God, almost certainly, did not make a second Andrew Forrest. Mr Forrest is Australia’s larger-than-life multi-billionaire founder and major shareholder of the iron ore miner, Fortescue Metals Group (FMG), which started shipping to China last month. While the thought of a Forrest clone is rather alarming, it’s not stopping the hunt for a replica. Australian investors are “touching the cloth” of anyone who might make them a Forrest-like fortune by selling commodities to China.
One contender, who hates it when a comparison is drawn, is a low-key Perth accountant-turned-miner, Tony Poli. On a personal level, Poli is most un-Forrestlike. On a corporate level, the comparison is compelling, right down to Poli’s new-found focus on iron ore, his position as dominant personal shareholder in the company he runs, and his grand plan to build a mine, railway and port. It mirrors what Forrest has just achieved at FMG most uncannily.
Aquila Resources is Poli’s company, and the West Pilbara Iron Ore Project the plan which might create a business to rival FMG. Embryonic as it is, Poli’s vision is at roughly the same stage as FMG was at in 2004. Lots of talk and not a lot to show, yet. Over the next few months that will change for four simple reasons. Aquila has an iron ore resource which is expanding rapidly. China wants it. China is reported to have agreed to a 95 per cent iron ore price increase with Rio Tinto, and Poli has a reputation for delivering on his promises.
If all goes well, Aquila will emerge with a half-share or more in a project costing US$3.9 billion to build, which is about the same as FMG spent. The start-up annual export target is 30 million tonnes of iron ore, to be shipped from a port Aquila will part own, and delivered off its own railway – all “do it yourself” similarities with FMG. At current iron ore prices, and assuming a production cost of US$20 a tonne, the Aquila project will earn an annual profit before tax, financing and accounting costs of US$1.3 billion. And that’s for starters. If the Rio Tinto price increase is real, Aquila (and FMG) will make even fatter profits.
Like the FMG of four years ago, the Aquila plan is heady stuff. But, unlike FMG which had few believers, Aquila is attracting believers like flies around a Pilbara barbecue. From a standing start of A21 cents four years ago Aquila’s share price has soared to recent trades at A$15. In fact, that 7,000 per cent rise would be double at 14,000 per cent but for the fact that Aquila has undergone a one-for-one share split, and made a series of one-for-five bonus shares issues, including one last November and another last month. In theory, that means Aquila shares on a pre-split, and pre-bonus basis should be trading at closer to A$50 than A$15. Followers of FMG, which made a 10-for-one split last year, have noted how Aquila is adjusting its capital structure in a similar way. To put the two companies into perspective, FMG is currently valued on the ASX at A$27.5 billion. Aquila at A$3.6 billion.
If the mining plan and capital structure bear similarities, the personal touch of Forrest and Poli on their respective companies is an even greater parallel. Both men live in Perth, the epicentre of the Australian end of the global resources boom. Both are in their forties with young families. At FMG, Forrest owns a commanding 36 per cent stake, valued today at A$9.9 billion. At Aquila, Poli owns a 31 per cent, valued today at A$1.1 billion. That seems a long way behind Forrest, but so is Poli’s iron ore plan. In four years time, and assuming China still wants raw materials, there is every chance that Poli will be on the same level of personal wealth as Forrest today.
If all this sounds somewhat outlandish, consider the latest iron ore price rise and a forecast made yesterday by the chief economist of the stockbroking arm of Australia’s biggest bank, Commonwealth. Craig James said that the resources boom would lift Western Australia up to the position of Australia’s second richest state despite having just 10 per cent of the country’s population. Dramatic expansion of the iron ore and other resource industries has seen the WA economy expand by 50 per cent over the past five years while the economy in the most populous state, New South Wales, has expanded by 17 per cent over the same time.
Other parallels include Forrest starting his business life as a stockbroker, before going nickel mining with the creation of the ill-fated Anaconda Nickel. Poli worked as an accountant before going gold mining with the creation of Eagle Mining in association with the even more low-key Charlie Bass, the almost silent shareholder in Aquila. Forrest’s adventure in nickel ended in turmoil. Poli’s gold venture ended with a fat cheque when he sold the business, and its Nimary Bore discovery, to Joe Gutnick’s Great Central Mines. It was that deal which taught Poli a lot about how to play on the corporate stage.
After Eagle, Poli tried to buy the Ernest Henry copper and gold mine from the failed Pasminco, missed out, and then successfully sued the receiver because Poli could prove that he had made the first, and equal, bid. While that five year court case dragged on Poli also went coal exploring, starting in 2001, a time when no-one wanted the stuff. Discovery followed, as did the introduction of joint venture partners, and more dealing in assets. First partner was an American investment group called AMCI. Next came the big Brazilian, Vale. Corporate manoeuvres ensued but essentially Aquila has received a series of big cheques from Vale and fallen out of love with AMCI in a dispute which is eerily similar to what happened with Ernest Henry.
Meanwhile, far from courtroom, Poli has found time to add iron ore to Aquila’s portfolio in joint venture with AMCI – which should make for some interesting meetings. He’s also stepped out across the Indian Ocean into South Africa where Aquila has reported encouraging discoveries of iron ore and manganese. It also found coal in Mozambique, but sold it to Riversdale. Three weeks ago, the Aquila story became even a little more complicated when Poli announced the latest “division” of the company, not on a share split basis, but by announcing the spinning out of most exploration assets into a new business called Aquila Exploration, and the retention of some Queensland coal, and West Pilbara Iron Ore Project.
Now, we wait. Poli says the US$3.9 billion West Pilbara project could be in production by 2012. But, there’s also little doubt that he would prefer to take this big step with a joint venture partner, as he has always done in the past. That points to one enormous difference between Poli and Forrest. Poli, despite the plans on a Forrest-like scale, is a far more cautious man. He is very much the accountant with an eye on value-creation in careful bites. Forrest wants to consume the lot at one sitting. But, when boiled down the objectives of the two men are remarkably similar, as is their location, chosen commodity, background, personal interest in the company they run and an astonishingly positive economic setting, replete with ravenous Chinese demand for raw materials.
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