Not stuffed at all. Ms Gina Rinhart, Clive Palmer and Dr Andrew Forrest are richer than Croesus. But there is a problem for their iron empires and it is this:
China’s economy is slowing to the lows seen way back in 1990 — a price President Xi Jinping seems willing to pay to reduce its dependence on the property sector.
Beijing’s squeeze on the real estate sector will linger into next year and beyond, a development many hadn’t seen coming that has now prompted banks like Goldman Sachs Group Inc., Nomura Holdings Inc. and Barclays Plc to cut their growth forecasts in 2022 to below 5%.
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Economists are coming to realize that the Communist Party’s Politburo, the top decision-making body, was serious when it vowed this year not to use the property sector to stimulate the economy as they did following past downturns. Officials say excess supply of housing is a threat to economic stability, and want investment to go to prioritized sectors like hi-tech manufacturing rather than more apartments.
Gina owns and runs Roy Hill, a very cheap, reasonably high-quality iron ore mine that produces roughly 56mt at $24 per tonne, according to S&P. On a grade-adjusted cost curve, Roy Hill sits at about $30 cash cost, putting it near Andrew’s Fortescue:
The gem in Clive Palmer’s mineral crown is the royalties he receives from the godawful expensive CITIC mine in the Pilbara:
A Supreme Court judgment has paved the way for giant Chinese conglomerate CITIC Limited to mine an additional 1 billion tonnes of iron ore in Western Australia through a deal with Clive Palmer.
CITIC will likely develop a new mine to complement its existing magnetite and port operations on the WA coast south of Port Hedland, in another massive royalties windfall for Mr Palmer.
He is set to pocket $US142 million ($186.9 million) up front – a sum described by CITIC lawyers as a “mere bagatelle” – and as much as $250 million a year in royalties once the conglomerate starts eating into the billion-tonne rights.
While all three might claim to be safe as houses for reasons of cost competitiveness and strategic imperative, none of them are if the Chinese property adjustment is structural.
Assuming Chinese steel output falls 10% next year and 3% every year after that to 2030, plus steel scrap continues its rise at the current rate, 600mt of seaborne iron ore demand is going up in smoke over the next nine years (this does not take account of changes to broader seaborne supply and demand which are also likely to net negative):
That will mean that all CITIC, Roy Hill and FMG mines will have to be shaken out of supply.
The three iron magnates are doing very different things in preparation. Andrew is on a renewable energy crusade, most notably promoting green hydrogen and aiming to acquire other metals production for the green transition.
Clive is doing whatever Clive does, which includes capturing the Australian political system. That isn’t going to save his iron ore interests but it might help his own tenements, such as coal in QLD.
Gina appears to have gotten a different memo:
Mining magnate Gina Rinehart has struck a deal to buy into an iron ore project in WA’s northern Goldfields, further expanding her iron ore empire which includes the Roy Hill mine in the Pilbara.
A subsidiary of Ms Rinehart’s Hancock Prospecting has struck a deal to form new joint venture agreement with the owners of the Mt Bevan project, 100 kilometres west of Leonora.
Perhaps she plans to blend with Roy Hill volumes to lift the grade quality. Who knows.
I advised Gina and Andrew last year to float their respective operations and neither did. It was the ideal moment to do so when commodities, particularly iron ore, were super hot even as terrible future loomed. That moment is now past and any attempt to do it now will be savagely discounted by an increasingly dire outlook for iron ore.
Doubtless, the three billionaires have plenty of business and personal bolt holes to fall back upon. I am not pretending to have any idea what the spread of their empires is.
My point is that what looms as an epochal shift for the national economy is likewise going to throw the cards in the air for our stock of mining billionaires.