tip off

Two months, $10b: Gina Rinehart’s big leap

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.

*This article was originally published at SmartCompany

25
  • 1
    Bill Hilliger
    Posted Thursday, 24 May 2012 at 1:38 pm | Permalink

    Is that the same Gina that had a problem with Austrlaian taxation changes to spread mining wealth more equitably?

  • 2
    Bill Hilliger
    Posted Thursday, 24 May 2012 at 1:39 pm | Permalink

    correction Australian

  • 3
    DF
    Posted Thursday, 24 May 2012 at 3:17 pm | Permalink

    That’s the one. The same one who wants to introduce cheaper migrant labour on temporary visas to maintain profitability.

    Funniest comment was by BRW editor Kate Mills who, discussing the growth in personal wealth of various Australians, was quoted in The Age as saying: ”She (Gina) could have done nothing, she could have taken the money and lived a good and happy life. We celebrate the fact that she didn’t.”

    No indeed.

  • 4
    Bill Hilliger
    Posted Thursday, 24 May 2012 at 3:49 pm | Permalink

    @DF - oh! I thought I was being delusional. And yes, come to think of it cheaper labour = more profits; and more profits = more wealth. Gina has it all and will one day just buy WA its contents complete with Liberal polititians to do her bidding. Vesty’s (Lord Vestey) had a proposal to buy the NT in the 1900’s lock stock and barrel.

  • 5
    DF
    Posted Thursday, 24 May 2012 at 4:22 pm | Permalink

    Gina has all that a consumerist society would want but I don’t think that she has it “all”, unless by “all” you mean such a dysfunctional relationship with her family that she is prepared to litigate against her own children over money, which, apart from her youngest daughter, seems to be the only aspect of her life with which she has a meaningful relationship these days. If this is having it “all”, I’m glad I’m so impoverished that my wife and children all remain close with each other and with me.

  • 6
    Bill Hilliger
    Posted Thursday, 24 May 2012 at 5:15 pm | Permalink

    @GF I take your point on the “all.” I meant “all” in a general non specific manner. I would sooner be wealthy and miserable, than poor and miserable. Wealthy and unhealthy - being able to afford the best medical and dental; than poor and unhealthy, waiting in a long line at public hospital, and waiting years for dental treatment, etc. However, I would not need all Gina’s purported wealth then show off about it through the media’s adoring “reporter groupies” and magazines. Imagine, if ever there was a 20 largest tax paying individuals list; how many names from the rich list would be on it? Methinks not many, if any at all.

  • 7
    Andrew McIntosh
    Posted Thursday, 24 May 2012 at 5:21 pm | Permalink

    http://www.youtube.com/watch?v=7-K3jjlufzg

  • 8
    DF
    Posted Thursday, 24 May 2012 at 8:15 pm | Permalink

    Bill
    Can you imagine how satisfying it would be to play God with the money - to go around the needy agencies and actually shower them with the readies? I mean, how much do you and your kids need? I understand what Bill and Melinda Gates get off on when I see them doing good works, rather than being resentful and bitter about taxes and sharing their assets within the “commonwealth”. The examples set to us by the rich in Australia belie all the crap we are fed about “mateship”, “pulling together” etc. The behaviour of the rich sends the message that it’s every man/woman for him/herself and the rest of you can go and get stuffed. They say they believe in Australia and its values but they don’t - they only believe in themselves. To my mind, they have no commitment to their country or their compatriots, and their relationship with the ideas of charity and compassion for others is non-existent. They are just nasty, greedy, selfish and emotionally disabled.

  • 9
    AR
    Posted Thursday, 24 May 2012 at 8:15 pm | Permalink

    Surely every woman, let alone mother, in Oz looks at Gina in horror, thinking ”these are your children - what is wrong with you?”.

  • 10
    Aaron F
    Posted Thursday, 24 May 2012 at 9:31 pm | Permalink

    It really would be embarrassing to be that wealthy yet that determined not to pay more (well have the company that you own pay more) tax. Tax is money that goes towards the community. Helps the less fortunate (ie the opposite end of the scale of those that are born into hundreds of millions). Helps build more roads, build more hospitals, puts more money into education. YOU WILL STILL BE OSCENELY WEALTHY AFTER THE TAX! Perhaps they should consider spending time with the Smith Family or Salvation Army and see families who have to make daily decisions on whether to heat the house for their sick child or put food on the table that day.

    Of course the mining tax is always demonised by saying it will cost jobs. Exactly what jobs are they talking about. Are they saying they currently employ people for no reason just because they like giving away money and if the tax comes in they will no longer be able to afford employing people out of the goodness of their hearts? Are they saying digging stuff out of the ground just won’t be worth it anymore? Apparently Norway taxes its mining companies 80%, and there are still plenty of companies prepared to digg the stuff up for the 20%. 20% of billions is still a lot of money. And because of this Norway can afford a lot more things for the community.

    In fact it should be a broad super profits tax, including banks. Yes Australia needs strong banks to weather financial turmoil. Yes money (for the banks to then lend) used to cost less than what it does now. But they don’t need to make a record profit every 6 months. I would feel confident in the banks if record profits came around every three or four years. And when they talk about interest rates and the cost of money, they need to include profit margins as well. Cost of money does not directly equal interest rates. Cost of money and profit aimed for = interest rates. If cost of money goes up, but the banks accepted very good profits (down slightly from record profits), interest rates could be much lower than what they currently are.

  • 11
    Clements Simon
    Posted Thursday, 24 May 2012 at 11:59 pm | Permalink

    What a lot of nonsense from the ignorant comments. Gina Hancock seems very much like her father Lang, and they have always been very consistent in their views. The ore is in the ground not in her bank account. I’m sure she would rather not be in the headlines as much as the hopeless Clive Palmer who just can’t get enough attention for his puerile, look at me , idiocy.
    Most wealthy people are not in the news and have no desire to be.
    The vast majority of private people and companies spend money more wisely than any government. The system taxes the working class which gives the banks reserves to lend out to the more affluent. It’s better to have money than not, choices to make, but lots more ! There’s only so many icecreams you can eat. Americans worship the dollar but most other humans value a good lifestyle.
    The media are obsessed with wealth but they’re not the smartest kids around, as we see daily .

  • 12
    ForestFirst
    Posted Friday, 25 May 2012 at 1:21 am | Permalink

    $18.7 billion increase in wealth in one year. That works out to over $2,134,000/hour, 24/7.
    If this amount of wealth was spread more broadly, it could pay 90,000 people $100/hr, 40hr/week for a year.
    I’m sure this would be better for the Australian economy than it accruing in the portfolio of a single person.
    Such inequitable distribution of wealth undermines our economic health and resilience.

  • 13
    Modus Ponens
    Posted Friday, 25 May 2012 at 9:38 am | Permalink

    Disgusting.

  • 14
    Peter Dowding
    Posted Friday, 25 May 2012 at 12:41 pm | Permalink

    The story is probably wrong. ask the tax commissioner if all those billions are owned by the people in the “rich lists” or by offshore entities with trustees at “arms length”

  • 15
    Salamander
    Posted Friday, 25 May 2012 at 4:20 pm | Permalink

    No private entity should be able to commandeer such a massive amount of wealth. It is too much power in the hands of too few. If the few make bad decisions it will have repercussions with too many bad effects for us all. If diversity and distribution of power are good, this is the opposite. Enterprise and innovation are to be be encouraged, but this is top-heavy. Rinehart is not the only one - she is just media-targeted for sensationalism along with Forrest /Palmer/ Tinkler. No doubt there are others lying low.

    There should be some backbone in the political / public / democratic sphere to help us claim our rights to the ground beneath our feet. Corporatism is taking over. But corporatism is not ours - it is not by, or for, the people. We are losing the battle for control of our country.

  • 16
    john2066
    Posted Friday, 25 May 2012 at 9:14 pm | Permalink

    Unbelievable. She campaigns against the mining tax because of the ‘effect on jobs’ then what does she do? - hires cheap foreign labor for our mines.

    So its not enough that the minerals are stolen from us, with the profits going overseas, but so are the jobs!

    I hope the conservative morons/useful idiots who campaigned against the mining tax (so that the rest of us can pay more tax) hang their idiot heads in shame.

    Gina Rinehart- australia’s biggest welfare rorter.

  • 17
    john2066
    Posted Friday, 25 May 2012 at 9:17 pm | Permalink

    Perhaps we could simply individually send bills to the useless conservative morons who opposed the mining tax and watered it down for the money we are missing out on. Gina is nothing more than a common garden welfare rorter - give us back the money Gina!

  • 18
    Brady
    Posted Saturday, 26 May 2012 at 1:49 am | Permalink

    And one has to wondered at the logic of voting Abbott in, who has repeatedly said he will repeal the mining tax if he gets in. Really, who cares what Gillard is doing, right or wrong, or for that matter anybody else (I’d vote for a group of monkeys before I’d vote Liberal), how is it possible that the general public is stupid enough to even consider the coalition with news like this?

  • 19
    Aaron F
    Posted Saturday, 26 May 2012 at 7:44 am | Permalink

    Salamanca, yes I agree. In fact too much wealth in too few people is a threat to democracy, especially when they start buying into media companies or, worse still, own/control most of them. You can’t tell me that Fairfax Execs aren’t influenced by Gina (and her well known views on the MRRT) even if she doesn’t explicitly say to them “support my opposition to the mining tax”. Just like you can’t tell me that when politicians meet with Rupert Murdoch (ie David Cameron or Australian Prime Ministers any time they are in NY) they aren’t fully aware of Rupert’s media outlets influence on popularity (ie election chances) when Rupert says “I’m pushing a take over bid for BSkyB” or “I want media ownership laws changed so I can control more” even if it isn’t explicitly stated that favourable media reporting for the politician is being offered.

  • 20
    Aaron F
    Posted Saturday, 26 May 2012 at 8:12 am | Permalink

    Brady, yes I too can not work out why middle Australia wants to vote for paying more tax so wealthy mining companies can pay less. It is like Americans surviving on food stamps or with medical problems they get cured because they can’t afford health insurance voting for the anti-food stamps ant-universal health care Republicans.

    A few VERY VERY profitable mining companies pay the MRRT = EVERY small businesses in Australia paying 1% less tax. 1% might not sound like very much but it will be the difference between surviving and not for some (ie between surviving and everyone in that business losing their jobs). It will also be the difference between creating an additional job or not for many small businesses. Or between setting up a second store (with the jobs created in doing so) or not. Small businesses in Australia won’t be flying in overseas workers. And after all this, the mining companies will STILL be very profitable.

    So to all those people out there working for a small business who vote coalition because they believe the rubbish that the MRRT will ‘cost jobs’: If the business closes and you lose your job, you have yourself (at least in part) to blame.

    To all the people out there looking for work with local businesses who vote coalition: If you find there aren’t many places hiring, you have yourself (at least in part) to blame.

    To all the people out there who work in the mining industry: When you lose your job because Gina and Co hire workers from overseas (even if/when the coalition cancel the MRRT) and you realise they never really did care about your job, that was just propaganda to protect their super profits, you’ll know you are a sucker.

  • 21
    Owen Gary
    Posted Saturday, 26 May 2012 at 1:19 pm | Permalink

    How can we honestly say we are a species capable of wisdom. When we see disgusting creatures like Rinehart, & there are many of them who pay their Lobbyists to bribe Governments who are supposed to be our advocaats.

    We will never evolve & we shall see a fast decline & enter famine, war & the cycle of destruction as a result.
    Australia held so much promise, yet we have been coerced down the same path as the US with open slather deregulation. The Coalition & its ideology will surely destroy the heart & souls that built this nation.

    How a country can let foreign workers in on visas to construct a project?? shows just how corrupt those who lead have become. I dont see much better from either party they all bow before the same masters.

    We should really be hitting the streets in huge numbers, but alas the apathetic nature of people in this country really believe the worsening times ahead wont affect them. About time we held a Bastille day like the French & put an end to this Rinehartism!!

  • 22
    john2066
    Posted Saturday, 26 May 2012 at 4:36 pm | Permalink

    I say for every conservative who voted against the mining tax, or tried to water it down, we send them a bill for the additional tax we now have to pay.

  • 23
    Owen Gary
    Posted Sunday, 27 May 2012 at 12:07 am | Permalink

    We live under a corporate dictatorship not a democracy, please explain to me how Rinehart gets royalties on all the minerals in the ground in designated areas for the duration of the mining???

    The legislation to this whole process needs a huge revamp, then again you can stick a flag on the sea floor & proclaim it for that country crazy world indeed!!!

  • 24
    Brady
    Posted Sunday, 27 May 2012 at 10:44 am | Permalink

    About time we held a Bastille day like the French & put an end to this Rinehartism!!

    Could not agree more. Although when overseas’s I have sometimes found that the French can…. well…. be a little arrogant, I simply love the way they generally, don’t put up with bull…t. Take for example the time when there was some sort of diesel cost dispute (cannot remember the exact details) and the government basically said ‘this is the new price, get used to it’. In response, the very next day you had 10,000 trucks blocking roads around the country and a government suddenly willing to negotiate.

    In our country we just role over and die on mass. Without trying to justify this, I believe this is quite a recent trend. Because of the either the Union’s corruption/media bias/ government lies, the union’s are now held in very low esteem these days, and we have a whole younger generation coming through the workforce (I’m a primary school teacher, who finished a mature age degree 2 years ago) who have absolutely no idea that the wages and conditions that exist today were fought for every step of the way by the unions, and that constant fighting and defending is necessary for middle Australia’s continued goal of financial equality. Even Labor, but ESPECIALLY Liberal, will always take, take, take from the little person if allowed to do so. The corporate side of town (which IMHO, includes both the previously mentioned parties) will only stop pushing their agenda’s when we are all slaves working 18 hour days. That is one side. On our side, it is up to us to push back the other way.

    What we really need to teach our young people, is too examine carefully everything that people say, always look for hidden agenda’s, and that the current condition’s in our country are not a God given right, but a living thing, that must be cared for and nurtured, lest, as is happening now, it dies.

  • 25
    AR
    Posted Monday, 28 May 2012 at 10:51 am | Permalink

    BRADY+1

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