generous twiggy

Generous Twiggy

ANDREW Forrest not only works cheap but he is plainly very, very generous with the wealth he is creating at Fortescue Metals Group.

Forrest is the major shareholder and chief executive of Fortescue and he, quite famously, pays himself a pittance to do the job. Last financial year was no exception, according to the annual result delivered on Monday.

Forrest earned a salary of $US70,048, which was topped up by a bonus of $US11,334.

Meanwhile, deep in the occasionally quite befuddling annual accounts, Fortescue confirmed New Year's eve report that Forrest had given away more than 30 million of his Fortescue shares to selected charities.

The accounts show Forrest reduced his holding by 32,665,000 shares over 2008-09. Based on last night's closing price of $4.21, those shares would be worth $137.5m. But they were "disposed of for nil cash consideration, and were disposed of as separate gift transactions".

So who has been gifted a Fortescue future? Well, Team Fortescue says that remains Forrest's secret and the only comment they are allowed to make is that the recipients were very deserving of the chief executive's beneficence.

As far as I can see, this is the second time Forrest has delved into his own stash of Fortescue to distribute his wealth. In September 2007, he donated shares and options then worth about $80m to The Australian Children's Trust, which then hosted FMG chairman and former Olympic 1500m champion Herb Elliott as board member.

Oh, and the reason why the Fortescue accounts are such a tough nut to crack this year is the continuing confusion over just how it should account for the $US100m subordinated loan note owned by major US shareholder Leucadia National Corporation.

The Leucadia note formed the cornerstone of the remarkable $3.2bn refinancing Fortescue pulled together in August 2006. The terms of the note were necessarily generous. In return for its 13-year money, Leucadia earns 4 per cent of Fortescue's post-royalty revenue stream from the Cloud Break and Christmas Creek projects.

From the moment it was written, Fortescue has struggled to accurately express that liability in its accounts. The final number has been a product of projected future production from those mines, an independent assessment of iron ore prices and exchange rate projections.

In 2008, when prices were flying and Fortescue had targeted a production run rate equivalent to 160 million tonnes of annual output by December 2010, the note was valued at $US2.7bn.

But the huge number, according to this year's accounts, was the result of a mistaken appreciation of the accounting rules. The reason for the mistake is complicated, as the result given Fortescue has restated the 2008 Leucadia liability to $US1.24bn and, as a result, restated its 2007 and 2008 losses.

This correction of accounting treatment along with less ambitious future production forecasts (95mtpa by 2012), the constrained pricing outlook and the switch to US dollar accounts, means the Leucadia liability is put at $US381 million in the 2009 accounts.

http://www.theaustralian.news.com.au/business/story/0,28124,25916809-5001641,00.html