Why billionaire Andrew ‘Twiggy’ Forrest’s mining empire needs two CEOs
The gas industry veteran will effectively become co-chief of a mining company which has big green energy plans.
As Woodside executive Fiona Hick prepares to walk into Andrew Forrest’s Fortescue Mining, it won’t be as conventional chief executive of a top 20 ASX company.
The gas industry veteran will effectively become co-CEO of a hard rock mining company trying to reinvent itself as a energy giant.
She will run the metals business alongside Fortescue Future Industries, the green hydrogen start-up which has its own CEO in the form of former top GE executive Mark Hutchinson.
The trick is FFI has next to no revenue but a plan to spend as much as $1.2bn this coming financial year as it builds out an ambitious green hydrogen push, most of which will be funded by the metals business. There is little doubt as a hands-on chairman and single biggest shareholder, multi-billionaire Forrest will continue to actively drive Fortescue’s agenda across both metals and energy.
The combination of “Hicksy and Hutch”, Forrest tells The Australian, will make a strong team for Fortescue.
“Fiona’s bailiwick of challenges is massive. We absolutely need a chief executive of metals and we absolutely need a chief executive of energy. I’m delighted to say the team has been put together,” Forrest says.
“This is a company in deep transition. This is a highly productive company entering its most active and potentially most productive era”.
Both CEOs will report to the board, giving one another a clear delineation of their respective businesses. Hick’s appointment follows former Fortescue chief executive Elizabeth Gaines moving onto the board and comes after a year-long search to get a permanent chief executive for the metals arm.
Hick, who was most recently headed Woodside’s vast Australian operations, says her skills are “transferable” to running a hard rock miner, which has different engineering challenges. While she has been with Woodside for nearly two decades with roles ranging from strategy and planning to safety and environment, she points out she started out as an engineer at Rio Tinto’s Pilbara-based iron ore business.
Meanwhile, as the chair of Western Australia’s powerful Chamber of Minerals and Energy, she has close links with the state government.
Her expectation as chief executive of Fortescue’s metals business will be to “challenge the status quo and think about where we can improve the business”.
She intends to be highly visible at Fortescue’s WA mine sites, where “talking to people at the site where the money is made is very important”.
Hick takes charge of the world’s fourth biggest iron ore miner at a time when the steel market is rapidly cooling, with the risk of a global recession next year. China’s troubled housing market is also weighing on that economy, which will significantly dampen demand for iron ore. Fortescue needs to keep its discipline of low cash costs. Average expenses have been creeping up with inflationary pressures and the demands of hydrogen investment will be huge.
Fortescue has the additional challenge of keeping its production schedule running at full tilt to generate cash, just as its new $3bn Iron Bridge magnetite project ramps up in the coming year. The expansion has already seen a major cost blowout, putting additional pressure on the earnings line.
Fortescue is also considering a greenfield mining development in Gabon on Africa’s west coast. It is expected that Forrest will remain more hands-on around the Gabon move.
Hick says she will focus on cost control. “We need to be attuned to that and that’s part of why streamlining and simplification will be part of our focus, so that we can stay one of the most efficient iron ore companies in the world.
“They (costs) are pressures on every company and so it’s really important that we do whatever we can to get in front of that.”
Woodside chief Meg O’Neill said Hick had demonstrated “exceptional vision and leadership” in the many roles she has fulfilled at Woodside, including being instrumental in delivering “safe, reliable, low-cost and lower-carbon performance”.
Meanwhile Forrest says more appointments are in the works at FFI. It comes after former Reserve Bank deputy governor Guy Debelle last week stepped back from chief financial officer of FFI and moved to its board while he recovers from a severe bike accident. Forrest said the new role is much better suited to his recovery.
Frazis feels pinch
Bank of Queensland’s decision to oust chief executive George Frazis is now having a financial impact on the former boss. The exit, coming just a week out from the bank’s annual meeting, shows how quickly the mood changed in the bank’s boardroom. At the eleventh hour BOQ has had to pull a long-term options and bonus share package of up to $2.98m which was due to be voted on by shareholders. The package was designed to vest over four years until October 2026, which gave some indication of long-term plans for the CEO. Until the package was pulled the board had recommended shareholders back the scheme.
BOQ this week said Frazis had left because a different strategy was needed heading into a tougher operating environment. The move came as Frazis was halfway through integration of the ME Bank acquisition and a digital overhaul of BOQ. Analysts at Credit Suisse cut their recommendation on BOQ to neutral following the move.
NSW windfall
The NSW funding arm TCorp has just delivered a $95m dividend cheque to state Treasurer Matt Kean after posting a pre-tax profit of just over $139m. The payout to Kean is up slightly, or $1m from year earlier, although TCorp’s profit was jumped 18 per cent helped by higher interest rates.
Headed by former Perpetual boss David Deverall and with former RBA governor Glenn Stevens on the board, TCorp has been pushing deeper into green bonds with nearly $7bn on issue. A recent monster $1.5bn 10-year green bond was more than twice oversubscribed, with the issue rushed by offshore investors.
The state agency is now looking to raise $13bn by the end of June to meet its $24bn annual funding task. And while issues to date have been oversubscribed, offshore buyers for standard (non-green) bonds are pulling back as they seek to allocate funds in higher-returning debt. On average offshore buyers – mostly from Europe and Asia – represent 20 per cent of demand for TCorp bonds, but this has since come back to 10 per cent for newer issues.
Australian banks remain the biggest buyers of state government bonds, also known as semi-governments, given the favourable capital treatment of the instruments. But even banks have increasingly found bottlenecks in the swap market as they seek to convert semi-government bonds to floating interest rates.
The real crunch for semi-government bonds will come in the next few months, with Victoria’s massive funding task this year nearing $35bn due to Victorian Premier Dan Andrews’ infrastructure spending spree. Any further increases to the Victorian funding task threatens to crowd out the entire market, potentially forcing up all state bond pricing and therefore borrowing costs for all government agencies – not just those in Victoria.
Both NSW and Victorian 10-year bonds are currently yielding 4.55 per cent, compared to 3.56 per cent for Canberra-backed bonds.
While Deverall’s TCorp is better known as the debt agency with more than $135bn in bonds on issue, it also operates a $105bn funds management arm which flies under the radar. This puts TCorp among Australia’s top 10 asset management businesses with a mix of local and offshore shares, property, alternatives and infrastructure investments.
johnstone@theaustralian.com.au