Ann: Becoming a substantial holder, page-134

Pilbara turf war: No room for minnows


Fortescue Metals boss Andrew Forrest. Picture: AAP

• The Australian
• 12:00AM June 16, 2018
• PAUL GARVEY
  
  Resources Reporter
  Perth
  @PDGarvey
  

Australia’s Pilbara region has spawned some of the nation’s biggest fortunes and some of its strongest business personalities. The multi-billion dollar rewards on offer to those who can harness its enormous iron ore resources have made it a region where only the shrewdest and most ruthless operators can succeed.
The cutthroat rivalries that have evolved over the decades have spilt over the into the public domain over the past few weeks, as some of the mining industry’s most prominent and storied names — Andrew Forrest, Gina Rinehart and Chris Ellison — manoeuvre themselves to control the destiny of beleaguered miner Atlas Iron.
Atlas is a minnow of the Pilbara that has spent the past few years battling for survival. The jostling between Forrest, Rinehart and Ellison has highlighted not only the strategic value sitting within the dilapidated Atlas, but also the lengths to which the incumbent players of the Pilbara will go to keep their rivals down.
Asked to describe the personalities of the three Rich Listers now fighting over Atlas — all of whom live within 10km of each other in Perth’s blue-chip suburbs — one Perth executive who has had business dealings with them said they all resembled Bruce the shark from the movie Finding Nemo.
“They’re all very nice and friendly and lovely, right up until they get a whiff of blood. Then the animal instincts kick in and they want to tear little Dory apart,” the executive said.
There is certainly plenty of blood in the water at Atlas. It has been losing millions of dollars this year and its ability to repay its remaining $80 million in debt was looking increasingly remote. The company has led an almost hand-to-mouth existence, and the steep discount for its lower-grade iron ore has been heaping pressure on the company.
That was what prompted Ellison’s Mineral Resources to step in with an all-scrip $280m takeover offer.

Ellison, who migrated to Australia from his native New Zealand as a teenager with barely a cent to his name, has built MinRes into a $3bn contracting and mining heavyweight off the back of his impressive operating track record and a reputation as one of the industry’s savviest deal-makers.
He rarely if ever comes out on the wrong side of a deal, a fact that has left plenty around Perth that have crossed his path feeling bruised afterwards.
He doesn’t have the same level of profile or fortune as multi-billionaires Forrest and Rinehart — although with an estimated net wealth of between $655m and $783m he is not exactly short of a dollar. He is also the owner of Perth’s most expensive house, shelling out $57.5m in 2009 for the sprawling Mosman Park home of iron ore heiress Angela Bennett.
His gruff, no-nonsense approach was on display from the day the Atlas offer was launched. The bid valued Atlas at 3.2c a share and immediately attracted a backlash from the company’s large army of retail shareholders, many of whom remembered the stock’s $3 a share-plus heyday, or the 5c per share they paid during its 2015 recapitalisation.

Hancock Prospecting chairman Gina Rinehart. Picture: AAP
Those unhappy with the offer price, Ellison said, were “whingers and whiners” who should be grateful MinRes was making an offer for a company that was in “palliative care”. It was not exactly a textbook way to ingratiate him to shareholders who, if things went to plan, would soon be on his register, but Ellison has never been one to worry about such matters.
MinRes’s decision to structure the deal as a scheme of arrangement, rather than an on-market takeover, caused problems on two fronts. Not only did the scheme, which requires both 75 per cent of shares and more than 50 per cent of individual shareholders to vote in favour of the deal, give disproportional power to the tens of thousands of tiny retail shareholders left on Atlas’s register, but it gave Forrest’s Fortescue Metals Group and Rinehart’s Hancock Prospecting the time and space to snap up blocking stakes on the market.
That is exactly what the duo has now done, with first Fortescue and then Hancock popping up in the past week with 19.9 per cent interests in Atlas. Neither party has explained the exact motive for their move. Fortescue said only that it intended to vote against the MinRes offer.

Mineral Resources managing director Chris Ellison
But those who have watched the industry closely are in little doubt that the moves are all about keeping the others in their place. Fortescue appeared to want to make sure that MinRes couldn’t acquire Atlas, and Hancock appeared to want to make sure that Fortescue couldn’t make an unimpeded Atlas play of its own.
Both Fortescue and Hancock would hate to see MinRes succeed in its plan to develop a new 50 million tonne per annum iron ore infrastructure business in the Pilbara, given it would put further pressure on the price of the iron ore produced by the pair. The potential lost revenue would be well in excess of the $50m-plus each company has spent on their Atlas stakes.
One veteran of the WA iron ore industry is in no doubt about the rationale behind the moves at Atlas. “It’s more of the same old anti-competitive behaviour that we’ve seen in the past, that’s all there is to it,” he said.
From the outside, Atlas’s rights to port capacity at the crucial export hub of Port Hedland looked central to MinRes’s plans. That was until Thursday, when Atlas revealed the WA government had informed it that it no longer held priority rights to develop two new berths at Port Hedland’s South West Creek, right next to the berths owned by Hancock’s Roy Hill mine.
The news was of no surprise to MinRes, which had already been working on its own independent proposal for those sites, and WA Transport Minister Rita Saffioti confirmed in parliament that the priority rights decision had been made at least a couple of years ago. But it may well have caught Fortescue and Hancock by surprise — as well as potentially the investors and bond holders who have backed Atlas in recent years — given the prized port rights were key to their bold moves on to the Atlas register.
The apparent spoiler roles played by Fortescue and Hancock are nothing new to the Pilbara, although they are rarely so overt. Indeed, both Fortescue and Hancock have been on the receiving end of similar manoeuvres in the past.
Fortescue famously faced down stiff opposition from Port Hedland incumbent BHP when Forrest was trying to get the company off the ground. The pair fought a costly legal battle as Fortescue tried to gain access to BHP’s rail network, while Fortescue’s own rail was forced to add several extra crossings and bridges to cater for BHP’s concerns.
Once Fortescue was established, it was its turn to play the role of stubborn incumbent. It fought its own legal battle against the efforts by iron ore hopeful Brockman Mining to get access to the Fortescue rail line, and then forced Hancock and Roy Hill to add a big detour to their rail line rather than allow the track to cut through its Christmas Creek operations.
It’s well known throughout Perth that Forrest and Rinehart are fierce rivals. Forrest has cultivated an image as the people’s billionaire happy to rub shoulders with the hoi polloi, whereas the shy Rinehart has always been more aloof and cautious about opening herself to the public.
But they share several similarities well beyond their business successes in mining and agriculture. Both have grown up under the shadow of storied families — Forrest’s great-great-uncle was WA’s founding premier Sir John Forrest while Rinehart is the daughter of WA’s original iron ore billionaire Lang Hancock — and both appear to have a fixation on legacy.
All three, Forrest, Rinehart and Ellison, have built fortunes in an unforgiving industry. All three have proven they will fight to protect their turf. And all three have been prepared to crush their fair share of skulls along the way.
Three big bulls are in the Atlas Iron paddock. And, as cattle-mad Forrest and Rinehart know all too well, that’s a situation that can quickly get ugly.