CURRENTLY ranked by Forbes as the third-richest person in Australia, Fortescue Metals Group chairman Andrew ‘Twiggy’ Forrest has achieved a number of milestones during his career.
He pioneered the discovery of more than 10 billion tonnes of iron in WA’s Pilbara; undertook the largest non-investment grade high-yield project finance bond ever raised in the Asia Pacific region; and facilitated the construction of a multi-user deepwater port, the world’s heaviest haul railway and two mines.
He has been a strong advocate of job creation for indigenous Australians and has taken on the cause of fighting the Minerals Resource Rent Tax (MRRT).
Mr Forrest began his career in stockbroking and mining: founding Anaconda Nickel (now known as Minara Resources) and becoming the inaugural chairman for the company’s Murrin Murrin joint venture.
In 2003, he took control of Allied Mining and Processing and renamed it Fortescue Metals Group. As the company’s chief executive officer, he set in motion a series of events that would see Fortescue become the world’s fourth-largest iron ore producer.
“I was born into a hard-working family that struggled to keep their station. Our grandparents pooled together to help my parents pay for the children’s school fees. They gave us the enormous wealth of family and community. Money was always scarce, but we had a belief in our country and the values and principles which uphold her,” Mr Forrest said in an address to the National Press Club in May 2012.
“Take Fortescue [as an example]. There was no buying and selling of assets before you had even developed them; no inherited wealth.
“Fortescue was started by a few friends with big ideas sitting at a kitchen table: friends prepared to commit everything they owned in pursuit of a dream. It was a huge risk.”
In the years since its establishment, Fortescue has grown to become an ASX top 50-listed company while Mr Forrest has, for several years in a row, been named as one of the top five richest people in Australia.
“I am proud of the company that I founded, proud of the employment opportunities that it has created, proud of the wealth it is creating for Australians, and especially proud that my company runs training programs for Aboriginal people which trains them to be job-ready and guarantees a job once they successfully complete that course,” Mr Forrest said.
Appointed chairman-elect in August 2011 after stepping down from the role of chief executive officer on the eighth anniversary of the company’s establishment, Mr Forrest said that he intended to focus instead on his philanthropic activities, which centred on dispersing Australia’s indigenous disparity. However, he still plays a very active and public role in the company, with Nev Power now in the role of chief executive officer.
Fortescue holds about 85,000 square kilometres of tenements in WA’s Pilbara region. The company completed its first port, rail and mine project in 2008. Fortescue shipped its first ore on May 15, 2008. In its first full year of production the company mined, railed and shipped more than 27 million tonnes of iron ore to customers in China.
A first wave of expansion took the company’s production capacity to 45 million tonnes per annum. This was increased to 55mtpa before US$8.4 billion was invested to further expand production to 155mtpa. This target, known as T155, will be reached in 2013-2014 and will put miner’s output on par with mining giants Rio Tinto and BHP Billiton.
“The key to our growth plans is utilising the world-competitive infrastructure platform that Fortescue has established over its Pilbara tenement footprint: a footprint that, put simply, has no parallel in the global
mining industry,” Mr Forrest said in his 2011 Message from the Chairman.
“It has already yielded 10bt of iron ore resources and the exploration team tell me that we have only just begun.”
Secured by US$1.5 billion of senior unsecured notes raised in October 2011, the T155 expansion involves provision for additional infrastructure at the
Herb Elliot Port; 120km of main linerail duplication; a new 130km rail spur from the Solomon Hub to the mainline; and a 60mtpa mine in the Solomon Hub; in addition to development that will take the Chichester Hub’s production capacity to 90mtpa (plus 5mtpa from a 50:50 joint venture with BC Iron).
Fortescue’s Chichester Hub hosts the Cloudbreak and Christmas Creek mines that together produce about 55mtpa ofiron, with a ramp-up target for 2014 of 90mtpa.
Cloudbreak has been in operation since May 2008, and is currently producing 40mtpa. Screening, crushing and desand plants at the Cloudbreak ore processing facility prepare and refine the product before the ore is stockpiled for transport.
Fortescue’s second mine, Christmas Creek, lies 50km east of Cloudbreak.
Mining at Christmas Creek began in May 2009, and the operation currently produces about 15mtpa, with ore transported to Cloudbreak for processing.
According to a company media release, the Chichester Hub projects have combined reserves of 1.6bt from a total resource of 2.2bt, including 143mt of JORC-classified proven reserves and 1.48bt of JORC-classified probable reserves.
Centrally located in the middle of Fortescue’s Pilbara tenement area, the Solomon Hub has almost twice the resources and less than half the strip ratio of the Chichester Hub.
To date, more than 3bt of high-gradeore has been discovered within the Solomon Hub, with a maiden reserve of 716mt announced in May 2011.
Fortescue is aiming to produce 60mtpa of iron ore from the Firetail and Kingsdeposits during the first stage of the Solomon Hub operation.
During 2011, the budget to bring the Solomon Hub into operation was increased to US$2.7 billion.
“The Solomon Hub is at the leading edge of Fortescue’s transformation, and will become a showcase for innovative and progressive mining technology at all stages of the process, from mine planning through to processing and transport,”
Mr Power stated in the company’s 2011 annual report.
Construction of the first stage of the Solomon Hub low-cost mining operation began in mid 2011.
The second stage of the Solomon Hub is targeting production of 100mtpa.
To date, Fortescue has identified 1.1bt of resources in the area slated for the second stage development.
Fortescue’s Herb Elliot Port has a current capacity of 55mtpa. The port facilities are situated on 2 million square metres of reclaimed land, and were designed and constructed with expandability as a priority.
Infrastructure at the port comprises some of the largest and most technologically- sophisticated equipment in the world and, as part of Fortescue’s T155 expansion, the facility will see an increase in tonnes received from the Chichester and Solomon Hubs.
Fortescue has received approval to expand the port to four berths, with the provision for associated infrastructure comprising a second and third train unloader, a third stacker, a second and third reclaimer, a third and fourt ship-loading berth, and a second and third ship loader.
The company is also in negotiation with the Port Hedland Port Authority for permission to construct a fifth ship-loading berth.
Taking the company’s outloading capacity to more than 100mtpa, the third berth was officially opened in May 2012 by Mr Power, Mr Forrest and Mines and Petroleum minister Norman Moore.
The completion of the berth marked four years since Fortescue loaded its first commercial shipment of iron ore for delivery to Baosteel, one of its major customers and one of China’s largest steelmakers. Since then, Fortescue has exported more than 150mt of iron ore to customers in Asia and shipped almost 4mt of iron ore for third parties.
“Four years ago, I praised the ingenuity, persistence and hard work of everyone involved in bringing our project to life,” Mr Forrest said in a statement following the opening of the third berth.
“Today, I’m incredibly proud that those characteristics are still very much alive at Fortescue as we rapidly expand our production to 155mtpa.”
The fourth berth is due for completion in the March quarter of 2013.
The performance of Fortescue’s mining operations during the March quarter was affected by excessive rain experienced in January 2012 as a result of CycloneHeidi. More than 470mm of rain was recorded at Cloudbreak within a two-day period, impacting operations at the mine for about two weeks. A total of 13.6mt of ore was mined during the March quarter, representing a 15 per cent decline on the December 2011 quarter’s figure.
Fortescue had a production schedule in place to deliver 15.8mt of ore for the June quarter, to allow it maintain its full financial year guidance of 55mt comprising 53.5mt of Fortescue-owned tonnes and 1.5mt of third-party tonnes.
With the ramp up of the second ship loader and reclaimer, together with the opening of the third berth during the June quarter, Fortescue is well positioned from both infrastructure and operational perspectives to meet its stated full year volumes.
The MRRT challenge
Mr Forrest and Mr Power have both been strong voices in the argument against the MRRT, engaging in a war of words with the Gillard Government on behalf of Fortescue.
According to the Government, the MRRT will help Australia maximise the opportunities presented by its booming mining industry and ensure all Australians receive a fairer return from the nation’s non-renewable resource wealth.
Mr Forrest, however, has claimed that the tax is unfair to smaller miners: citing his own company as a glaring example of the unfairness of the MRRT, as Fortescue would be paying less tax than its junior iron ore counterparts.
Mr Forrest said in a statement that the MRRT would give an unfair advantage to Australia’s largest iron ore and coal miners by reducing their overall unit costs compared to those of the smaller miners.
According to a Fortescue media release: “The current structure of the MRRT allows the biggest mining companies a deduction on their overall MRRT tax liability, based on either the book value or market value of their separate relevant coal and iron ore projects as at May 2, 2010.
“These deductions are not available to smaller or intending producers who, because of this tax, are now instantly less competitive against the world’s biggest miners.”
On June 22, Mr Forrest and Mr Power followed up on promises they had made earlier in the year by lodging a challenge in the High Court of Australia against the Federal Government’s MRRT on constitutional grounds.
According to a statement by Mr Power the tax discriminates between the states contrary to section 51(ii) of the Constitution; curtails state sovereignty contrary to the Melbourne Corporation principle; gives preference to one state above another contrary to section 99 of the Constitution; and restricts a state’s ability to encourage mining, contrary to section 91 of the Constitution.
“We believe we have a good case for challenging the MRRT on constitutional grounds and we look forward to the resolution of these important issues by the High Court,” Mr Power said.
WA Premier Colin Barnett has previously expressed support for the challenge, saying that the State Government may also be prepared to give evidence in the case. Queensland Premier Campbell Newman has indicated to media that the State Government may also join the legal battle launched by Fortescue.