Fortescue's Andrew Forrest wins the PR iron ore war against BHP, Rio
Date May 12, 2015 - 9:49AM
Andrew "Twiggy" Forrest, chairman of Fortescue Metals Group is having a very good week and it's only getting better – last night the spot iron ore price continued its climb, rising another 2.6 per cent to $US63.02.
But that's not even the best thing that's happened to Twiggy in the last few days.
On Monday, Forrest's increasingly bitter campaign against mining giants BHP Billiton and Rio Tinto scored a major victory when it effectively won the backing from Treasurer Joe Hockey.
Forrest told ABC Radio on Tuesday morning he was "grateful" for the Treasuer's remarks.
For weeks, Forrest has been doing the rounds of media and politicians, arguing that BHP and Rio's strategy of increasing iron ore production in the face of slowing demand has driven down the iron ore price, destroying their returns and those of their competitors, costing jobs and hurting state and federal government revenues.
The campaign reached a very public crescendo on Monday when Forrest published a long and detailed opinion piece in Sydney's Daily Telegraph, criticising the majors for "gaming" the market by pushing down prices to destroy their competitors.
He ended with a call to arms to Australians: "Write, email or ring your local MP. Be clear in your views. Ask the government to consider the multinationals' licence to operate in Australia if they don't market Australian iron ore responsibly for all Australians."
Whatever you think of that argument – and there are many, including the Mining Council, that are aghast at the spectre of government intervention in a global market – you cannot deny that Forrest's passionate campaign is gaining traction when Joe Hockey declares he has "sympathy" for his view.
"I have a lot of sympathy for Andrew Forrest and all of the workers in the sector. Markets go up and markets go down. If there is untoward conduct it must be dealt with. We've been following this closely," Hockey said Monday.
Rio, BHP execs tearing hair out
Rio and BHP executives must be pulling their hair out. They deny any charges of "gaming". They see their strategies of getting the best return for shareholders by producing high quality iron ore at the lowest possible cost as completely rational. They say they are not flooding the market and point to the fact that Australia's share of the seaborne iron ore trade hasn't changed in a decade.
They must also be a little mystified by the fact that Forrest, who fought the mining tax all the way to the High Court, now wants the government to intervene in the market and take the stick to his competitors.
But Forrest is winning the PR war here, to the extent he has managed to get a Liberal treasurer to send a stern warning to two of his biggest tax payers.
Whether Hockey's warning is enough to force BHP and Rio to moderate their public language, or whether he will want to go further and take some sort of action – as staggering as that prospect might be – remains to be seen.
But what's really interesting is that period that Forrest's public campaign has been rolling, the environment for Fortescue has improved.
After bottoming at $US47 a tonne on April 2, the price has clawed its way back above $US60, including a 9.3 per cent climb last week.
During the same period, Fortescue has managed to get some of its debt refinanced (albeit at a higher price than it wanted) and continues to slash its costs down towards $US40 a tonne.
And as an added cherry, Rio says that as many as 25 million tonnes came out of the market in the first quarter in the first three months of the year, which helps all of the big players, including Fortescue.
Forrest may be railing against the impact on smaller competitors of the falling iron ore price, and there's no doubt he'd prefer the price was back in the range of $US100 a tonne – everyone in the sector would.
But behind this campaign, Fortescue is not wasting the iron ore "crisis" that Forrest describes. It's getting its costs down, strengthening its balance sheet and even gently increasing production to ensure it is operating as efficiently as possible.
If that iron ore price can keep rising, or even hold above $US60 a tonne for a while, then Fortescue' outlook will keep improving.
But don't expect that to stop Forrest's campaign.
FMG Price at posting:
$2.52 Sentiment: Hold Disclosure: Held
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