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Forrest takes the floor

Cover_Story
FMG’s famed founder and leader speaks about why the best is yet to come

Philanthropist, protagonist, pioneer and plenty of other labels have been bestowed upon Andrew ‘Twiggy’ Forrest. He’s CEO and, effective July 18 Chairman of the iron ore industry-piloting Fortescue Metals Group (ASX: FMG) of Australia. But let’s face it—he knows how to cut a headline given the exponential progress FMG has made in under eight years, having grown into a $20 billion company.

“I think that the most exciting stage of Fortescue is yet to come through the opportunities ahead of it. [The company] is on the way to 155 million tonnes a year while establishing a very firm base to go to 355 million tonnes when it wishes to,” he tells AUBJ.

“Fortescue is probably the most under-valued ever compared to asset values, earnings and future potential since we started. Under its new leadership, I’m very excited for its future.”

The here and now has proved to be a pretty captivating spell too. In the first week of June, Forrest gave approximately $50 million in FMG shares—on top of a previous $100 million—to a range of charitable organizations. It is a move and commitment which mirrors his intentions in transitioning to chairman, where he plans to further pursue all manner of causes close to his heart. Since growing up as a jackeroo alongside friends of all origins he has pursued the indigenous social and economic disparity that exists in Australia. This includes GenerationOne—a national drive to challenge the people of Australia to overcome indigenous disadvantage through changing their attitudes to welfare and employment. The story as it stands is really two-fold: Quite how exciting the coming years will be for FMG, and how Forrest will blend steering the company forwards from his new seat with an evidential passion for social development—and who better to tell it than the man himself.

NG: The success story of FMG to date going back to the run up to the global financial crisis has been very well-chronicled, and you say that the best is yet to come. Let’s look at the goals today including production at 155 million tonnes per annum—as early as June 2013 according to the production program in place—and the company’s continued focus on China.

ATF: The lead up to the global financial crisis was an interesting time. We had only been in production for a short time before it hit, but the crisis taught us an enormous lesson; that no matter how big some customers or companies are, when the temperature turns up it is only the quality of the people on the other side that will see you through. It taught us that it’s the strength of the character of the people as opposed to the strength of the company that make the difference when times get tough. This is probably no more apparent than when looking at the contractors who stayed with Fortescue through the global financial crisis. There were many of them, but I’d single out Jan De Nul, the dredging contractor, who even despite the very low times stayed dredging our harbour so that as we are doing right now, we could immediately expand.

The other great lesson was there are swing producers in the iron ore industry. When the iron ore price dropped below $100, China stopped buying anywhere near as much as they were from Brazil. They cut down buying drastically from India, and when the price fell below $80, they also cut down their own domestic production by some 75 per cent. While it was a dramatic time around for the world it really jolted China yet they managed their economy very well.

That [tough time] allowed us to fine-tune our expansion plans and set our relationships with our own suppliers. That is one of the critical reasons why our expansion plans are going so well today. Our own customers have been truly tested, and in the same way we’ve had our own suppliers truly tested. We’ve forged good relationships out of that period in both directions.

NG: What would you say to industry commentators who remain skeptical about China’s goals?
ATF: I’ve found that the most reliable commentator on China is China itself. There are industries that cut down entire tree plantations to print their views, but I’ve never seen them get it right. The only reliable commentator has been the government of China. While they sometimes get it wrong in the detail here or there, the general trend is totally reliable. While some people say they won’t need all of that steel capacity, the plan is to build up to 20 cities per year, and I think they will.

NG: Following your official announcement about your move to chairman as of the beginning of June, a lot of the press have picked up on your comments about your philanthropic efforts as CEO and how both these and the wider business will unfold after the move.

ATF: There are journalists in Australia that insist that nothing will change at Fortescue as if I have become Executive Chairman. They are wrong. In the common Australian way of doing things I will be non-Executive Chairman. My philanthropic activities edged up near 50 per cent of my time—even though I had our board’s full blessing, we all knew it was time to take action. It’s a move therefore that we have been planning for three years. The Board’s completed a very thorough review of the most able candidates I have ever seen the mining industry attract.

We settled on Nev Power because of his personality and his ability to adopt the unique culture that is Fortescue; the empowering mechanism of our success. Once we saw that he had that ability, understood the humility of leadership we took a long hard look at his experience in mining, construction and steel-making. We saw then that he was the right guy even though he wasn’t already running a very large mining company like many other candidates. We knew he had the potential to do that better than anyone else.

That has freed me to concentrate on a large number of causes that we pursue in Australia and overseas, some public like GenerationOne; changing Australia’s attitudes towards our first people. Also encouraging them to change their own attitudes too, for both parties to rid themselves of the racism of low expectations, to demand the full capability of themselves as unique and to consider themselves at least as able as every other Australian. We show this by providing employment opportunities, education, training and friendly work environments where we can all, particularly our first Australians, succeed.

NG: In a recent interview with ABC News, Power said that when considering possible geographic and/or product diversification, FMG is all about countries where the team can take their children on holiday. Perhaps you can tell us about the possible countries up for discussion here?

ATF: We had a good look at Mongolia because we’ve been comfortable with that country, and I have in fact taken my children there. We met people from all walks of life from farmers, property developers right up to the President and the Prime Minister and we felt comfortable about that country.

The two qualifiers are that our workmates are no less important to us than our own children. If we’re not prepared to take out own children there, why should we send our teammates? They have their own children and family, why would we put them at risk when we see that risk too high for our own families? Other mining companies have gone elsewhere, and good luck to them but particularly their people. We will focus on our massive asset base in Australia. The other qualifier, of course, is that new assets have to have the same potential earnings quality that we have in the Pilbara in terms of customer’s loyalty, mine life, bottom operating costs, simplicity of processing, etcetera.

NG: Finally, all sides considered, what does the industry really need to consider on the eve of your move to Chairman, and what sort of messages do the media need to correctly convey?

ATF: I think that I’ve been given an even hand from the media over the last eight years. Due to the size of the challenges, it’s been a very difficult story for people to believe, to support in some respects. I think that generally sceptics have also had their fair share of airplay too. Generally media in our early days were willing to leave open the door to the possibility that our dream may just come off. I thank them for that. Nobody in the media, even the most critical or those closest to BHP and Rio were willing to completely write us off in the last few years. Even in the early days, only very few fell for our competitors “he’ll never make it” rhetoric. That in a very real sense allowed us to grow. I’m grateful for that and thank the media for keeping an open mind.

Now we have a company that is critical in the development of Asia, critical in maintaining the diversity of supply in such an important element as iron ore. With that diversity of supply comes confidence of the customer base in our supply industry. That confidence for many years (when the industry was so concentrated) was evidently lacking.

We’ve only just started mining at 55 million tonne per annum rate as we speak (it took our peers in industry decades to reach) what we have in three years so you can see we have only just started. The future is definitely brighter than the past and the past hasn’t been too bad for shareholders.

We are now expanding to 155 million tonnes. Then if we wish, go to 355 million tonnes, all on the back of assets established in the last eight years. It’s been a truly wonderful run, and now it’s the turn of someone else to take our run forward. We have an excellent team and a leader that understands completely that it is his role and privilege, like it was mine, to serve them. I will relish my role as their guide, supporter and encourager as non-executive Chairman.

AUBJ wishes Forrest and the wider FMG team all the best with their future endeavours and thanks all for their participation.

www.fmgl.com.au