the obvious question from the investment community: Can the commercially savvy promoter get another massive project over the line or is it another ambitious dream?
Fortescue Metals Group is planning a 40 million tonnes-a-year, $400 million iron ore business in which it expects to hold a controlling interest in the mining operations and a minority stake in the infrastructure fund created to establish the $1.4 billion, independent port and rail network.
To do this Mr Forrest says he plans to break a “cosy duopoly” between two multinational mining companies – BHP Billiton and Rio Tinto – that has excluded other potential mining and infrastructure developments in the Pilbara.
However it is well known that Mr Forrest, who says he is motivated by the “achievements available in life” rather “than the collection of pure monetary wealth”, has seen his ambitious dreams come unstuck before.
The former successful stock-broker/investment banker made his name almost a decade ago when he founded the pioneering, but later troubled, laterite nickel miner Anaconda Nickel, which led the joint development of the $1 billion Murrin Murrin laterite nickel plant in the eastern Goldfields.
The Murrin Murrin mine ran into technical difficulties, which cost the company severely and, as a result, Mr Forrest was ousted from the company in 2002.
South African mining giant Anglo-American, with support from other major shareholder Swiss commodity trader Glencore, had Mr Forrest removed, saying that Anaconda had mishandled the ramp-up of Murrin Murrin and had racked up too much debt.
Most of the debt was from US junk bonds raised by Mr Forrest.
Anaconda Nickel, now Minara Resources, is only now beginning to ramp-up Murrin Murrin to the original slated production output of 45,000 tonnes of nickel a year.
But as Mr Forrest points out, it has been assisted by a $400 million payout from the project builder, Fluor Daniel, which was success-fully sued by Minara for poor construction.
Mr Forrest remains proud of the Murrin Murrin laterite development, which he says now exports almost $1 billion dollars worth of nickel and cobalt annually and is a major contributor to the State’s economy.
He maintains that it was Fluor Daniel’s, now Fluor, construction of Murrin Murrin, rather than the management of Anaconda, that was the root of the problem, although he concedes there may have been a “few eggs broken” along the way.
“There is a general truth in creating something; you will of course create people who don’t agree with you. If we were to agree with people who don’t agree with us when creating a project, no project in this country would ever be built,” he said.
While it comes as no surprise that Mr Forrest has attracted his fair share of critics and criticism, he also has an equal if not larger number of supporters, who, while cautious to register full-blown endorsement, are happy to concede a wary belief in his ability.
Some of his most recent deals at FMG include: an agreement with China’s largest construction com-pany, China Railway Engineering Corporation, to build the Pilbara rail infrastructure; securing a subsidiary of US-based JP Morgan Fleming Asset Management as FMG’s eighth largest shareholder ($7 million investment); and a letter of support from the WA Greens for the development of his Pilbara iron ore project.
One source, well known in Perth’s professional circles, reservedly acknowledged Mr Forrest’s ability.
The source said he’d bought between $100,000 to $200,000 worth of stock in FMG as a form of “insurance”.
“If he does break BHPB and Rio, it [the stock] could be worth between $10 to $20 dollars [per share],” the source said.
However, he noted that FMG would face significant hurdles before then.
While Mr Forrest acknowledges these significant capital and competitive hurdles, he said he had the experience to meet them, and that people recognised this.
“I was 35 by the time it [Murrin Murrin] was financed. That experience is invaluable. They can’t actually teach that in a MBA,” he told WA Business News.
However his ability to deal and his charm are well known throughout the industry and are not of concern.
Rather, it is the technical challenges levelled at Anaconda’s management that cause some concern among some in the industry.
One analyst, who spoke on condition of anonymity, said he believed technical challenges had got in Mr Forrest’s way in the past.
“I remember at a nickel confer-ence about six years ago him [Mr Forrest] saying we will pour the first nickel by Christmas,” the analyst said.
“Nickel is not poured the same way as gold, it is refined in a different process,” he said.
But despite this detail the analyst concedes that, like many others at the time, he believed Mr Forrest and Anaconda would fail to get the Murrin Murrin project up.
“There is that old adage that pioneers get arrows in their back,” the analyst said.
Mr Forrest told WA Business News he had learned from the previous difficulties.
“The difference between what I have done previously in my career and now is previously it was complex and had significant technical challenge, and that is it,” Mr Forrest said.
“At FMG there is organisational and capital requirements and little technical risk. Such is the iron ore industry. It’s digging, washing, crushing, railing and shipping and that is it for risk.
“At FMG in particular, its deposits are historically shallow for almost all of the Pilbara’s iron ore industry.”
FMG has lodged a request with the National Competition Council for BHP Billiton’s Mt Newman rail line to be declared, which will allow FMG to connect its proposed rail to the existing rail network, creating a giant loop.
It’s reported the economic benefits of this would be significant.
This approach is not new, however, with other hopefuls having been denied access previously.
And BHPB has responded to the recent challenge by relying on a Federal court decision that declared the rail network as part of its processes.
However, Mr Forrest said the current economic argument would win the day for FMG.
He said the Pilbara’s time had come and “there is legislative, parliamentarian, financial, economic and export power to open the Pilbara in this point in time”.
