Well, I got my prediction for the top end of the BRW Rich 200 wrong. I tipped it would be Gina Rinehart on top with daylight second. In the end it was Rinehart first with daylight, twilight, moonlight and everything in between running second.
According to BRW, Rinehart’s wealth has soared by an incredible $18.7 billion in the space of one year to a staggering $29.17 billion. At that level, the magazine says, the queen of iron ore becomes the richest woman in the world, streaking ahead of Wal-Mart heir Christy Walton, who was valued by Forbes in March at $US25.3 billion.
Of course, that sort of ignores the fact that Forbes valued Rinehart at $US18 billion on the same global billionaire’s list and leads to a very good question: how did Rinehart’s wealth climb by more than $11 billion in the space of two months?
As a former editor of the BRW Rich 200 list and someone who has worked with Forbes on their valuations, I can say that Forbes does take a very conservative approach when it comes to assessing private assets and particularly undeveloped assets. BRW’s valuation of Rinehart appears to be somewhat aggressive, although to its credit the magazine has done a good job of laying out its reasoning.
BRW points to a clearer valuation of Rinehart’s Roy Hill 1 project, which was valued at $12.8 billion when South Korean and Japanese steel groups took a 30% stake. That would leave Gina with a stake of $8.96 billion.
It then values her stake in the Hope Downs 1 mine, which is operated by Rio Tinto. Based on an iron ore price of $US144.73 and using a multiple of 10.2, it ascribes a value of $9.7 billion to Rinehart’s stake in this operation. It values the Hope Downs IV mine, set to come into production in 2013, using the same assumptions, and gets a value of $3.1 billion.
That takes the valuation to $21.76 billion. The rest comes from adding up Rinehart’s royalty stream from Hamersley Iron, her stake in the Nicholas Downs manganese project and two undeveloped coal projects in Queensland, which have a notional joint venture value of $8 billion. There’s also a little bit of money for Rinehart’s Fairfax and Ten Network stakes.
The BRW valuation is completely reasonable and putting a price on undeveloped assets always requires educated estimates. But to me it does feel a bit “glass half full”.
The iron ore price used of $US144 a tonne does jar somewhat with the latest statements from BHP Billiton chief Marius Kloppers that received iron ore prices had fallen from a peak of $US180 last year to around $US135. Last week’s West Australian state budget assumes iron ore prices will fall to $US115.20 a tonne in 2012-13 and $US102.90 a tonne in the following year.
Just as there doesn’t appear to have been much discount built in for this cloudy outlook, there doesn’t seem to have been any discount applied for the fact that Rinehart has just handed her children the right to grab a 25% stake in her company, Hancock Prospecting.
While there is some doubt as to when and if the kids will take control of their shares — Rinehart has warned they will face huge tax bills if they do and they are unable to sell them to anyone outside the Rinehart family — you could argue that a more conservative valuation would need to take this into account.
But if BRW’s $29 billion valuation is right, then Rinehart’s four children notionally control a stake in the business worth more than $7 billion. They won’t give up their legal battle easily and they could work towards a deal where they settle or sell out to Gina herself.
Of course, while you can make an argument that the $29 billion valuation for Rinehart is too high, it’s also possible to argue it’s too low.
If China’s growth continues; if the resources boom continues for another 20 years; if iron ore prices remain strong; if it should happen that Rinehart’s projects can be developed successfully; if Gina can sort out her battle with her kids … it’s possible to make a case for a valuation of $100 billion or more. There are lot of assumptions to be made, but with a bit of creativity it is possible.
And in the end, there are no wrong answers here. Private assets and particularly undeveloped mining assets are very difficult to value. BRW has been more aggressive in its assumptions than in previous years, but Rinehart’s is a fortune that has undergone incredible change in a very short space of time.
Whether it’s $20 billion or $29 billion matters little. This is a fortune that now towers far above anything we’ve seen in Australia and will for decades to come.