Since Gina Rinehart started her quest to grab seats and a bigger say on the Fairfax board, one question has puzzled me: does she really have the time and energy to spend trying to fix a broken company, when she has her own $30 billion empire to look after? That question may have been brought into sharp focus over the past 48 hours.
First came BHP Billiton’s decision to can the $20 billion expansion of its Olympic Dam mine, which has led politicians, business leaders and economists to start questioning how long the mining boom has to run.
While lower commodity prices may reduce the amount of cash coming out of Rinehart’s mining interests (which are operated by Rio Tinto), the profits will keep rolling in. But Rinehart is also trying to develop her own iron ore mine in the Pilbara and coal mines in Queensland; BHP’s decision shows that it will become harder to prove that the economics of new projects stacks up.
A day after this timely reminder that the mining sector is becoming tougher came the staggeringly awful result from Fairfax Media, which lost $2.73 billion after announcing write-downs of more than $2.9 billion.
While Fairfax is scrambling to turn itself into a lower-cost, digital-focused business, the outlook delivered by CEO Greg Hywood underlined how big a task this will be. In the first weeks of the 2012-13 financial year, revenue is running 10% below the previous corresponding period. And in a statement that will make investors wince, Hywood says he doesn’t expect things to really turn around until 2015. In this environment, in a sector that’s being hit like media, three years is a very long time.
With these two announcements ringing in Gina Rinehart’s ears, it’s little wonder she tried to offload more than 100 million Fairfax shares, or 5% of the company, in a block trade yesterday afternoon.
The trade, which would have cut her stake from about 15% to around 10%, was not successful — no great shock given the financial result posted just hours before.
The question is what will Rinehart do next? Trying to sell 5% doesn’t suggest Rinehart is set to try and buy Fairfax outright, even if it is becoming cheaper and cheaper to do so.
The attempted trade could be seen as a signal that Rinehart is starting to understand exactly the mess that Fairfax is in. For all her shots at chairman Roger Corbett and claims that the board doesn’t understand the ever-changing technology, Rinehart may have woken up to the fact that there are no quick fixes here.
Turning Fairfax around will take time, patience and, if Rinehart was to buy the company, potentially a great deal more money to fund reinvestment.
With Rinehart busily trying to get her mining projects off the ground — a task that also requires big chunks of capital — she might have decided she cannot risk getting stretched in too many different directions.
Of course, who can discount the idea that Rinehart is messing with all of us — maybe she’s trying to remind the board what might happen to the share price if she was to suddenly dump her Fairfax stake.
Rinehart’s most sensible move would be to curb her Fairfax ambitions and concentrate on her own empire. And if she wants media clout — as she seems to do — she should take a look at James Packer, whose every utterance in recent months has received extended coverage in the media.
Journalists such as me who have trying to read between the lines of Rinehart’s Fairfax play for months would love nothing more than to hear her thinking straight from the source.