Ore Inspiring

Tuesday, May 1, 2012 - 12:29

Gina Rinehart has taken a shredded mining empire and turned it into one of the world's greatest fortunes. Tom Skotnicki reports

It would be easy to attribute the success of Gina Rinehart to the legacy of her father, Lang Hancock, who pioneered the development of iron ore deposits in Western Australia's Pilbara region. However, it would also be a mistake. There is no doubt when her father died in 1992, the Hancock family interests were in crisis.

The chairman of Qantas, Leigh Clifford, has been known to privately recount the story of his 2005 negotiations with Rinehart over the Hope Downs development. Clifford, then chief executive of Rio Tinto, claims he gave Rinehart a take-it-or-leave-it ultimatum to proceed on the basis of an equal partnership or have Rio Tinto withdraw. Rinehart was under pressure from the then Geoff Gallop WA Labor government to proceed with a development plan no later than July 1. She had also agreed to buy out a minority interest in the development.

Despite some nibbles from other potential investors, she accepted a partnership based on Rio Tinto retaining the right to mine and market the ore.

The Hope Downs agreement failed to fulfil her wish for Hancock Prospecting to become a miner in its own right, but it made economic sense because Rio Tinto already had infrastructure (particularly a railway) associated with the Hamersley and Robe River development the new mine was able to tap into. The new spur line, which opened in 2007, was named the Lang Hancock Railway.

The deal was not all she had hoped for but, for Rinehart, then worth a fraction of today's value, it proved a masterstroke. Her share of the Hope Downs is now worth at least $7 billion and is the backbone of her personal fortune, estimated about $17.2 billion by Forbes magazine earlier this year.

Rinehart's critics suggest she has been the unwitting beneficiary of the massive rise in the value of iron ore since 2004. In the past eight years the US price of iron ore has increased from $16.40 a tonne to more than $140 a tonne. There is no doubt this has played a key role in her change of fortune.

However, if she was not such a determined and dogged individual then she would probably be sitting on a royalty worth possibly $2 billion, rather than being on the verge of 10 times that amount.

Rinehart, or more precisely Hancock Prospecting which she controls, receives a royalty on iron ore mined by Hamersley. There is also the half share of Hope Downs (named after her mother) and the planned Roy Hill iron ore development (which her company intends to manage). The royalty and half share of Hope Downs are understood to generate a cash flow of about $1 billion a year. She also controls several coal mines and valuable tenements throughout WA.

This is aside from her investments in Network Ten and Fairfax Media, where she is the largest shareholder. A very private person, Rinehart is notoriously publicity shy. An invitation to be interviewed by Mt was politely declined.

It has also been reported that in the past she has requested staff to sign confidentiality agreements to prevent them discussing the company or her role in it. However, there is much on the public record and even more since three of her four children - John Hancock, Bianca Hope Hayward and Hope Rinehart Welker - took legal action to gain access to the family trust (which owns 23.6 per cent of Hancock Prospecting) that was established by her father.

Part of the court argument has focused on Rinehart's efforts to safeguard her father's legacy, given the precarious position following his death.

On her father's demise, Rinehart had to deal with the claims of his widow, Rose Porteous (who three months after Hancock's death married William Porteous).

The litigation lasted well over a decade before there was a resolution that kept the mining interests intact.

However, in some ways, this was simply the most public of the issues confronting Rinehart. She also had to deal with her father's decision to exchange iron ore for rolling stock from Romania in a deal with dictator Nicolae Ceausescu . One long-time observer of the Hancock empire said for many years some of the rolling stock (which could not be integrated with the existing rail network) sat on a spur line near Derby.

Similarly, in his desperation to become a miner, Hancock had signed a "take it or pay for it" shipping contract with a Norwegian shipping company for the transport of ore.

During this period, it was apparently the cash flow from the 1.25 per cent royalty on iron ore mined by Hamersley Iron that kept the group afloat. It was only after Rinehart had clear title over the Rinehart estate that she proceeded with the Hope Downs deal.

Similarly, one of the concerns raised recently was how the dispute over the family trust could damage proposals for the new Roy Hill development, which is being valued at nearly $10 billion following the purchase of a 15 per cent interest for $1.5 billion by the Korean steel company Posco.

Rinehart hopes to have the new mine operational by late 2014, including the construction of more than 300km of railway track and additional port facilities.

Rinehart is a bit of an unknown quantity as a manager, according to veteran West Australian journalist Tim Treadgold. She spent a year at Sydney University studying economics, but apparently felt it was socialist rubbish, and gained most of her management insight from experience and the years she spent working alongside her father.

Treadgold says by reputation Rinehart runs a command and control office with a relatively small staff expected to be immediately responsive to her needs. Apparently the word spreads through the office whenever she enters the building and is a signal for everyone to be on their guard.

Treadgold says she has a reputation for being demanding on her executive staff, many of whom fail to last.

"It is very much a case of the queen bee sitting in her large corner office of the Hancock Prospecting building which was previously occupied by her father."

Generally, micro-management is regarded as a poor management approach that often reflects a degree of insecurity and even paranoia on the part of the executive. It is rarely associated with forthright and inspirational leadership.

However, to be fair, it is often a reasonable response during a period of crisis, which typified the early years of Rinehart's administration.

The Rinehart management style will almost certainly be forced to change in the next two years with the Roy Hill development. The staff of her company will dramatically increase, along with the numbers of line managers and employees under her control. It will be a major test of Rinehart's adaptability.

It would be foolish to underestimate Rinehart, who despite the start provided by her inheritance, has shown grit and determination in growing the business and protecting the family legacy.

It is unfortunate this seems to have been achieved at a personal cost.

Australia's mining royalty

In later years, Gina Rinehart had a tempestuous relationship with her father, Lang Hancock, who died in 1992. The closeness that marked their relationship during her youth was put to the test with his third and final marriage to Rose Porteous (as she is now known). Before their reconciliation, he bemoaned in a letter revealed in court proceedings that he sometimes wondered what had happened to his trim attractive daughter and how she had become a slothful "devious baby elephant". It was a vicious comment and somewhat reminiscent of Rinehart's view that her children were "manifestly unprepared" and lacked the responsible work ethic to manage the trust.

An examination of her motivations would suggest she has devoted much of her life to fulfilling her father's dreams of a future for the Hancock family as a pre-eminent Australian miner. There is no doubt a large part of the motivation behind the Roy Hill development, due for completion in 2014, is that unlike the 50 per cent-owned Hope Downs, it will be operated by Hancock Prospecting.

Given the importance Rinehart has placed on family, several friends have remarked on the pain she is experiencing as a result of the unseemly conflict with her three oldest children over the Hancock Trust set up by her father with her children as beneficiaries. A sense of the Hancock legacy has always been a prime motivation for Rinehart. At the same time, while she wants to ensure the future of the family, the court drama indicates that at 58 she is unwilling to relinquish any control to her children.

Hancock was 43 and a legend in mining circles when Rinehart was born. He was in his 30s when he established the blue asbestos mine at Wittenoom before discovering major deposits of iron ore and other minerals in the Pilbara.

Gina was his only child and as such his heir. There was a closeness between them and apparently he would frequently visit her at her boarding school in Perth where they would spend hours talking in his Jaguar.

There was a six-year marriage at 19 to Englishman Greg Milton (who changed his name to Hayward to make it closer to Hancock) that was not altogether approved by her father, a reflection of what was and still is a somewhat rebellious nature. It resulted in her two oldest children, John and Bianca. At 29, she married a US lawyer, Frank Rinehart, already in his late 50s, with whom she had two daughters, Hope (named after her mother) and Ginia, her youngest, now in her mid 20s. Frank died in 1990.

Following the death of her father in March 1992, Rinehart became executive chairman of Hancock Prospecting Pty Ltd (HPPL) and the HPPL Group of companies. Her acquisition of a stake in Network Ten and Fairfax Media (as the largest individual shareholder) is apparently an indication that despite a retiring nature she needs to take a stand on key issues. She has been vocal in her opposition to the mining tax and carbon tax. She has also resorted to poetry on the mining tax and in a commentary in a mining magazine wrote a rebuttal of the carbon tax.

"Remember when the mainstream media was running frightening commentary about carbon-induced global warming? We read and heard about how oceans would rise, flooding our homes, and how, over years, we'd be scorched due to the increasing heat.

"Have you noticed that we don't hear much any more about global warming? There will always be changes that affect our climate, even if we close down all thermal-fired power stations, steel mills and other manufacturing operations, putting employees out of work and drastically changing our way of life."

John Singleton who has known the Hancock family for more than 40 years, said the relationship with her children was secondary to the issue of where they fitted within the dynasty and their assigned roles. It seems a harsh analysis and one suspects the truth is she is trying to reconcile the role of both a matriarch and patriarch.