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How Gina Rinehart will become the world’s richest person

Gina Rinehart hates the label “Australia’s richest person”. So how will she and the rest of the country react when (not if) she ranks as the “world’s richest”, as can be forecast using the latest research?

Citigroup Global Markets, a division of the big US banking group Citibank, provided a glimpse into Rinehart’s future in a major report into worldwide resource projects called Generation Next. The 60-page document looks at 400 mining projects around the world classified as “greenfields”, meaning they are not currently in production but are moving through the design and approvals process.

As might be expected. the world’s biggest mining companies, including BHP Billiton, Rio Tinto, Xstrata and Anglo American are top of the list. But in fifth spot, ahead of Brazil’s resources leader Vale, is Hancock Prospecting, the company Rinehart inherited from her father, the late Lang Hancock.

To say this is an amazing ranking is putting it mildly. Putting a single person (because Rinehart owns all of Hancock Prospecting) on a list of global resource giants means that she will, in the future, own projects of a similar size to the biggest miners.

Two factors need to be considered in this, the start of re-rating Rinehart as the world’s richest persons. They are:

  • How did Citigroup apply a common value to different types of mine developments, including coal, gold, iron ore and copper?
  • Why will Rinehart’s project catapult her up the world’s various rich lists?

The answer to the first question is that all projects were reduced to a common factor, a copper equivalent. In other words, they have been valued as if they were all producing copper, the leading base metal with uses which span a number of industries, from construction to electronics.

The answer to the second question is that Rinehart owns all of hers, whereas the other companies on the list share their wealth with thousands of shareholders.

The strength of Rinehart’s position is shown in the list of the top 10 projects, headed by Rio Tinto’s Simandou iron ore mine in the west African country of Guinea. It will start production in 2013, building to an annual output of 70 million tonnes of iron ore which is calculated by Citigroup to be the equivalent of 875,000 tonnes of copper a year.

Rinehart has three projects in the top 10, the same number as Rio Tinto (BHP Billiton has none). They are:

  • Roy Hill iron ore in WA, which is scheduled to start production in 2014, building to a rate of 55 million tonnes a year, and valued at 688,888 tonnes of copper equivalent.
  • Alpha Coal in Queensland, also scheduled to start in 2014 at a rate of 30 million tonnes of coal and year — rated as 563,000 tonnes of copper
  • Kevin’s Corner coal in Queensland, scheduled to start in 2013 also at a rate of 30 million tonnes of coal — and also rated as 563,000 tonnes of copper.

Those three projects are expected to attract joint venture partners in the same way Rinehart brought Rio Tinto in as a partner in her first mine, the Hope Downs iron ore project in WA. It was the start of production at Hope Downs, plus a perpetual royalty paid by Rio Tinto on most of its WA iron ore production, which pushed Rinehart to the top of the Australia and New Zealand rich list compiled by Forbes magazine, followed later this year by BRW, with both estimating her net work at $9-10 billion.

Important as the royalty might be, it is Hope Downs which is generating the bulk of Rinehart’s cash flow, as this snapshot illustrates. At its current annual 30 million tonnes of production, and an iron ore price of around $US175 a tonne ($A166 a tonne), Hope Downs generates annual revenue of around $5 billion. The cost of producing a tonne of iron ore in the Pilbara is around $A40, leaving a profit margin per tonne of around $A126, meaning Hope Downs is generating an annual profit of $3.78 billion — with half flowing to Rinehart, or around $1.9 billion.

Hope Downs is expanding to 45 million tonnes a year, which will lift Rinehart’s share to 22.5 million tonnes taking her annual profit to around $2.8 billion (before the Rio Tinto royalty).

If Rinehart was a company listed on the ASX, and valued using the same 11-times price-to-earnings ratio as her partner, Rio Tinto, she would be worth $30 billion, putting her in the top 10 of the Forbes rich list headed by Mexican telephone magnate, Carlos Slim, at $US74 billion, with Microsoft founder, Bill Gates, second at $US56 billion.

Rinehart, however, has three more mines on the way, and potentially more in the exploration phase.

If Rinehart’s three new projects mentioned by Citigroup match the performance of Hope Downs, and if mineral prices stay high — two big assumptions — it is possible to see Rinehart’s portfolio of coal and iron ore production spinning off annual profits approaching $10 billion.

If those best guesses prove to be correct, Rinehart is heading for a personal net worth valuation of more than $100 billion, using the Rio Tinto 11-times PE multiple.

It is, at this stage, a game of estimates, assumptions, forecasts and predictions. But the numbers are a guide as to how big Rinehart could become, raising a totally separate set of questions — especially how Australian governments deal with her.

*This article was originally published at Smart Company

13
  • 1
    jungarrayi
    Posted Wednesday, 22 June 2011 at 1:54 pm | Permalink

    Staggering numbers, yet the mining industry was able to convince the ovine population and press that if the super profits tax came into force they would take their ball and bat and go elsewhere with their projects. And all of this for a plublicity campaign that from memory cost a mere $13M (or was it $20M?).
    I happen to be a geologist, and know that they won’t be taking their ball and bat elsewhere. Australia is a magnificent cricket pitch.
    Continental drift is a very slow process.

  • 2
    j-boy57
    Posted Wednesday, 22 June 2011 at 3:02 pm | Permalink

    not if a moratorium on coal mining is enacted…
    the inherent ones plans may be thwarted.

  • 3
    Matt Hardin
    Posted Wednesday, 22 June 2011 at 3:45 pm | Permalink

    Could we not tax her income (and indeed all income in excess of say $500,000) a year at 75%? I have yet to hear any of the ultra rich say anything other than “I don’t do it for the money” and “Money is only a way of keeping score”.

  • 4
    william magnusson
    Posted Wednesday, 22 June 2011 at 3:59 pm | Permalink

    well if i was GR the first thing i would be doing and with all due respect is to get a personal trainer… not much good being the richest person in the cemetry and it makes good business sense running a company as large as hers .

  • 5
    Michael
    Posted Wednesday, 22 June 2011 at 4:03 pm | Permalink

    Correct Tim.
    Now watch Fairfax change their tune on Gina any day now.
    She has her sights on Fairfax and I don’t mean a bit of it - the whole f***ing lot!
    Oh to be in the room when she marches Marr & Carlton out the door.
    Watch this space.

  • 6
    Oscar Jones
    Posted Wednesday, 22 June 2011 at 4:35 pm | Permalink

    jungarrayi- I’m amused by the phoney threat of upping stakes and p**sing off that these characters roll out religiously but could never understand why our hopeless media didn’t investigate these unpatriotic threats.

    Commonsense tells us a void will always be filled as suburbs who have been lucky to see the backs of McDonalds discover when their place is taken by many smaller restaurants usually employing far more people.

    But the idea mine owners could do likewise is a fantasy any government with guts could easily control those who base their ‘HQs’ in tax shelters if they had courage.

    Personally I believe those who issue this threat should be frogmarched to the airport asap.

  • 7
    Barry 09
    Posted Wednesday, 22 June 2011 at 6:05 pm | Permalink

    She needs all the money , like who would sleep with it for less than a million a time??
    Not counting any LNP Member.

  • 8
    John64
    Posted Wednesday, 22 June 2011 at 9:27 pm | Permalink

    @Matt Hardin: Because it’s not so much income, it’s asset value. It’s like me saying you’re worth $1 Million simply because you have a home worth $500,000. You have an income (profit) of $50,000 per year. We can do a quick and nasty valuation of that income by multiplying it by 10 to get another $500,000 of ‘net worth’ you’ve got. Throw in a car and a few bits of furniture to round it out and you’re worth well over $1M.

    Now tell me, do you feel “rich”, you dirty disgusting millionaire?

    Besides, something tells me that even if we did tax Gina at 75, 80, 90% tax levels - she’d still be filthy stinking rich and you’d still be whinging about it. And the Government would still under-invest in transport, infrastructure and health-care etc…

  • 9
    jeebus
    Posted Thursday, 23 June 2011 at 7:27 am | Permalink

    It is obscene that any Australian can inherit or generate such vast personal wealth, not by creating something of value to the country, but by extracting something of value - namely the natural resources that are our shared birthright as Australians.

    This broken system has now crowned a new Queen for Australia, and not the modern, benign, British type of royal who exists to engender a sense of national spirit.

    No, this royal is built in the mold of Ayn Rand and follows an ideology called “Objectivism” that casts greed as its highest virtue. In Gina’s utopia, there is no such thing as community or mutual obligation, because society is made up of individual consumers who only act in self interest. Rich people are rich because they deserve to be, poor people are poor because they didn’t work hard enough, and a government exists to protect the property of the rich and keep the poor in their place.

    To that end, Gina has been flooding the airwaves with mining propaganda and buying into the media through Channel 10 & Fairfax. She knows that Australia has a lingering egalitarian culture that must be changed to protect her wealth from government ‘looting’.

    After all, how dare we rob her of the chance to become the richest person in the world.

  • 10
    mikeb
    Posted Thursday, 23 June 2011 at 9:46 am | Permalink

    Makes that filthy rich actress look like a pauper.

  • 11
    jesse
    Posted Thursday, 23 June 2011 at 10:35 am | Permalink

    @John64 - possibly that’s why Matt Hardin specifically said tax income, not tax asset value.

  • 12
    Matt Hardin
    Posted Thursday, 23 June 2011 at 11:32 am | Permalink

    Thanks Jesse, obviously I wasn’t clear enough for John64.

    Also @John64, I would hardly call recommending a more progressive income tax scheme whinging. The problems of underinvestment in infrastructure, transport etc. are separate - I wasn’t aware that I needed to provide a complete manifesto rather than suggest a way that we might be able to move money from the ultra rich (i.e. on greater than $500,000 a year income) to the parts of society that need it. There is considerable research now that shows income inequality affects social cohesion and mortality e.g. Does Social Capital Have an Economic Payoff? A Cross-Country Investigation and Income inequality and mortality: importance to health of individual income, psychosocial environment, or material conditions. We all pay these costs and the least we can do as a society is organise that the ones who can pay more more do pay more.

  • 13
    Brady
    Posted Thursday, 23 June 2011 at 5:06 pm | Permalink

    The part that I don’t understand is how the mining companies actually convinced (albeit with help from the detestable Abbott) ‘middle Australia’ that a super mining tax was a bad thing. I mean it was only going to be imposed for ‘extreme’ profit, and as Rudd said at the time, “These are our resources, and they can only be dug up once”.

    The only logical conclusion I can come to, is that their are only two types of people who vote for the Liberal party, the rich and the ignorant (I may be able to forgive small business owners lol). It leaves me with a feeling of real depression for where Australia is heading.

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