9.
You will look back and know you were part of history, like building the Sydney Harbour Bridge.
—ANDREW FORREST
Although he was a superb salesman and entrepreneur, Forrest could never have realised his dream alone. He badly needed capable executives around him and, like any boss, he relied on a mix of luck and skill in finding them. In Eamon Hannon, David Mendelawitz and John Clout, Forrest had found people who understood iron ore and geology better than most. Most of his other early appointments were also successful, although some had to be convinced to leave safe jobs to join Fortescue.
One day late in 2003, however, a young man Forrest would soon look upon as crucial to Fortescue’s success actually came looking for him. David Liu had read about Forrest’s idea to start a mine and phoned Fortescue’s office in Perth looking for a job. Liu, who had recently finished university in Perth, was descended from a long line of steel mill executives in Nanjing and was keen to join the iron ore industry in Australia. During the phone call, he discovered that Forrest and his senior executives were at a steel conference in the Chinese city of Maanshan. He flew straight there and began helping Forrest voluntarily, in the hope that he’d be put on the payroll back in Perth. It was the same method Forrest had used to break into stockbroking in the 1980s. Liu was soon assigned to Fortescue’s iron ore marketing team – his first real job apart from teaching English.
Forrest asked Liu and others to fly to China and demand pre-payment from the steel mills for iron ore that hadn’t even been pulled out of the ground. In the world of iron ore sales, this had never before been attempted – and at first it proved impossible. Philip Kirchlechner, then head of marketing, recalls: “Working for a junior, it’s terrible – people don’t want to talk to you and don’t take you seriously. And there was all of Forrest’s baggage from Anaconda, so it was an uphill battle.” Executive director Russell Scrimshaw, who made more than 100 trips to China in only a few years while overseeing Fortescue’s commercial operations, says it was imperative that the company secure long-term sales contracts if it was to have any chance of raising the money to build a mine, port and railway.
While Kirchlechner used his high-level contacts to market iron ore to the larger steel mills in China and Japan, Liu went to work on selling the Fortescue vision to the small end of the industry. Liu and Scrimshaw adopted Forrest’s foot-in-the-door approach to business, often sitting in the lobby of a Chinese steel mill until someone would come and see them. But in the early days, few were interested in talking to them. On one embarrassing occasion, Scrimshaw recalls, the only person they managed to speak to about their iron ore was the cleaner: “Every time we would go to this mill, we thought we had meetings but we’d get there and the key guy had gone off to a conference or gone interstate or suddenly disappeared. So David and I just decided this was ridiculous, we decided we were going to sit in the lobby of their head office until someone of note came to see us. Unfortunately, it was late afternoon and we were getting bored with this little strategy that didn’t seem to be working, and this person came in. We were engaged in a good discussion and I thought, ‘We’re getting somewhere here,’ but it turned out he was the cleaning supervisor and he was just moving in to start work for the night. So David and I went from this moment of, ‘We’re making some headway here,’ to, ‘This is ridiculous.’”
As time went on, Fortescue raised its profile in China and the marketing task became easier. As it turned out, Fortescue’s timing was ideal because the Chinese mills were becoming desperate for a new iron ore supplier to break the stranglehold of BHP Billiton, Rio Tinto and Brazil’s Vale. “You had three players supplying the majority of the world’s iron ore and there were a couple of hundred steel mills, so the odds were weighted heavily in favour of the supplier,” Scrimshaw says.
The smaller Chinese mills were the first to sign up. At the time, they were being forced to pay premium prices for iron ore through the high-priced cash market because the traded ore market was dominated by long-term deals between the three big suppliers and the major steel mills. Scrimshaw recalls: “When someone else came along and said, ‘Okay, I’ll supply you at the benchmark price,’ the smaller guys said, ‘Where do we sign?’”
Forrest became a devotee of Liu, who handled many of the big negotiations with China. Like Forrest, Liu was a born hustler who knew how to tell a good story. “David Liu is the guy who … personifies courage and would go into these steel mills or ring these people up who wouldn’t take a call normally from a little twerp, which is how they have seen him,” Forrest said. “But he’d ring them up with authority in his voice representing Fortescue and speak with such courage about what we were going to achieve, when it was just a game plan.”
Liu and his colleagues had one big advantage: by 2005, Chinese demand for iron ore was swelling at a rate that neither Forrest nor anybody else had anticipated. The Chinese steel industry was also angry with BHP, Rio and Vale over what it saw as their bullying tactics in rapidly forcing up the price of iron ore. Forrest skilfully cast himself as the good cop of iron ore mining, as opposed to the greedy triumvirate which controlled more than 75 per cent of global exports.
Efforts by BHP and Rio to talk down Fortescue were backfiring badly on them. When they told the heads of China’s biggest steel mill, Baosteel, not to believe anything that Forrest uttered about his new project, the executives demanded to know more about the new entrant. In 2004, Baosteel signed a memorandum of understanding to buy iron ore from Fortescue, an agreement that was later converted into a long-term offtake contract for 5 million tonnes a year. By the middle of 2006, more than twenty sales agreements had been signed for almost all of Fortescue’s planned annual output of 45 million tonnes of iron ore.
All the offtake deals in the world, however, were worthless unless Fortescue could find the big money needed to build the project. This is where Forrest’s promotional skills were fully tested. When cash was again running low in 2005, he convinced billionaire New York hedge fund boss Phil Falcone to invest tens of millions of dollars. Falcone later built up a 16 per cent stake in Fortescue that was worth billions of dollars at the height of the mining boom. Forrest regarded Falcone, who owned Harbinger Capital, as one of his most loyal supporters – he had also invested in Anaconda – and he saw plenty in the money manager’s risk-taking approach that he admired.
But like so many others Forrest had befriended, Falcone’s reputation was about to take a turn for the worse when he lost billions of dollars in a series of bad investments. The US Securities and Exchange Commission later laid fraud charges against Falcone, alleging he used $113 million of his clients’ funds to pay his personal taxes, and that he manipulated bond prices and violated trading rules intended to stop manipulative short selling. His fall from grace was complete in May 2013, when he agreed to a two-year ban as an investment adviser. By then, Forrest had nothing to do with Falcone, who had dumped his entire stake in Fortescue.
After securing Falcone’s support in 2005, Forrest brought in another American investor, the secretive hedge fund Leucadia International Corporation. Leucadia kicked in $US400 million for a 9.9 per cent equity stake in Fortescue and lent the company a lifesaving $US100 million. The dazzlingly high interest rate on the Leucadia thirteen-year convertible note – equating to 4 per cent of Fortescue’s future sales revenue – was a reflection of Forrest’s short-term need for cash and his desperation to attract support from financiers. Before throwing their money at Fortescue, Leucadia’s shrewd founders, Ian Cumming and Joseph Steinberg, had asked hard questions about Forrest, and they liked what they saw. In a letter to shareholders the following year, they explained their investment: “FMG is the creation of a hyperactive, smart, energetic Australian entrepreneur named Andrew Forrest; imagine the Energizer Bunny,” they wrote.
Forrest still needed to raise another $US2 billion to fund construction of the project. But every financing scheme he tried had failed. A deal for Chinese construction companies to build the mine, railway and port had collapsed spectacularly in March 2005, sparking an investigation into Forrest’s conduct by the Australian Securities and Investments Commission that led all the way to the High Court (see Chapter 11). Forrest also held funding talks with Indian steel magnate Lakshmi Mittal, but pulled out of a proposed deal because he feared the tycoon would seek control over Fortescue, just as Anglo American had done at Anaconda. The big Australian banks were not an option for Fortescue because none wanted anything to do with Forrest – they were suspicious of his business methods and were still scarred by their experiences with Perth’s brat pack of deal-makers in the 1980s.
The last hope for Twiggy – as it had also been at Anaconda in 1997 – lay with the high-yield bond market. Only those with a taste for risk would back him. A prominent Jewish banker in New York, Eddie Sugar, whom Forrest had known from his time at Anaconda, helped promote the Fortescue story to US investors, who were more prepared than their Australian counterparts to back an entrepreneur who had previously failed.
Over three hectic weeks in the middle of 2006, two teams of Fortescue executives travelled to fourteen cities across the world. The “blue team” of Forrest, finance executive Peter Thomas and John Clout headed to Europe, while the “red team” of Scrimshaw, Graeme Rowley and Chris Catlow went to the United States. In the middle of the trip, they crossed over in Hong Kong. During a blur of endless breakfasts, lunches, dinners and boardroom presentations, the Fortescue executives pitched their plans to hundreds of fund managers. They were accompanied by executives from global bank Citigroup, which, by accepting the role of lead manager to the bond issue, had become the first mainstream institution to back the fledgling company.
The fundraising roadshow encountered several near-fatal setbacks. A week before the bond issue was due to be finalised, Standard & Poor’s issued a credit rating for the notes that was two levels below what it had previously indicated, a move that effectively killed off the financing. Scrimshaw recalls he found out about the Standard & Poor’s rating late one night in New York. “I went to bed at 1am thinking, ‘We’re finished here, we won’t be able to raise the money.’”
Forrest didn’t go to bed that night. Instead, he stayed up and convinced the Standard & Poor’s executives in New York, the United Kingdom and Australia of the untold potential of his project. They only relented after several hours of his ear-bashing, agreeing to boost the rating on the bonds by two levels to BB. That was still three levels below investment grade, but it was enough to attract those risk-taking funds attracted by the high yield. Scrimshaw recalls that the Citigroup bankers in New York were amazed by what Forrest had achieved. They had seen bonds talked up by one level before, but never by two.
Just as the raising appeared to be getting back on track, however, liquid explosives were found at London’s Heathrow Airport and Israel invaded Lebanon in retaliation for the kidnapping of two soldiers. These events spooked global markets, leading to one major investor threatening to pull out of the bond deal unless key changes to the terms were made. With only fifty hours remaining until settlement, Citigroup and the bondholders reached an agreement.
But even that wasn’t the end of the drama. With a few hours left, the bond raising looked likely to fall about $150 million short. Forrest needed to move fast. He called an old contact, Richard Handler, the head of US investment bank Jefferies, to ask if he would underwrite the balance. Recalled Scrimshaw: “There was a silence that seemed like forever, with our hearts beating hard because we knew we were playing our last card. And he came back after what I thought was forever, it was probably ten seconds, and said, ‘Andrew, I’d be happy to help you.’ So we looked at the Citigroup guys, they looked at us, and within minutes we were watching the bonds be posted.”
Aided by the blood, sweat and tears of his troops, Forrest had raised $US2 billion, ensuring that his reputation as a master promoter and fundraiser remained intact. It was the biggest high-yield bond issue ever to come out of Australia and one of the biggest bond raisings ever seen in the mining industry. What’s more, most of the funding had come from American investors, suggesting the US bond market had forgiven Twiggy for his Anaconda sins.
One of Perth’s top investment bankers, Eddie Rigg, said after the record-breaking raising that he believed Forrest would become known as the “greatest visionary in the Australian resources sector”. The secret of his money-raising genius, Rigg suggested, was an ability to pitch a story on such a huge scale to attract the major-league financiers, which nobody else had the “balls” to even contemplate.
Rigg knows from personal experience that behind Forrest’s bright façade is a ruthless businessman prepared to do almost anything to realise his ambitions. A year before the 2006 bond raising, Forrest sued one of Rigg’s clients over the rights to a massive iron ore deposit in the Pilbara. The Federal Court heard evidence of a crucial phone conversation between Rigg and Forrest, the details of which were heavily disputed. But the judge threw out Fortescue’s case. Rigg now says of Forrest: “How he achieves things is questionable, but are the people of Western Australia better off because of his vision? Absolutely.”
Another key ingredient of Forrest’s success lay in his impeccable timing. Fortescue had raised the money in 2006 as the global iron ore price was soaring and international investors finally began to accept that China’s seemingly inexhaustible hunger for commodities was part of a “resources super cycle”. The predictions Forrest had made about China’s awakening at the Celtic Club in West Perth had been realised in just three years.
As the money began pouring into Fortescue’s bank accounts, work began on building a mine capable of producing 45 million tonnes a year of iron ore, a 256-kilometre railway and a deepwater port. This sounded like a big undertaking, but for Forrest it was the easiest part of the challenge. He knew that an iron ore project was far easier to develop than the technical complexities he had encountered at Anaconda.
In essence, iron ore mining is a massive earthmoving operation supported by a logistics business. Yet it is hardly effortless. Large trucks must first remove a twenty-five-metre layer of unwanted dirt, known as overburden, that sits above the prized ore. Fortescue’s surface miners then cut up the ore and feed it into waiting trucks. From there it is crushed and the impurities removed, before it is conveyed to a train loader, which piles the dirt onto trains. After the rail journey to Port Hedland, the ore is stockpiled until it is picked up in huge scoops and taken to the wharf on conveyors. A ship-loading machine then pours the ore onto massive vessels, which set sail at regular intervals for the hungry steel mills of China.
The biggest problem for those tasked with building the infrastructure was that they had only a $2-billion budget when it appeared they would need at least twice that much. By 2006, the cost of labour, equipment and just about everything else in the Pilbara was skyrocketing as the resources industry began to crank up new projects in response to Chinese demand.
Forrest set up a special team, led by Alan Watling and Peter Thomas, to find new ways of doing things that would slash the cost of the project. After four months of intense meetings, the team delivered a project plan with a budget of less than $2 billion. Peter Meurs, as the head of main contractor Worley Parsons, was taken aback at Forrest’s ability to get people to believe in improbable targets. “All of the project management things we’d learned, all of the experience [was] thrown out the window,” he said.
Forrest’s answer to the skills shortages that were engulfing the industry was to attempt to differentiate Fortescue from other miners competing for the same limited pool of labour. He began speaking of his “Fortescue family”, a leitmotif that helped create an almost evangelical aura around Forrest and the company. Fortescue’s open-plan office on Perth’s Adelaide Terrace also fostered an air of informality and egalitarianism – values Twiggy had long seen in himself. Forrest’s own cubicle, right in the middle of the office, was exactly the same size as that of the junior accounts clerk. The Fortescue office was deliberately on the eastern outskirts of the CBD, at a safe distance from the towers of BHP, Rio and the rest of the establishment.
With characteristic flourish, Forrest gave an insight into the unique culture he was trying to create while addressing a group of employees in the Pilbara: “Everyone here is part of our Fortescue family. You are family as soon as you step foot on to one of our projects. And what families do is love one another. Now I know that might sound a bit odd to some of you blokes. But that’s what you do at Fortescue. You love one another, you look after your mates, you care for one another. And if you are having personal problems, any problems, you tell someone. Don’t bottle it in. If you have an idea how to do it better, you tell someone. Or you email me. That’s the Fortescue culture. You will look back and know you were part of history – like building the Sydney Harbour Bridge.”
Those who worked closely with Forrest found his energy and penchant for risk intoxicating. They were pushed to achieve things most never believed they could. Employees in their twenties were handed responsibilities for overseeing key parts of the project they would never have been given at other mining companies. But many also found Forrest infuriating. He had a scattergun approach, which meant he was constantly coming up with big ideas that needed to be acted upon, only for them to be ditched soon after. He also had a short attention span. Says a former colleague: “Because he’s a man of action, he doesn’t listen too often – he wants to know what the problem is, what the proposed action is, and if he doesn’t agree with you he’ll tell you what he wants to happen. He doesn’t suffer long descriptions and presentations and long documents. He wants things distilled.”
Many colleagues also sighed at his propensity to stretch the truth and to take credit for achievements when others deserved the recognition. Forrest would also habitually keep his counsel. Says the former executive: “One thing I found annoying is that he always knew more than you did. It’s a style that enables him to keep control of what he’s doing. He often knows little bits of the picture and you might have another part of it, and he’ll deliberately hold back those bits to his own advantage. I used to find that incredibly frustrating.”
Some executives fell out badly with Forrest. Tensions developed with marketing boss Philip Kirchlechner over his reluctance to fall into line with the gung-ho style of the company. “If I was a little bit hesitant about telling the Fortescue story, or not optimistic enough, Andrew would say, ‘Philip, that’s negative marketing,’” he recalls. “And if he really wanted to insult me, he would call me conservative.”
Kirchlechner left the company in May 2006 because, he claims, Forrest reneged on a verbal promise to give him 300,000 shares a year. The pair had a shouting match in the office before Forrest ordered him to leave without taking anything from his desk apart from his coat. By the time Kirchlechner was standing on the pavement outside, his BlackBerry had already been deactivated. It was a warning to others that Forrest could never be beaten in an argument. “He always thought he was right,” Kirchlechner recalls. “I had so many arguments with him and he would say, ‘I know I’m right.’ He had more conviction about himself than anyone else I’ve ever met.”
Other executives were also bitter at not having shares or options despite their years of loyalty to the boss, whose own fortune was growing at high speed. Ed Heyting, a senior manager charged with building infrastructure, left in 2005 after a dispute over options. The hard-nosed Forrest also got rid of anyone he regarded as a naysayer. “Their desk would be suddenly empty and they would just evaporate,” says a former executive.
Forrest admitted he couldn’t tolerate “cynics” working under him. “That will bring you undone,” he told a business audience in 2006. “Anyone who is not part of that unified vision should leave. It’s not all soft and cuddly. I learned the importance of team building at an early age while mustering and found out pretty quick that unless everyone was on the same page, it only needed one who wasn’t to bring the whole show undone.” Despite his ruthlessness, some employees also recall Forrest’s genuine acts of kindness, including visiting injured or sick workers in hospital and offering to help colleagues move house.
Forrest also wouldn’t tolerate being told that something was impossible, even when engineers who knew much more than him were saying it couldn’t be done. Alan Watling, who had been with Fortescue since the beginning, finally snapped one day in 2007 when Forrest demanded that he build the railway several months faster than previously agreed. Watling, one of the few people to regularly stand up to Forrest, began yelling at his boss in the middle of the office: “Remind me, Andrew, how many fucking railway lines have you built?”
By the middle of 2006, Forrest had become obsessed with building the project in record time, both to meet the sweet spot of Chinese iron ore demand and to avoid running out of money. He installed a big timepiece in the foyer of Fortescue’s Perth headquarters. In glowing red digits, the clock ticked down the days, hours, minutes and seconds until the first batch of iron ore would leave Port Hedland. The target date had to be extended by a few months when Cyclone George tore though the Pilbara in March 2007, killing two workers and destroying Fortescue’s rail construction camp at a cost of $100 million.
The countdown clock in the office unnerved many employees, but it also drove many of them to work harder. Forrest tried other tactics too. For the two years leading up to the maiden shipment in May 2008, he ordered in big plates of sandwiches at lunchtime so workers wouldn’t need to leave their desks. As the deadline loomed ever closer, he even began discussing with colleagues the need to build a crèche in the office to allow employees with children to be in the office for longer hours.
The stress of working with Forrest took its toll on many people. Some left because they could not handle the relentless pressure and demands to put in long days. Forrest would send emails to executives in the middle of the night and expect a response. Most employees struggled along without ever taking a holiday, convinced they were part of something special. David Mendelawitz, who became Fortescue’s head of business improvement, recalls he and his wife had a week’s holiday in Thailand after he’d been working for several years without a break. He could do virtually nothing but sleep for the whole week. But he believes the only way Fortescue could have been created was through the superhuman efforts led by Forrest. “Everyone told us we would never succeed; the guys that survived were the ones who said, ‘We will make it succeed,’” he says.
Forrest’s goading of his staff paid off in the end. Within two years the whole project had been built – a shorter period than it might have taken to build a large house in Perth at the time. Forrest knew the deadline had to be met because Fortescue would have run out of money if had been unable to start selling iron ore. In the end, the total bill for the project was $2.8 billion – higher than the earlier budget estimate but still good value, given the cost blowouts that were rife in the industry at the time.
By May 2008, Fortescue had a new port at Port Hedland with two berths catering for capesize vessels – the huge ships that are too large to pass through the Panama and Suez canals. And it had a brand new railway, consisting of 420,000 sleepers and 38,000 tonnes of steel, which ran right next to BHP’s tracks for most of its length. For the first time in forty years, a new company had built a rail line in the Pilbara. Naturally, it was done with record-breaking haste; the rail construction crew claimed an Australian record when it laid 3.3 kilometres of track in a single day in March 2008. Fortescue bought more than 800 ore cars made in China, and a fleet of fifteen locomotives arrived from the United States. When the first iron ore at Cloudbreak was loaded on the trains, the project was ready to go. In total, there had been 10 million work hours, 4500 procurement orders, 13,000 engineering drawings, 330 contracts and 24,000 invoices issued to get the mining project started.
On 15 May, the clock in Fortescue’s Perth office ticked over to zero. On a clear day in Port Hedland, Forrest, surrounded by his family and some of his closest friends, including fellow billionaires Kerry Stokes and James Packer, stood on the wharf as the carrier Heng Shan began loading the first 180,000 tonnes of iron ore to be shipped to China. For executives like Russell Scrimshaw, this was the moment that made all the turmoil of the previous five years worthwhile. “Nothing short of a miracle,” he said of the moment he watched ore being loaded onto the ship. “There isn’t another example anywhere in the world of a resources company starting from absolutely nothing, one person with an idea, no money, no iron ore [and] building something so quickly.”
When the Heng Shan arrived in Shanghai after a ten-day journey from the Pilbara, Forrest was visibly emotional, hugging strangers and toasting the event with glasses of Margaret River red wine. He acknowledged that he had been in the right place at the right time. “It’s the end of five years’ hard work which could really have only happened in these five years,” he said. “It needed a confluence of historical events which Fortescue was lucky enough to capture.”
Well before that first shipment, however, Forrest’s world had changed significantly. As investors began to recognise that the one-time cowboy had to be taken seriously, Twiggy became the poster boy of the Australian mining boom. Forrest’s self-belief and verve had driven the Fortescue share price from 10 cents in 2003 to more than $40 in mid 2007 – a year before a single tonne of iron ore had even been shipped. Forrest became so popular that organisers at the Diggers and Dealers conference in 2007 had to lock the doors while he spoke, leaving hundreds of delegates stranded outside. The New York Times, the Wall Street Journal and the London Times each devoted feature articles to the buccaneering entrepreneur’s exploits, with headlines like “Comeback in the outback”, “Aussie jackeroo who struck it rich” and “Iron upstart challenges the big boys”.
A few days after the first ship left Port Hedland, BRW magazine named Forrest as Australia’s richest person with a fortune of just under $10 billion – at that stage the highest in the history of the annual wealth survey. It was the first time in twenty years that Kerry or James Packer had not topped the list. Forrest’s wealth had grown on the list from $340 million in 2005 to $810 million in 2006 and $3.89 billion in 2007 to peak at $9.41 billion. However, it was a fortune linked directly to the iron ore price. In 2008, the price of the mineral peaked at an incredible $US200 a tonne –seven times what it had been in 2003.
Andrew Forrest had made the fastest and most spectacular fortune in Australian history. And plenty of others rode on his coat-tails. In 2003, a little-known Sydney investor, Kie Chie Wong, paid less than $1 million for a sizeable stake in Fortescue. Five years later, the Malaysian-born Wong had turned that investment into an astonishing $1.2 billion. His family company, Emichrome, had also backed Forrest at Anaconda and had thrown money at several other speculative mining stocks, but none that scaled the heights of Fortescue. Wong, from the understated beachside suburb of Maroubra, made huge profits by cashing in some of his shares over the years, but to this day he remains a top-ten shareholder with about 3 per cent of the company’s shares.
Another big winner was a young Chinese metal tycoon called Wu Yueming, who turned an initial outlay of $7 million into a $700 million bonanza in just four years. After meeting Forrest at a steel conference and arranging a site visit to the Pilbara in 2004, Wu bought 7 million Fortescue shares for $1 each – a hefty 47 per cent premium on the share price at the time. As part of the deal, he also handed over $US20 million to lock in a supply deal of 4 million tonnes of iron ore a year for his Fengli Group, based 100 kilometres from Shanghai. Wu was among those celebrating with Forrest when the first batch of iron ore was unloaded in China.
Graeme Rowley, who had accumulated 19.5 million shares and become a top-twenty shareholder, was worth more than $200 million on paper at the peak of the Fortescue share price boom. Five years earlier, he’d had only $80,000 in savings to his name. Forrest’s mother, Judy, also did well out of her son’s success. She appeared on the Fortescue register in its early days with a parcel of 600,000 shares. By 2008 her stake was worth more than $50 million. Today she remains a top-twenty shareholder in the company. Breeding resilience in her son from an early age had helped deliver Judy Forrest a stunning windfall.
Stories also began to emerge of everyday people who’d put money into Fortescue when it was just a tiddler. For Louise O’Reilly, an Irish migrant who took a job as Forrest’s personal assistant at his Cottesloe home in 2003, investing in Fortescue shares was a life-changing experience. Forrest convinced O’Reilly to put $11,500 of her savings into what was then still called Allied Mining and Processing. She sold the shares two years later for a $140,000 profit, putting the money down as a deposit on a house. It was Forrest’s self-belief that had convinced her to buy the shares. “It was Andrew, basically. He is certainly a man of vision,” she said.
For a brief time in 2008, Forrest’s stake in Fortescue was worth a staggering $13 billion. In those days, his net worth would soar or decline by $1 billion between breakfast and lunch, depending on the vicissitudes of the stockmarket. But with Fortescue suddenly becoming a runaway success, hard questions were being asked about why local institutions had shunned the company, thereby depriving more Australians from sharing in the spoils. Even in 2007, when it looked highly likely Forrest would achieve his dream, none of the blue-chip broking houses in Australia had recommended Fortescue to their clients. The mining analysts failed miserably to foresee the approaching boom in iron ore prices and the fact that Fortescue was ideally placed to capitalise on it. In 2006, some analysts declared the run in the iron ore price to more than $US50 a tonne would not continue, yet in 2008 the price would surge to more than $US200 a tonne. In late 2007, Macquarie Equities put an “underperform” recommendation on Fortescue and a target price of $3.56. Within five months, however, the shares had climbed above $10.
It was no surprise, then, that Australian institutions accounted for a meagre 3.9 per cent of the Fortescue share register. Besides John Veldhuizen at BBY, the only real supporter of Fortescue in Australian stockbroking was Charlie Aitken of Southern Cross Equities. “The company is building the most significant new resource project in Australia, yet nobody in the Australian investment community takes it seriously,” Aitken told his clients in May 2007. “Our investment community has made the mistake of playing the man and not the ball.” Aitken’s rivals scoffed when he predicted that shares in Fortescue, then trading at $2.50, would soar to $10 within three years. Yet he was proven right within a few months.
One of the most foolish-looking doubters was the anonymous fund manager quoted in the Australian in October 2007: “I’m happy to be chained to the tracks somewhere between Cloudbreak and Port Hedland in May next year because I know that I will not be killed by a train.” In the Fortescue office, David Mendelawitz framed the quote and mounted it on the wall, accompanied by a picture of a fund manager in a suit standing on a railway line with the caption: “Ever wanted to flatten a banker?” It proved to be another motivating tool. Needless to say, the fund manager was nowhere to be seen when the first train hurtled down the tracks seven months later.