6.
I’ve met a lot of managing directors, but I don’t think I’ve met a more self-evidently enthusiastic and dedicated managing director than I’ve met in Andrew Forrest.
—JOHN HOWARD
Andrew Forrest got involved with a two-bit company called Anaconda Nickel because nobody else dared to touch it. In 1993, two Perth mining identities – prospector Peter Salter and metallurgist Geoff Motteram – were desperate to find someone who would underwrite a public float of the company, which had some old tenements in the burning desert north of Kalgoorlie. After failing to convince almost every financier in Perth to back their plan, Salter and Motteram flew to Sydney to try their luck with Forrest at Far East Capital.
Anaconda’s problem at the time wasn’t Motteram, who was respected in the industry after stints with big mining companies, including BHP and Western Mining Corporation. Rather, it was the presence of the burly Salter – or “Salty Pete”, as he was known around Perth. Salter had a colourful history in the city’s business and horseracing circles, having been declared bankrupt in the 1980s. He would later be banned by the corporate regulator ASIC from serving as a company director for three and a half years for his role in a failed bottled-water venture. Salter returned to business only to be sacked as chief executive of a Perth-based gold explorer over a sexual harassment case a few years later.
Always keen on a gamble, Forrest was willing to overlook Salter’s tarnished reputation and embraced his plan to develop mining leases near the abandoned town of Murrin Murrin, in Western Australia’s northern Goldfields. The relationship between Forrest and Salter would break down two years later in a haze of drunken punches, but for a brief time the pair shared a common vision of creating a wealth-generating oasis on the edge of the Great Victoria Desert.
Reclining in his office chair, Forrest told Salter and Motteram that Far East Capital would underwrite the $6-million float of Anaconda. The money raised from investors would be spent on drilling tenements that had been pegged during the 1960s nickel frenzy by a company called Australian Selection, which eventually discarded them due to the frighteningly high costs and technical complexities involved in extracting what are known as nickel laterites from the ore.
Up until that point, all nickel in Western Australia had been produced from sulphide ores, which are relatively high-grade and quite simple to process before being sold. The lower-grade laterite ores are weathered rocks found near the surface, which are easier to mine but far more difficult to treat. As a metallurgist, Geoff Motteram was aware of a little-understood extraction method for nickel laterites called high-pressure acid leaching (HPAL) which had been pioneered in the 1950s at Moa Bay in Cuba. American mining giant Freeport built the Cuban plant but the project disappeared from public view when Fidel Castro seized control of the country in 1959, nationalising the nickel industry and naming one of the Moa Bay plants “Ernesto Che Guevara” after the Marxist revolutionary hero. For the next thirty years, the consensus in the West was that the Cuban plant, which relied on Soviet replacement parts, was a dud. It wasn’t until 1994 that Canadian company Sherritt International, a specialist in HPAL, was able to invest in Moa Bay and begin to modernise the plant.
In 1994, Andrew Forrest was also launching his sales pitch for his $1-billion plan to build the world’s first HPAL plant outside Cuba. Forrest’s message might have baffled a few investors, but it went something like this: Anaconda will build a nickel mine; the ore from the mine will be crushed and fed into a colossal processing plant; it will then be mixed with sulphuric acid at temperatures of up to 250 degrees Celsius at high pressure inside four huge boilers known as autoclaves; the nickel and cobalt will then be leached out; and the end result will be small, pillow-shaped briquettes that will pop out the other end of the plant. The high-grade nickel and cobalt would then be shipped around the world to make stainless steel, jet engines, batteries and other necessities of modern life.
Besides his promotional zeal, Forrest brought to Anaconda a strong financial awareness and a vision for the bigger picture. He understood that the world was running out of traditional sulphide ores, but also that the future industrialisation of Asia meant nickel would always be in demand. And he came to believe that the desert sands around Murrin Murrin contained a bounty of nickel laterites for anyone prepared to explore there. Forrest also realised that one of the most important assets for an energy-guzzling nickel plant was access to cheap gas. And he knew that Richard Court’s newly elected Liberal government in Western Australia was promising to build a gas pipeline from the north-west of the state to supply the mining operations of the Goldfields. The pipeline arrived in the Goldfields in 1996 just as Anaconda was preparing to start construction.
Forrest’s earliest backer at Anaconda was Rodney Adler, who by the early 1990s was a major figure in Australian business. Forrest met Adler one day to tell him about the nickel tenements in the Goldfields and the gas pipeline. Adler recalls: “He came to me and said, ‘Rod, I have the greatest idea I’ve ever come up with – I want to be a nickel producer. The pipeline will come through, we’ll raise some money and we’ll start an operation. I’m telling you, it’s going to be one of the best things we ever do.’” Adler was sold on the idea and put some money in on behalf of FAI. He would eventually invest $4 million and end up with a profit of $65 million. The FAI stake would also provide Forrest with a crucial partner in later years as he battled other shareholders for control of Anaconda.
Anaconda had plenty of sceptics in the early days. Many believed that the ore body at Murrin Murrin wasn’t good enough and the extraction technology too complex and unproved. Others said a glib ex-stockbroker with no real mining industry experience would never be able to raise hundreds of millions of dollars from serious investors. The nickel industry in the 1990s was dominated in Western Australia by Western Mining Corporation, whose chief executive, Hugh Morgan, was the embodiment of the conservative business establishment. WMC, which had banked its future on traditional sulphide deposits, let it be known that it doubted whether Forrest could make Murrin Murrin work. As he would do again several years later in the iron ore industry, Forrest cast himself in the role of underdog against the might of the established nickel players.
The history of nickel laterite projects, both in Australia and overseas, has long been a chequered one. Although the Greenvale operation in Queensland had been a success since the 1970s, two other projects launched in Western Australia in the 1990s, Cawse and Bulong, were big disappointments. In 2009, even the world’s biggest mining company, BHP Billiton, couldn’t make money out of nickel laterites, losing billions of dollars after walking away from its Ravensthorpe plant in the south of Western Australia.
But in the mid 1990s, Forrest had a story to tell. He declared Murrin Murrin would become the world’s fifth-biggest nickel operation, producing 45,000 tonnes of the silvery-white metal a year and feeding the world’s rapidly growing stainless steel markets for decades to come. What’s more, Murrin Murrin would deliver shareholders juicy profit margins because it would be producing nickel for just $US1 a pound, well below the then market price of $US4 a pound. The dream also appealed to Forrest’s strong sense of a family destiny. John Forrest had ridden over the Murrin Murrin site in 1869 on his first inland expedition, even naming a nearby prominent hill Mount Margaret after his future wife.
Forrest worked obsessively at drumming up interest in the Anaconda float, telling potential investors that the 20-cent shares were certain to soar to more than $1 in virtually no time (in fact, the shares would take two years to get to that point). Sure enough, Anaconda raised the $6 million and was listed on the Australian Stock Exchange in March 1994. Forrest installed himself as chief executive the following year and stacked the board with his allies, including his sister Janie’s husband, Aldous Hicks, a one-time candidate for Liberal Party preselection against John Hewson in the federal seat of Wentworth. Forrest asked his accountant, Adrian Abbott, to be the inaugural chairman and an old contact from Sydney, Peter Bennetto, to be a director. Geoff Motteram was also on the board for his technical expertise. But in reality, Forrest, the 33-year-old wunderkind, had absolute control over his older directors and it was rare for anyone to question him.
In the early years, Forrest promised that Anaconda would only ever focus on producing nickel – a pledge that was discarded as he unveiled what appeared to be a series of hastily conceived plans to invest billions of dollars in rare earths, magnesium and phosphate projects. He also began to talk up an ambitious plan to create a “three-nickel province” around Murrin Murrin that would lead to Anaconda one day dominating global output of the metal. This predilection for hyperbole was again highlighted when Forrest declared in May 2000 that Anaconda had “discovered” an enormous inland sea underneath the desert about 600 kilometres from Murrin Murrin. The water source, known as the Officer Basin, contained 2 trillion kilolitres of potable water, enough to supply a large Australian city for many thousands of years – or so Twiggy declared.
Evoking the spirit of Sir John Forrest a century earlier, Forrest proclaimed he would green the desert. This dream won him plenty of admirers in a state where water has always been a scarce commodity. A few sceptics, however, pointed out that the state government had actually known about the Officer Basin since the 1960s and still owned the resource. Many also drew attention to the huge costs of building a pipeline from the middle of the desert into Kalgoorlie to supply water to the town and its nearby mining operations. Of course, if Forrest had been proven right, the Goldfields water pipeline from Perth may have been rendered redundant – and the history books would have recorded that he had trumped his great-great-uncle.
Forrest’s grandiose public statements and his bombastic style were beginning to grate on many people. The Australian quoted a stockbroker who quipped that Forrest “probably feels a bit constrained by the size of the planet”. The key figures along St Georges Terrace still remembered Forrest’s antics in stockbroking in the 1980s and weren’t about to touch his speculative nickel play, no matter how polished the sales pitch.
Forrest responded to those who doubted his credibility with a typically brilliant example of spin, which may have left some believing he’d never made an enemy in his life: “Everyone who’s done business with me either respects me and likes me or just likes me. I think a lot of people who are critical either don’t know me, or try to behave like they do when they don’t. There’s always baggage out of a boom. But there is no one who I know who can say they weren’t dealt with fairly or evenly by Andrew Forrest. I have a philosophy with everyone I deal with and it’s come through from my early days as a jackeroo on a sheep station, right through to my broking days, through to now: that if I win, you win. I’ll never tolerate a situation where if we are both driving for the same goal, only one of us gets that goal.”
Forrest’s credibility was not only being challenged by some of his peers. It would soon be torn to shreds by a Perth magistrate who had closely watched Forrest’s performance in the witness box during an assault case. The hearing in the Perth Magistrates Court arose after Peter Salter, the prospector who had the original Anaconda tenements, delivered a solid punch to Twiggy’s head after a long lunch in September 1995. The relationship between the pair had been steadily deteriorating since their initial meeting in Sydney back in 1993. But on this day, it was to be damaged beyond repair.
Forrest met Salter at the Grand Palace Chinese restaurant in Perth’s CBD to arrange for the transfer of some important tenements to Anaconda from a junior explorer called Central Bore, to which Salter was a consultant. According to testimony given in court, Forrest began telling Salter over lunch how Anaconda had tried to bring Central Bore to its knees as a way of forcing it to sell the tenements.
Salter decided to order another bottle of wine to see if any more information like this might be revealed. Forrest described in detail how Anaconda had contacted the Australian Securities Commission and the Australian Stock Exchange to raise concerns over a capital-raising Central Bore was undertaking. He also boasted of how Anaconda had tried to manipulate Central Bore’s share price, sometimes using money from “Rodney’s Fun Fund” – a reference to the money Rodney Adler had ploughed into the explorer. Salter also told the magistrate he had become suspicious during lunch that Anaconda was behind legal action by a mysterious Sydney-based company, Richfile Pty Ltd, which was seeking to cast doubt on Central Bore’s right to an interest in the tenements.
What’s not in dispute is that Forrest and Salter finished their wine and went back to Central Bore’s offices to sign off on the transfer of the tenements to Anaconda for $12 million. Forrest later insisted in court he was sober at the time – but, like much of his evidence during the case, this was rebutted by others. “Always, in business lunches, I drink sparingly,” he told the magistrate. “I tend to sip wine at business lunches and where possible add water to the wine glass.” An employee of Central Bore, Paul Ducie, gave evidence that Forrest had trouble walking after the lunch. Even Forrest’s own colleague, George Macdonald, said in the witness box that when his boss showed up at Central Bore’s office, “He’d clearly had a good lunch, he’d clearly had a drink.”
Forrest told the court that before the deal could be signed, Salter grew agitated and started to threaten him: “He said … I was pathetic, that he was going to get me and he was going to get my mates,” he told the magistrate. Salter then punched Forrest above his left eye and again on the cheek with the back of his hand. But Twiggy didn’t draw on the pugilism he had mastered in his adolescence. Instead, he calmly left the office and lodged a complaint with the police, who charged Salter with unlawful assault. Unfortunately for Forrest, the action backfired disastrously when his honesty was closely examined in court.
After listening to all the evidence, Magistrate Bob Lawrence decided Forrest had acted “unethically, immorally and at any cost” to secure ownership of the Central Bore tenements on behalf of Anaconda. He also found Forrest had provoked Salter into punching him, describing the Anaconda chief as unconvincing and a “most unreliable witness”. Forrest, who wasn’t represented by a lawyer in court, described the proceedings as unjust and unfair. In years to come, this became his standard response whenever a court didn’t believe him.
Undaunted by his growing band of detractors, Forrest maintained a hectic pace and punishing travel schedule as Anaconda chief executive. He knew the company would need a lot more money than it had raised in the float if it was to realise its lofty ambitions. Forrest hired Peter Matheson, an engineer with vast experience working on the Greenvale nickel laterite project near Townsville. The pair toured the world, speaking to people with experience in high-pressure acid leaching and to companies who might stump up some money. In a big breakthrough in 1996, Forrest used his persuasive skills to convince the secretive Swiss commodities trader Glencore to invest $US220 million for a 40 per cent stake in the Murrin Murrin project.
The deal with Glencore appeared to be a masterstroke: Anaconda, a minnow on the global stage, would build Murrin Murrin in a joint venture with one of the world’s biggest companies. As part of the agreement, Glencore would also market the nickel produced at Murrin Murrin. It was also a handy deal for Forrest personally: he earned a $1-million success fee for negotiating it, on top of his $380,000 annual salary. When asked by journalists why he was entitled to such a huge fee, Forrest snapped that he would gladly give up the money for the chance he’d lost to spend time with his two small children, after the birth of his second daughter, Sophia, the previous year. “If someone else could have achieved what has been achieved by the team, without me having to pay the monstrous penalty of not knowing my own children, because I have been totally dedicated to this company and the project, then I would have gladly paid for someone else,” he said. “I see the bonus certainly as a sign of thanks, but it’s not compensation for not seeing your children grow up.”
The extra $1 million would have helped pay the mortgage on Forrest’s charming new house in Marmion Street, Cottesloe. The five-bedroom, three-bathroom pile, known as Burradoo, sprawled over more than 900 square metres of prime land near Perth’s famous Cottesloe Beach. It was a far cry from the shared housing of Forrest’s stockbroking days in Perth. He had returned home in style.
But any joy over the Glencore investment or the $1-million bonus soon evaporated when the Swiss company threatened to cut off its critical funding to Anaconda unless it could lift its 40 per cent stake in Murrin Murrin to at least 80 per cent. Forrest feared he was being squeezed out of the company he had built from scratch. “That was one of the toughest times of all of our lives involved in the company,” he later recalled. Forrest realised he was now playing in the big league and would need to fight to avoid giving away control of Anaconda to Glencore, which had also accumulated about 20 per cent of the shares in the company. He was faced with a choice of selling out or rolling the dice for one last shot at survival.
True to form, he rolled the dice. In 2007, Forrest borrowed Glencore’s corporate jet and flew to North America to raise $US420 million in debt from US capital markets. This erased Anaconda’s short-term funding concerns and allowed construction of Murrin Murrin to begin. Forrest and his finance team had survived on a few hours’ sleep for days on end to secure the debt. And like most things Forrest did, the deal ripped up the rule book. Never before had a large-scale greenfields mining project been financed by the capital markets rather than traditional bank debt. The junk bonds were interest only, which meant Anaconda would not need to repay the principal until Murrin Murrin started generating cash flow. As the Australian’s John McIlwraith pointed out, Forrest was making a habit of overcoming seemingly insuperable obstacles and raising money at a time when “some companies have trouble financing a new car park”. Forrest attributed his Midas touch to being able to sell his vision face-to-face with the US financiers rather than dealing with a bank’s lawyers and other middlemen – proof yet again that he could sell almost anything if he could just get his foot in the door.
Forrest’s next fundraising mission was to London, where he took the brazen step of cold-calling Glencore’s controversial founder, Marc Rich. It wasn’t the first time Forrest had done business with a morally dubious character, and it wouldn’t be the last. The cigar-chomping Rich had fled to Switzerland in 1983 after being charged in the United States for tax evasion, fraud and illegal trading with Iran. He had then set up his own trading business in direct competition with Glencore. Rich was a ruthless businessman who made a billion-dollar fortune doing deals with unsavoury regimes, including those of Augusto Pinochet’s Chile, Nicolae Ceauşescu’s Romania, Fidel Castro’s Cuba and apartheid-era South Africa. He later admitted to bribing officials in countries such as Nigeria and to helping the Israeli spy agency Mossad. Rich was pardoned, in somewhat murky circumstances, by Bill Clinton on the US president’s final day in office in 2001. But in 1998, when he met Forrest, the 63-year-old Rich was still on the FBI’s “ten most wanted” fugitives list. Forrest was able to convince Rich to buy a 6 per cent stake in Anaconda, a move that infuriated Glencore and tempered its influence on the share register.
Back in Perth, Forrest’s approach as chief executive was often highly unconventional. Before he had even raised the money from US capital markets, he began ordering the most expensive equipment Anaconda would need for the project. These included the 37-metre-long, five-metre-high autoclaves that were made by the Australian Submarine Corporation in Adelaide and trucked across the Nullarbor. Working capital was tight, so Forrest launched a competition for Anaconda staff to come up with their best cost-saving measures. One employee won a trip to Hamilton Island for suggesting that some filters be removed from the plant – a move that saved millions of dollars at the time but inevitably came back to haunt the plant’s engineers. Another won a Harley Davidson motorbike for a similar idea. “They were all harebrained ideas and they all came back to bite Andrew,” says a former executive.
Forrest’s proclivity for living on the edge was balanced by an emerging ability to inspire intense loyalty in those working under him. This would come to be one of his foremost traits as a chief executive. Forrest was growing more confident in his own abilities as a leader and had finally lost the stutter that was still noticeable even in his early thirties. His work ethic was phenomenal. “As a CEO there’s nobody I’ve worked with who has his energy and his enthusiasm and drive,” says one veteran mining executive who worked under Forrest at Anaconda. “He would work 24-7, he expected you to do the same and he never took no for an answer.” Michael Masterman, Anaconda’s chief financial officer, was so loyal to Forrest’s Anaconda vision that that he gave his baby son Isaac the middle name “Murrin”.
By 1998, however, construction work at Murrin Murrin had started to fall behind schedule and serious technical problems were emerging. Forrest had signed a $1-billion fixed-price contract for the construction of the project with engineering firm Fluor Daniel – a deal that would ultimately prove his undoing. Experienced hands in the mining industry knew that fixed-price (or lump-sum) contracts were potentially disastrous because the project owner must cede control during construction. The contract for Murrin Murrin put the onus on Fluor, working closely with technical consultants Sherritt International, to effectively guarantee that the plant’s HPAL technology would work. Any cost overruns would have to be borne by Fluor. That appeared to be a victory for Anaconda shareholders, but in reality it helped create a debacle that would ultimately lead to Forrest being ousted as chief executive.
Forrest has always claimed he had no choice but to sign the $1-billion fixed-price contract with Fluor because Glencore and the US bondholders had insisted on it as a condition of providing funding to a relative unknown in the mining industry. “We argued with Glencore and the investment banks acting for the bondholders that a lump-sum contract gave Fluor the willingness to try and cut costs from that lump sum and any cost they cut became Fluor profit,” he said. “We argued that it was better for them that they left control of the construction and commissioning of that plant with management who had only one incentive and that’s to make it work at the best result for shareholders.”
Forrest’s version of events is disputed by several insiders at Anaconda who say the chief executive was warned against a fixed-price contract. In fact, one former employee even suggests it was Forrest’s exuberant brand of salesmanship that may have given the bondholders the idea to insist on such a contract in the first place.
Whatever the truth, the Fluor contract turned out to be a catastrophe for everyone involved, especially the US bondholders, who lost most of their money. Fluor couldn’t deliver the plant on time and Anaconda began running out of funds. By 1999, whispers about commissioning problems at Murrin Murrin had begun to spread like wildfire through the market. The main rumours centred on problems with the giant autoclaves – the heart and lungs of the plant, through which the ore was digested in a slurry of sulphuric acid. But Forrest was having none of the gossip. He told the Sydney Morning Herald in February 1999: “The autoclaves are performing very, very reliably.” What he didn’t say, however, was that the autoclaves’ flash vessels, where the acid-rich slurry was discharged, were barely working at all. When the share price collapsed 14 per cent in a single day in March 1999, the finance pages screamed that Anaconda had fallen into an “acid bath”. Forrest came out swinging. He told the Age that although the flash vessels were not working, rumours of serious commissioning problems were groundless.
Forrest had been making forecasts of production from Murrin Murrin that were not met. Years later, Forrest would admit that the plant was seriously flawed from the start. Key equipment meant to last six months at a time, he revealed, was lasting for just six seconds.
Forrest’s defining strength, then and now, is an ability to overcome hurdles that would sink most other people. Despite the diminishing market confidence in Anaconda, he was able to persuade the prime minister, John Howard, to officially open Murrin Murrin in July 1999. Howard had agreed to attend the opening because he liked Forrest, an inveterate networker who would also become close to Howard’s successor, Kevin Rudd. “I’ve met a lot of managing directors,” Howard said. “But I don’t think I’ve met a more self-evidently enthusiastic and dedicated managing director than … Andrew Forrest.”
The formal opening was highly unusual because the Murrin Murrin plant wasn’t even close to working properly. Thousands of workers had toiled on the site, in temperatures often above 45 degrees in summer, to build a project that was plagued by fatal flaws. The plant was almost incapable of producing anything at the time of the opening, says former Anaconda employee Wayne Richards. “Andrew was ringing me up saying, ‘What time are the briquettes coming out of the furnace? Don’t let me down, mate, don’t make a fool of me,’” Richards recalls. “The briquettes only came out for two hours and then the furnace shut down. But we just hung it together for the grand opening.” In fact, it would be another eleven years, with Forrest long gone and Glencore fully in charge, before Murrin Murrin would operate at its design capacity. But to those who turned up to the opening in 1999, the enormous chemical factory was impressive and imposing. With more than 3000 tonnes of structural steel rising from the desert haze, it looked like a set from a Mad Max movie.
The Murrin Murrin opening was also remarkable because Forrest, wiping tears from his eyes, used the occasion to lead the 300 invited guests in a lengthy and solemn prayer session. The devout Christian would later install a chapel at the remote mine site to cater for the spiritual needs of his workforce. Once prayers were out of the way, Forrest put a brave spin on the behind-the-scenes dramas. He told the audience that Fluor should be “thanked and congratulated” for its work as the construction contractor, extolling the company for “completing” the project only two years after work had begun. That would be the last time he would ever publicly praise Fluor. Just two months later, Anaconda sued the company for $1.6 billion over the construction delays and design faults. Fluor was reportedly forced to pay a fraction of this amount as part of a confidential settlement to end the claim.
In an unusual display of vulnerability, Forrest admitted that the “nightmares” of the previous two years were still haunting him. “Certainly there have been times when many believed that we would not actually get to today, and at times I shared that belief,” he said at the opening. Yet despite his mounting woes, the irrepressible Forrest was still dreaming of bigger plans for Murrin Murrin. He told the audience he wanted to spend another $1 billion expanding the plant to boost production capacity by a staggering 150 per cent. By the time that was completed – as it would undoubtedly be, in Forrest’s opinion – Anaconda would be the world’s second-biggest nickel producer and Murrin Murrin one of the biggest mining projects in Australian history.
Warming to the task, Forrest also took a swipe at those journalists who had run stories questioning his Anaconda dream. “Where companies and individuals strive to achieve, whether in great adversity or not, they should be supported by the community, including the media,” he said. “When they succeed they deserve applause. If not, they should be encouraged to try again, not vilified as a failure. It is the fear of failure, rather than the excitement of success, that drives too many of us these days, and it is this fear of failure that our press dwells on too much.”
Forrest’s dislike of media scrutiny did not surprise many of the journalists who had come to know him. One of them, Paul Armstrong, then a young business reporter for the West Australian in Perth, recalls how Forrest would regularly hurl abuse at him over stories published about Anaconda. “With Twiggy, you’re either totally for him or you’re the ultimate enemy – there’s nothing in the middle,” says Armstrong, who would go on to become editor of the newspaper and says he greatly admires what Forrest has achieved as an entrepreneur. “I dared to question whether the processing technology they had would work. He would call and say, ‘Digger, what’s your problem? Why can’t you see there is no issue here?’ It always started off with a charming introduction, and if he didn’t get what he wanted, it ended with an abusive conclusion.”
By the time the Sydney Olympics came around in September 2000, Forrest was slowly losing control of Anaconda. As the chairman of Athletics Australia at the time, he was among the first on the track to congratulate Cathy Freeman on winning her gold medal in the 400-metres women’s final. But back in Perth, the situation was becoming dire. The Anaconda share price slumped from $4 to $1 between September 2000 and March 2001 as investors saw that the company could not deliver on the forecasts made by Forrest.
Another sin, in the eyes of some investors, was Forrest’s penchant for rewarding himself handsomely even while Anaconda was losing money. His total remuneration in 2000 was $1.8 million, and by 2001 it had jumped to more than $2 million. This put him in the same league as the heads of some of Australia’s biggest companies – but they were generating strong returns for shareholders. Forrest was also able to win generous performance bonuses even while Anaconda was posting heavy losses.
The company’s remuneration committee was chaired by Rodney Adler, who at the same time was busy committing serious crimes in his role on the board of another troubled company, HIH Insurance. Adler would be jailed for four and a half years for a series of offences at HIH, and described by the sentencing judge as having displayed “an appalling lack of commercial morality”. He quietly stepped down from the Anaconda board, but remained close to Forrest, who even visited him in prison in rural New South Wales several times.
The Olympics were a frantic period for Twiggy. As he cheered wildly for Australia’s athletes on the track, he was also involved in negotiations with Melbourne mining entrepreneur Joseph Gutnick over a deal to buy his company, Centaur Mining. Forrest knew Gutnick from his stockbroking days and the two men had generally been friendly, even if some of their deals hadn’t worked out. Gutnick, an ultra-Orthodox Jew, had been prominent in Australian business for years and was widely known as the president of the Melbourne Football Club in the AFL. But Gutnick’s empire was laden with debt and he was desperate to offload Centaur to Anaconda. Centaur owned the Cawse nickel laterite mine, not far from Murrin Murrin, so the idea of seizing control of Centaur’s assets appealed to Forrest’s vision of building his “three nickel province” in the Goldfields. The Anaconda–Centaur deal was meant to have been settled in September 2000, but Forrest told Gutnick that month he needed more time to conduct due diligence on the company.
While Gutnick waited for the deal to be finalised, Centaur’s share price plummeted and the once-warm relationship between the two men turned icy. “I’m not interested in games,” an angry Gutnick wrote to Forrest in November. “Centaur’s future is at stake and I must act to resolve the uncertainty. You have not acted honourably, and that is very disturbing to me.” A day later, Anaconda told the market it was backing out of the deal. Gutnick responded with legal action in the Victorian Supreme Court, claiming Anaconda had breached the agreement by failing to complete the transaction. Forrest appeared to be affronted by the litigation. “There has not been an obligation that Anaconda hasn’t honoured and we’re not about to break that record with Joe Gutnick,” he said.
Justice Marilyn Warren’s findings against Forrest in 2001 were damning. She ruled that he had pursued a “deliberate plan” of maintaining the pretence of a share deal with Gutnick so he could prevent a rival to Anaconda from gaining a foothold in the “three nickel province”. The delay, she found, was also aimed at allowing Anaconda to gain control of Centaur’s nickel assets on the cheap. She said Gutnick was probably foolish to have trusted Forrest in the first place. The “smoking gun” in the case was an email written by Forrest’s right-hand man at Anaconda, Stephen Dennis. In the email, Dennis told Forrest he should falsely explain to Gutnick that Anaconda was backing out of the deal “because of due diligence reasons”. It was advice Forrest took on board. Justice Warren took a dim view of the email. “The Dennis memorandum set out a strategy to make Gutnick dependent upon and vulnerable towards Anaconda, gain control of Centaur and quarantine Gutnick from Anaconda’s rivals,” she found.
But then came the killer blow. In assessing the details of an important phone call between Forrest and Gutnick, the judge decided that she believed the latter’s version of events. “Gutnick was a truthful witness in all respects of his evidence,” she said. “Having observed Forrest, including his physical demeanour, especially in the course of giving evidence-in-chief, I am unable to accept his version of the conversation of 4 September 2000. Forrest was an untruthful witness.”
As he had done previously, Forrest went on the warpath over the 110-page judgment. “It’s a strange judgment … it’s most extraordinary and logically unbelievable,” he said. “It’s just a really dumb outcome.” Forrest said the judge had been persuaded by a “very clever Queen’s counsel” acting for Gutnick. And on Justice Warren’s key finding that he had not told the truth in court, he said: “Anyone who knows me knows my great character.” Ever the optimist, Twiggy expressed his absolute confidence that an appeal court would overturn Justice Warren’s verdict. But neither the Victorian Court of Appeal nor, ultimately, the High Court could see his side of the story and the decision stood.
Two others who had long felt let down by Andrew Forrest were Canadian investment bankers Stephen van der Sluys and Richard Maish, who had helped Anaconda negotiate the $US420 million in junk bonds from US capital markets in 1997. Van der Sluys and Maish, who were employed by the Canadian bank CIBC, sued Anaconda in the NSW Supreme Court, claiming they had not been paid a success fee to which they were entitled. A critical part of the case revolved around the details of a phone conversation between Forrest and a senior executive at CIBC, Bruce Spohler.
When Justice John Brownie came to rule on the issue in 2002, he was in no doubt as to whose evidence he preferred about the details of the phone call. “I prefer the evidence of Mr Spohler who I regard as a truthful and reliable witness, to that of Mr Forrest, who I regard as quite untruthful,” he said. “Indeed, I think it would be unsafe to rely on any account he has given, in or out of court, except to the extent that it is demonstrated by other evidence to be correct. His evidence was generally quite unimpressive, and his evidence about the telephone conversation of 7 August 1997 particularly so.”
For the fourth time in his career, in four unrelated legal cases, Forrest had been found to be a less-than-honest person. In all four cases, his ethics and truthfulness had been impugned. It is an extraordinary record that is unusual for someone who has run a large listed company in Australia.
Forrest has complained that other courts have found him to be an honest witness, but that this has never been reported. The sole reference to his honesty, however, was a 1999 case in the WA Supreme Court in which Justice Eric Heenan found that Forrest’s version of two phone conversations with a fellow mining company executive, Steven Dean, was “both truthful and substantially accurate”. The judge also noted that Dean did not give evidence in court over the dispute with Forrest, and he ended up ruling against Anaconda in the case.
Many of Twiggy’s other business disputes were settled before a judge could rule on them. One involved a falling out between Forrest and two of the central figures at Anaconda, Peter Matheson and Geoff Motteram. In the early days of the project, the pair formed a company, Matheson Motteram Projects, to advise Anaconda on how to build the nickel processing plant. They had also negotiated with Forrest to be paid 0.5 per cent of the capital cost of Murrin Murrin, assuming it was ever built. But years later they alleged Forrest had no intention of paying up and sued Anaconda in the Supreme Court of Western Australia. The case was eventually settled, with Matheson and Motteram receiving about one-third of what they claimed to be owed.
Geoff Motteram had originally made his feelings known about Forrest at Anaconda’s fancy-dress Christmas party in 1997. As scores of the people present at the bash at Perth’s Burswood Casino can attest, the metallurgist had downed a few too many beers during the evening and began loudly criticising Forrest to then Anaconda chairman Allan Coogan. Forrest, who was dressed as Elvis Presley in flares and sideburns, was not within earshot at the time. But the chief executive soon heard about Motteram’s rant. Two days after the party, Forrest turned up at Motteram’s house in Dalkeith with a cardboard box filled with the contents of his office. He told him he was no longer a director of Anaconda.
The bad blood between Motteram and Forrest didn’t end there. In 1999, Motteram was among the hundreds of people invited to the formal opening of Murrin Murrin. But in the weeks leading up to the event he had sold a large number of Anaconda shares. Forrest sent Motteram a fax uninviting him from the opening, saying only people committed to supporting the company were welcome to attend. The fax bemused Motteram, given that he still held plenty of shares. But Forrest could see nothing odd about it. In his eyes, anyone who sold shares was not a true believer and therefore did not deserve to be at the event. “The numbers were tight,” Forrest told the West Australian. “Those who sold shares have had their invitations withdrawn and replaced by those who bought shares.”
Forrest’s fate at the helm of Anaconda was effectively sealed just a few weeks after Murrin Murrin’s formal opening when he persuaded South African mining giant Anglo American to invest $US243 million for a 23 per cent stake in the company, putting it above Glencore at the top of the share register. At first blush, Anglo appeared to be Forrest’s saviour. The company had agreed to buy shares in Anaconda for $3.15 each – a premium of more than 35 per cent on the market price. In one fell swoop, the world’s second-largest mining company had solved Anaconda’s financial troubles and given it a huge credibility boost in the eyes of the market. Within months, Glencore’s sole director, Michael O’Keeffe, had been voted off the board with the backing of Forrest, Marc Rich and Sherritt International, which owned 9 per cent of the stock. Twiggy’s old business partner, Albert Wong, looked on in admiration at Forrest’s “divide and conquer” tactics, saying the idea had probably germinated when the pair first read Chinese military strategist Sun Tzu’s The Art of War a decade earlier.
Forrest, with his back against the wall, had employed his trademark salesmanship to convince Anglo’s hard-headed minerals boss, James Campbell, that Anaconda Nickel, despite all its woes, still had the potential to dominate the global nickel industry. Eventually, however, Campbell came to believe that Forrest would have to be removed if Anaconda were to realise that potential. In 2001, with Murrin Murrin still in deep financial and operational trouble, Anglo declared it had lost all confidence in Forrest’s management. It told investors that the company’s “missed targets, lost production, lax corporate governance, capital cost overruns and high-risk capital structure” had cost Anaconda shareholders up to $431 million in lost profits. Anglo called a special shareholders’ meeting in an attempt to sack Forrest as chief executive, along with most of the board, promising to recapitalise Anaconda with a $100-million rights issue. Forrest denied the allegations about mismanagement and claimed Anglo was simply engaged in a ruse to try to seize control of Anaconda on the cheap.
Drawing on all his street-fighting instincts, Forrest refused to bow to the might of Anglo American. He boarded a plane and went to Europe in search of another potential white knight who might save him. But Twiggy’s message by now was wearing thin. More than two years after John Howard had “opened” Murrin Murrin, the plant was still not producing the nickel Forrest had so confidently predicted, at the low costs he’d always promised. Anaconda was saddled with debts of more than $800 million and wasn’t even close to turning a profit. In what amounted to a high-stakes game of corporate chess, a stand-off ensued for several months. Nobody appeared to know whether the enigmatic Glencore, which held the balance of power, would back Forrest or Anglo American.
At an eight-hour meeting in Perth in May 2001, the warring parties – Forrest, Glencore and Anglo – thrashed out a compromise under which Twiggy would stand down as chief executive in November but remain on the board as deputy chairman. Forrest’s dream was now over. He was deeply wounded at being ousted as chief executive of the company he’d built from nothing, but as always, he attempted to put a positive spin on the move and laced it with some overblown rhetoric. “The winner is an independent Anaconda Nickel,” he declared after the meeting. “I think what has been achieved is an independent Australian company now fully supported by major shareholders, as opposed to dominated by them, and I think that is an excellent outcome for corporate governance and democracy in this country.”
Forrest left Anaconda having achieved one of the most extraordinary fundraising operations even seen in corporate Australia. In total, he had convinced investors to part with almost $US1 billion – or about $1.4 billion in Australian currency terms – purely on the strength of his fanatical conviction that Anaconda was the next big thing.
Forrest does not deserve to shoulder all of the blame for Anaconda’s woes. Fluor was responsible for many of the design flaws and delays that cost the project dearly. Forrest’s Anaconda vision has also been vindicated by the belated success of Murrin Murrin, now fully owned by Glencore, in recent years. Some of the brickbats that have been thrown at him since 2001 are simply a result of the old adage that history is written by the winning side. But his plan for Anaconda was too big and too hurried. His failure to take advice from some of the experts around him was also an error. Says one former Anaconda executive: “Andrew knew it all – that was his biggest problem. He didn’t have a clue [about the technical side] … he should have taken more advice.”
For his part, Forrest has never publicly accepted any of the blame for what happened at Anaconda, preferring to cast himself as the victim of forces motivated by greed. “It taught me cynically that the bigger the numbers become, the more powerful are the interests to act indecently or act purely for business and not for moral or social responsibility, or for a grounding of social values,” he said in 2012. In private, however, Forrest has told friends that his biggest mistake at Anaconda was not ensuring that he was briefed about the design changes made along the way.
Anglo American sold out of its disastrous Anaconda investment in 2003, leaving Glencore to take full control, with the aim of spending even more money to rebuild the company from the ground up. A bitter Forrest, who still owned a 4.5 per cent stake in Anaconda, would later back a hostile $450-million takeover attempt by US vulture fund MatlinPatterson, arguing it was needed on the grounds that Glencore’s capital raisings were diluting other shareholders. The bid failed and Forrest sold all his remaining shares.
A former Western Mining Corporation executive, Peter Johnston, succeeded Forrest as chief executive and began to put his mark on the company, which was in 2003 renamed Minara Resources in a bid to disassociate itself from the Forrest era. Johnston soon ditched Anaconda’s much-hyped “three nickel province” strategy and focused on making the Murrin Murrin plant work. The company was effectively insolvent and Johnston had to fly to New York to convince 100 bondholders owed $US400 million to take a big haircut. In the end, they received less than 25 cents in the dollar on their investment. Johnston says Forrest deserves credit for driving Anaconda as far as he did. “There’s no doubt it wouldn’t have happened without him,” says Johnston, who took more than ten years to fully fix the problems he inherited in 2001. “But basically he was an entrepreneur, and I think fundamentally he didn’t understand the technology. I think his lack of experience in the end told. But boy, was he an entrepreneur!”
More than 100 Anaconda staff with links to the Forrest era were dismissed at the end of 2001. But even as he walked out of the Anaconda office for the final time, Forrest maintained a veneer of positivity. Recalls one former employee: “I remember Andrew coming through the office and saying, ‘Guys, I’m off, Peter Johnston is a terrific fella, he’ll look after you.’ Of course, that afternoon we were all retrenched.” The former employee suggests he and his colleagues felt their years of intense work and loyalty to Forrest were not fully repaid. “Andrew didn’t even have a beer with us. He asked everyone to sell their souls and give up everything for him, and yet he sailed off in reasonable shape. Did he know we were all going to be retrenched? I suspect he did. He demands great loyalty and I’m not sure he gives as much back.”
What nobody realised at the time, however, was that Forrest was not in reasonable shape. In fact, he was facing a personal financial crisis in 2001 that at one stage threatened his family home in John Street, Cottesloe, a historic mansion set on an 1860-square-metre block that he and Nicola had bought a year earlier, around the time that their son, Sydney, was born. Forrest had borrowed heavily to buy most of his 32 million shares in Anaconda and had watched in horror as the price plunged, triggering margin calls from his stockbroker. Forrest has never publicly commented on his brush with financial ruin. But in a statement lodged with the Administrative Appeals Tribunal in 2007 as part of an unrelated legal case, he admitted he had been under “financial pressure” from his bank in September 2001 because he had borrowed “substantial amounts of money” to buy Anaconda shares.
Forrest sought advice from several people on how he might rustle up a few million dollars quickly and was told to get on a plane to see Shayne Heffernan, a shadowy Australian expatriate who had become prominent in Asia as a high-risk venture capitalist. Heffernan, who stands about 190 centimetres tall and is heavily built, appeared to be making serious money and was living in the penthouse suite of the Shangri-La Hotel in Hong Kong, with a chauffeur on call to ferry him around the city. But he was never in one place for long and would be forever darting around the region.
Heffernan had a colourful past. He had been arrested in Sydney in 1987 and charged with supplying heroin as part of a “sophisticated network” that had allegedly sold more than $5 million worth of the drug. The Central Court was told that Heffernan sold the heroin at street level and had also investigated an abortive mission to take $40,000 cash to South-East Asia in a “narcotics-related exercise”. After a ten-month trial in the late 1990s, he was found not guilty by a jury of selling heroin, but was convicted on the lesser charge of supplying marijuana and imprisoned.
Heffernan next came to the attention of the Australian authorities in 2003, by which time he had moved to Asia and reinvented himself. The Australian Securities and Investments Commission issued a statement warning that hundreds of local investors had transferred $3.5 million to Heffernan’s Hong Kong-based company, Equity-1, on the promise that they would receive returns of 30 per cent through international share trading. The Hong Kong Securities and Futures Commission claimed Equity-1 was involved in “boiler room” activities, a fraud involving high-pressure sales tactics.
Nobody really knew how Heffernan had made his millions, but Forrest wasn’t about to ask too many questions. On the night of 11 September 2001, he was in Heffernan’s suite at the Peninsula Hotel in Manila, watching the television as planes slammed into the World Trade Center in New York. Heffernan says he believes he and Twiggy bonded that night, and he agreed to lend his new mate $3 million so he could pay off his debts and hang on to his house. “I called the guy at the bank to make sure it was real – and he said he was going to take possession of the house and his credit cards were going to be cut off,” Heffernan recalls. “Forrest told me: ‘When I have cash in bank, you’re first on the list, I’ll never forget you, mate.’”
By early 2002, Forrest’s financial pressures had eased and he embarked on a twelve-month holiday to Europe with Nicola and their three children, Grace, Sophia and Sydney, who were all younger than eight. After promising to remain on the Anaconda board, he suddenly quit as deputy chairman in March and flew out of Perth the next day. Forrest’s reputation was in tatters and his spell in corporate exile had begun.