Twiggy by Andrew Burrell

Author:Andrew Burrell [Burrell, Andrew]
Language: eng
Format: epub
Publisher: Black Inc.
Published: 2013-09-18T22:00:00+00:00

10.

THE GREAT ESCAPE

As Mark Twain said, reports of my death are greatly exaggerated.

—ANDREW FORREST

Forrest’s exhilaration at proving the doubters wrong was fleeting. Within a few months of Fortescue’s first shipment of iron ore, the world was gripped by the worst economic downturn since the Great Depression of the 1930s. In one sense, the global financial crisis vindicated Forrest’s uncompromising push to begin exporting iron ore in May 2008, when the iron ore price was still at its peak. A delay of just four months would have meant launching the project as Lehman Brothers filed for bankruptcy in the United States, an event that triggered a severe collapse of economic confidence and a downturn in commodity prices.

When Chinese iron ore demand crashed in late 2008, Fortescue’s share price came back down to earth with a thud. From a spectacular zenith of $12 in June 2008, the shares were trading below $2 by January 2009. Forrest’s paper fortune of $13 billion had slumped to little more than $2 billion in just seven months.

Even in the darkest days of the global downturn, the perennially self-assured Forrest maintained that demand for commodities would bounce back quickly and that the urbanisation and industrialisation taking place in China and other Asian economies still had decades to run. In early 2009, the Australian Financial Review surveyed the nation’s top chief executives for its half-year profit wrap and found they had little hope about the coming year. The only dissenter was Forrest, who said in his folksy style: “If you think everything is crook in Tallarook … think again.” Few knew of the turmoil at the time behind the scenes at Fortescue. Bottlenecks at the Cloudbreak and Christmas Creek mines meant production fell well behind during 2009, just when the company desperately needed to maximise revenue. As well, it was facing huge losses as a result of a disastrous foray into shipping contracts.

Fortescue was burning through cash at a worrying rate and only survived due to a $645 million equity injection from one of its key customers, state-owned Chinese steel-maker Hunan Valin, which bought 16.5 per cent of the company and became the second biggest shareholder after Forrest. After years of wrangling with Beijing, Fortescue had finally done a major funding deal with China Inc. Hunan Valin was the first Chinese steel-maker to take a large stake in an Australian iron ore miner, and Forrest hailed the agreement as an example of the economic cooperation that was needed between the two nations. Valin’s enterprising chairman, Li Xiaowei, also earned a seat on the Fortescue board, although the company agreed not to increase its stake beyond 17.5 per cent, thereby assuaging concerns within the Rudd government about Chinese companies swooping on Australia’s undervalued mining assets. The deal still came as a surprise to many who had long expected China’s biggest steel-maker, Baosteel, to be the logical vehicle for any state-owned investment in Fortescue.

The iron ore price gradually recovered from the shock of the global financial crisis and by 2010 Fortescue’s shares were again trading above $5, making Valin’s purchase at $2.

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