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Australian Children’s Trust

Australian Children’s Trust
Based in Australia
Active in China, Australia
Targeted base metals

Australian Children’s Trust is included in this database because the charity for deprived children owns shares in Poseidon Nickel Ltd, which the Trust’s founder, mining billionaire Andrew Forrest (not to be confused with George Forrest of the Forrest Group (qv) gifted the charity in October 2007.

By 2009, "Twiggy" Forrest (as he is widely known down-under) reportedly donated a further 30 million shares to other undisclosed recipients (mainly charities) in his flagship company, Fortescue Metals Group, one of the world’s leading iron ore producers [MJ 2-9 January 2009].

In December 2010, Business Review Weekly (BRW) commented that two "clear groups" of Australians had emerged since May that year - the miners "who have done very well", and everyone else "who have had decidedly mixed years".

Using the BRW "Rich 200" list, and judging by share price movements and asset price changes, the Business Spectator judged Andrew Forest to be the wealthiest Australian, worth (at a conservative estimate) Aus$6.4 billion.

This was primarily thanks to a 77% jump in the value of shares in Fortescue Metals Group since the start of June [Business Spectator 11 December 2010].

In July 2011, Forrest announced that his group had started transacting in renminbi and was exploring the possibilities of being paid for some of its ore in renminbi. Until then Fortescue had sold the lion's share of its iron ore to Chinese steel mills and only accepted payment in U.S. dollars.

He also said that he was "considering additional listing on the Hong Kong and Shanghai Stock Exchanges" [Reuters 12 July 2011].

By September 2011, Forrest had purchased more than Aus$100 million of shares in Fortescue Metals, through his private company, The Metal Group. In keeping with his charitable bent, Forrest then reportedly distributed these shares to "certain senior executives" in Fortescue itself [MJ 23 September 2011].

In February 2011, the Australian Federal Court ruled in favour of a claim by the government's Securities and Investments Commission (ASIC) that Fortesuce Metals had misled investors, by overstating the value of agreements it made with three Chinese companies, relating to a major (Aus$2.8 billion) expansion of its iron ore project and associated infrastructure facilities in Western Australia.

Forrest stridently denied the charge and, in September 2011, he was granted leave by Australia's High Court to appeal the verdict [MJ 23 September 2011].

In December 2011, Forrest was given a Lifetime Achievement award at the Mines and Money conference, held in London[MJ 9 December 2011].

In June 2012, Fortescue announced that it had raised $490 million in corporate senior debt facilities to "top up funding" for its US$8. 4 billion iron ore expansion plans in the Pilbara region of Australia. The credit facilities were backed by European Export Credit Agencies, but no mention was made of who would provide them [International Resource Journal, 8 June 2012].

Just earlier, Andrew Forrest was called on to defend the hefty $6 billion debt he had taken on to fund his expansions. He claimed this was "affordable" even though demand from China was clearly slowing down. His claims came after several hedge funds sold Fortescue shares short on bets that iron ore prices will continue falling.

According to Reuters, Fortescue stock is "the most heavily shorted among Australia's top 50 listed companies". Of the shares that can be borrowed, almost half are out on loan, says securities lending research house, Data Explorers.

Hedge fund manager Jim Chanos (famed for anticipating the collapse of Enron) recently called Fortescue a "value trap", and said he was betting against it.

Reuters pointed out that Forrest "has the most to lose if short sellers turn out to be correct as he owns nearly 32 percent of the company"[Reuters, 8 June 2012].

Later in June, Reuters reported that Forrest was seeking to buy 60 million shares or 1.9 percent in Fortescue, for about US$294 million), through Morgan Stanley. This would be on an "all-or-nothing" basis - meaning that, if the full order were not met, no shares would be bought [Reuters 26 June 2012].

At the same time, Fortescue launched a legal challenge to Australia's Mineral Resource Rent Tax (MMRT) - a piece of legislation which seeks to return more profits from the minerals industry to the country's exchequer.

Backed by the right wing political opposition, Fortescue argued that the tax breaches Australia's constitution "by impining on the principle ofstate sovereignty, givign perferential treatment to certain states, and nby restricting state's abily to manage their own mining-related affairs" [MJ 29 June 2102].

Forrest had long argued that Australia's three biggest mining companies concluded a "secret" deal with the Labor government to exempt them from some payments under the MMRT.

In July 2012, Fortescue arranged a dual-tranche credity facility, worth US$1.5 billion, to meet cost overruns at its Pilbara operations [MJ 10 August 2012].

However, a few weeks later, on 5 September, it had to sell a power station in the region, in an effort to further reduce costs. The buyer, Canadian power company TransAlta, reportedly paid US300 million.

But, only the day before, Fortescue announced it was slashing operating costs by AUD$300 million and putting its earlier USD$1.6 billion of capital raising on hold; meanwhile Andrew Forrest had been "compelled to up his stake in Fortescue last week to boost confidence in the company as well as ailing share prices" [ 5 September 2012].

The move appeared to work - at least partially. A fortnight later, Fortescue agreed a US$4.5 billion senior secure-credit facility with Credit Suisse (CS) and JP Morgan, in order to "refinance all of its existing facilities and provide additional liquidity". According to the company, this agreement gives it until November 2012,at the earliest, to repay any of its existing debt, removing financial maintenance covenants that aplied earlier [MJ 21 September 2012].

For the time being, then, Forrest and Fortescue appear to have weathered the storm. But for how long?

As Tim Treadgold recently commented in the Mining Journal, addressing the predicament of what he dubbed "one-trick ponies" (mining and metals outfits which lack adequate diversification, to bolster them when their chosen commodity hits a bear market):

"Fortescue...started as one man’s bright idea. Andrew Forrest, the founder and chairman, correctly identified an opportunity in the iron-ore business based on research that pointed to a rapid increase in the demand for steel in China.

"In its infancy Fortescue had no choice but to concentrate on developing its iron-ore assets, while relying almost totally on Chinese buyers who, it must be said, were willing players in the game because Fortescue represented a chance to split the Australian iron-ore duopoly of BHP Billiton and Rio Tinto".

However, said Treadgold: "The problems that have hit Fortescue are not about its status as a one-trick pony. They are all about excess debt, and excess hubris, that particularly unattractive human attribute that surfaces at the peak of every commodity boom".

In November 2012, Fortescue diversified out of its mainstay iron ore production into natural gas, by becoming an investor in Autralia-listed Oil Basins Ltd, "as part of [its] plan to shore up future energy supplies for its Pilbara operations". Fortescue will pay Aus$4.2 million to secure an 18% stake in the other company [MJ 16 November 2012].

During the following year, the tycoon played the role of an environmentalist (strange though this might appear), when he fought against a proposed uranium mining project and Chevron's close-on US$20 billion Wheatstone LNG venture, both in Western Australia.

He also tried to prevent a company called Onslow Resources from commencing sand mining on his own cattle ranch - a battle he seems to have lost in February 2014, when a Western Australian court ruled against him. Forrest claimed that the mining would "negatively affect pastoral livelihoods" [ 10 February 2014].