How much is too much when it comes to the profits of one company and one man — particularly when dealing with a state-owned resource that can be exploited only once?
Andrew “Twiggy” Forrest delivered the 2021 Boyer lecture last week and couldn’t help but drop that his beloved Fortescue Metals had made more than US$940 million in after-tax profit in December alone. Imagine measuring that in Aussie dollars before tax. We’re talking about $1.5 billion in a single month, some $50 million a day.
As so often happens with Twiggy, this disclosure to a live studio audience in Perth sailed close to the governance winds because Fortescue hadn’t actually informed the market of this achievement.
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It resulted in Fortescue making this special ASX announcement on January 21, predicting that its December half year net profit would come in at a record US$4.1 billion.
The full 15-page Boyer lecture is worth a read because it has Twiggy evangelising at his best on climate change — not unlike his performance at the recent Fortescue AGM where he was beamed in via video link from Paraguay, interrupting his world hydrogen spruiking tour. This tour even included him spending several days in a Swiss hospital battling COVID-19, something which the ASX still hasn’t been informed about.
The WA iron ore revenue and profit numbers are a bit like the $100 billion-plus JobKeeper hand-out program — we’ve never seen largesse quite like it and it would be good to know more about precisely who is benefiting.
With total WA iron ore production forecast to hit almost 900 million tonnes in 2020-21, we’re talking an extraordinary US$160 billion in industry revenue if the price holds at its current levels.
Forrest owns 30% of a business that shipped 178 million tonnes of iron ore in 2019-20, so he effectively personally profits from about 53 million tonnes of annual exports or some 6% of the statewide total.
Fortescue is capitalised at $78 billion, so his 30% stake is worth some $23.4 billion. If that sort of wealth comes from a bloke who owns just 6% of industry volumes, it suggest the whole industry is worth close to $400 billion, with BHP and Rio Tinto still representing a clear majority of this value.
On Thursday Fortescue provided justification for a super tax in its December quarter and half-year production and sales report, in which it revealed a “preliminary” profit estimate of US$4-US$4.1 billion for the December half. That will be a record for an interim result, a 60% jump on the then record US$2.5 billion reported for the December 2019 half year. A record interim dividend of US76 cents a share was paid for that period.
With a 60% rise in earnings already booked, an interim payout of US$1 a share or more is on the cards, with Forrest pocketing 30% of any payout. (He was paid a total of US$1.95 billion in 2019-20.)
BHP is expected to announce an annual pre-tax profit of more than US$20 billion in coming weeks, despite a billion-dollar-plus writedown on its NSW thermal coat assets. Juukan Gorge destroyer Rio Tinto looks set to unveil about US$16 billion in pre-tax profit. In November, Gina Rinehart’s Hancock Prospecting revealed a $4 billion profit.
Kevin Rudd and Ken Henry must be watching all this with interest given the way Forrest, Tony Abbott, Clive Palmer, Rupert Murdoch, Rio Tinto, BHP, Xstrata and others killed off their proposed resources super profits tax in 2010. If implemented, the federal government would have been pocketing tens of billions of additional annual revenue at the moment.
The Western Australian government is also in an interesting position given that it actually owns the resources.
As the chart on page 78 of the 2020-21 WA state budget shows, iron ore royalty income was only about $1.1 billion in 2007-08 before rocketing to a record $7.5 billion in 2019-20.
The forecast of a slight drop in 2020-21 is unlikely to materialise given that iron ore prices averaged about US$90 a tonne in 2019-20 but have since soared to almost US$180 a tonne (see this chart), suggesting WA state royalty income will top $10 billion in 2020-21.
Even prominent Melbourne pollster and perennial lord mayoral candidate Gary Morgan is benefiting from this extraordinary iron ore boom. His Haoma Mining, which the ASX delisted in 2018, received $600,000 from the Rinehart interests in recent weeks related to a WA iron ore royalty deal it did with Atlas Iron in 2012.
Atlas subsequently almost went broke and Rinehart then outbid Forrest and saved it with a $427 million cash takeover in 2018. She has subsequently made hundreds of millions of dollars in extra profits, a few crumbs of which are being thrown Morgan’s way, as he explained on page 10 of his latest shareholder update.
It sounds like Haoma could pocket quite a few million from Rinehart this year, keeping Morgan’s Roy Morgan Research business buoyant during the COVID crisis.
Abbott is another who is indirectly benefiting from the iron boom. The newly installed “distinguished fellow” at the Institute of Public Affairs (IPA) has a gig partly funded by the iron ore boom, given Rinehart has been the biggest backer of the IPA in recent years (although the precise contributions remain a secret).
But don’t expect Abbott to pen a reflective “I was wrong” piece on the resources super profits tax. The English-born and arguably disloyal unpaid trade adviser to Boris Johnston’s government still hasn’t been able to publicly argue that Rio Tinto should move its primary listing and headquarters from London to Australia and have a majority of Australians on the board.
This is what BHP was required to do by Peter Costello when it merged with Billiton back in 2001, and thank goodness for that.
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Indeed the time is ripe for the States to alter the exclusive terms of mining rights, to open the field to more participants in all mining sectors. The more the better, and the Unions of mining workers would applaud any increase in job numbers. So nationalisation of the industries is not necessary, pace Rex Connor, a cheaper alternative is to remove exclusivities.
And create slightly more billionaires? No, of course the mining industry should be nationalised. Obviously there isn’t a snowball’s chance of it happening. But, just for a moment, imagine what a wonderland of a country we might be if all that money was spent on education, culture, and medical and psychological and social support for anyone who needed it. That’s what Twiggy is depriving us of. That’s why his syrupy, smug self-righteousness is so nauseating.
It really is that simple.
No ifs, no buts, no B/S.
And no compensation.
Yep, there is something immoral about allowing billionaires to flourish if all they are doing is flogging off a finite national resources, that they paid for on the cheap. “Behind every great fortune lies an equally great crime”? Just how did all these mining/resource players negotiate such good deals at the expense of the sovereign owners?
I was just a youngster backpacking Europe when I lucked into an IT contract with Burma Oil in London. They were HQ for the building of the world’s largest steel platform destined for the North Sea. A year later they were bought out by British National Oil Corporation. Britain through the BNOC bought all the oil companies operating in the North Sea at the time. It cost a fortune, but Britain has made hundreds of billions over the years AND providing cheap energy to its population and businesses over the decades. It took guts and determination. Something our stodgy ‘old’ govts (lab or lib) are sadly lacking.
It’s impossible for the states to alter exclusive terms of mining rights that would significantly threaten the profits of the likes of Forrest, Rinehart, BHP and Rio. Rex O’Connor and his boss were visionaries, but some very powerful foreign govts and their mining industries don’t suffer visionaries in their tributary nations gladly.
Agree. It would rain down havoc on Twiggy et al worse than a super profits tax.
IMO it’s not about a super profits tax, it’s about the derisory royalty that mining companies pay for their source product.
Did Mr Forrest, or Gina or anyone “make” the iron ore ? In fact in Gina’s case, her dad should have just got a spotters fee and be done with it. How anyone can justify the perpetual royalty she gets is a mystery.
Sure there is infrastructure that needs to be in place to exploit the minerals, but that also seems to be largely subsidised by the tax payer. It’s one massive rort where a public asset is virtually given away for private profit.
I agree. A super profits tax does nothing for the Commonwealth Government’s budget (because taxation at that level is not revenue). Royalties to the States, on the other hand, do equal increased capacity to spend on goods and services.
That being said, a super profits tax and/or wealth tax could be useful tools in addressing wealth inequality.
True, K, but “useful” is clearly and understatement. Without a necessary redistribution or “reset” – sooner rather than later – the billionaires won’t have a chance of escaping to a new life on Mars.
70 years ago the top marginal tax rate was 75%. It has been lowered steadily by both Labour and Liberals since then, and Morrison is going to lower it again soon. If we start voting for higher rather than lower taxes and redistribute that revenue in productive and compassionate ways the country ( and not just the wealthy ) would be better off
Until the Frazer interregnum, federal revenue was <30% personal income tax and 70% corporation tax, with remainder bounties & excise.
That ratio is now reversed and the baleful result is plain to see.
I recalled Gillard saying something akin before she was railroaded, steam rolled and hung out to dry by the troll who prohibited stepping foot on mining reform.
It should be remembered that pater Lang did not tell anyone, WA or federal government of the vast lode of iron ore because at the time there was thought to be so little that there was a ban on export.
He just quietly went about acquiring leases throughout the Pilbara until it was no longer possible to hide the magnitude of the deposits.
Policy changed, he grew obscenely rich and the country became poorer & meaner.
A “mystery”, BJB? When Rex O’Connor – with his cabinet colleagues’ blessings – tried to return ownership of Australia’s natural resources to its citizens, it helped trigger a political coup.
I’ll say it again and again until everyone gets the point –
It should be illegal to be a billionaire.
so, we have billionaires and at the other end of the scale we have the homeless and poor. Not much balance there. May I have the temerity to suggest that we either impose a wealth tax or that we nationalise the resource industries. This could go a small way to balancing the obscene levels of inequality in our society.
Why not both?
We don’t need to nationalise the resources – they are not ‘owned’ in the usually understood sense of belonging to those reaping the profits but are on Crown leases (as is the majority of agricultural land but that’s another abuse requiring correction).
The resources belong to the Crown, in trust (HA!) for We, the Peeps.
BTW, the same applies if valuable minerals were discovered in Pitt/Flinders Sts or your suburban quarter acre.
Never mind who owns the land on the surface, the stuff beneath is not part of the deal.
.
True, A. But you might be able to purchase the mining rights under your 1/4 acre of domestic bliss.
It all feels a little perverse that we can afford for people to accumulate way more money than they’ll ever need at the same time we have millions in poverty and a housing affordability crisis. It’s been a great PR move that all sorts of tax avoidance schemes are seen as necessary features of our economy while cracking down on potential welfare fraud is an election-winning issue.
It’s the old trope “If workers are adeuqately paid they won’t do enough but if the rich are not overpaid else they’ll not do enough.”
shome mishtake shorly?
I notice the people who make the argument about welfare needing to keep people in poverty and the minimum wage needs to be low never work just the hours they need to live a modest existence. Somehow wanting a better life is only for the upper classes?
Interesting equation, “work harder = better life“.
That’ll take longer to prove than Fermat’s last theorem.
I like that, being a bit of a maths junkie. Was a great read to learn about how the guy did it, so out there.
Yes, many still internally hold the view that hard work leads to riches. Probably never dug a trench in their life, but there ya go.
In the olde language that would be “Horny handed sons of toil“.
“He mined…” – no, not really.
Nor did kings build palaces nor emperors drain canals.
Well, Scummo works very few hours, but he’s on a salary – I believe it’s higher than that of most world leaders – so he gets the dosh regardless of how often he turns up, let alone how corrupt he is, or how many lies he tells. Imagine how he’d go if he had to meet some kpi’s?? (Hint: Have a look at his employment history, and his application process to gain preselection…).
Why would the ASX need to be informed when a non-executive Chairman falls ill? This isn’t market sensitive.
I’m assuming irony there Phen, but I thought he was the executive chairman. If he isn’t the CEO, whoever is has a pretty cushy job.