Mining magnate Gina Rinehart digging deep for mega profits

Article by John Stensholt, courtesy of the Australian

What a year it has been for Gina Rinehart.

With iron ore prices surging for much of the year and an improvement in its production, Rinehart’s Hancock Prospecting doubled its net profit to a whopping $2.6bn for the 12 months to June 30.

That result showed just how quickly Hancock has grown in only a few years. The company, of which Hancock owns about 76.55 per cent directly, achieved revenue of $1.6bn in 2016 – or about $1bn less than its profit this year – and a net profit of $443m that year.

It means Hancock’s net profit has leapt about six times in only about 36 months. Revenue has jumped to $8.4bn in the same time.

But an analysis of several of the subsidiaries of Hancock that form part of the company’s overall balance sheet shows Rinehart has made several canny deals and acquisitions in recent years.

Rinehart’s wealth was estimated at $13.12bn when The List – Australia’s Richest 250 was published by The Australian at the end of March, based in part on Hancock’s financial results last year.

Her after tax profit compares with the $4.7bn result for the listed Fortescue Metals Group, chaired by fellow billionaire Andrew Forrest. FMG currently has market capitalisation of about $28bn, meaning’s Rinehart’s wealth valuation is on the way up if it was calculated on a comparative basis.

There was a time when Hancock made most of its money via payments that flow through its Hope Downs iron ore joint venture with the listed Rio Tinto, but Rinehart’s cherished $US10bn ($160bn) Roy Hill iron ore mining operation is now well and truly up and running and making good money.

Now 70 per cent owned by Hancock, Roy Hill made a $1.38bn profit for the 2019 financial year – or about the level of profit the overall Hancock group made a year earlier – from revenue of $5.16bn. Roy Hill also has about $5.6bn assets on its balance sheet.

Rinehart secured a massive debt funding package worth more than $US7bn back in 2014, the largest mainland resource debt funding deal in the world, and Roy Hill made its first shipment of iron ore from Port Hedland in December 2015.

Deal breaker

Separate accounts for many of the other companies owned by Hancock also show how good her timing has been.

Take last year’s acquisition of the formerly ASX-listed Atlas Iron, which has port capacity at Port Hedland. Hancock paid $418m in a deal that was finalised in November last year.

At the time, Atlas was coming off a 2018 year for which it had posted a $166m net loss that included an impairment of $92m due to challenging market conditions.

But the 2019 Atlas accounts show just how well it has performed. Net profit was $142m and revenue rose from $546m to $702m, while operating costs fell from $586m to $513m.

A month after Hancock bought Atlas Iron, in December 2018, Japan’s Marubeni Corporation – which owns 15 per cent of Roy Hill – bought 1 per cent of it for $4.5m to give Atlas a valuation of $450m, but it could be worth more than $850m now based on its 2019 financial result.

In May, Hancock secured Canadian coking coal prospect Riversdale in a $744m deal. Riversdale already has more than $150m in net assets on its balance sheet.

Hancock said it has about $259m in listed equities. One good share investment has been ASX-listed gold explorer Catalyst Metals. Rinehart paid $13m for an 11 per cent stake in March, which is now worth more than $21m.

Rinehart is also one of the biggest agricultural land holders in Australia, both via the Outback Beef cattle business, two-thirds owned by Hancock and the minority stake held by China’s Shanghai CRED, and Hancock Prospecting itself.

According to AgJournal, Hancock owns at least 2.22 million hectares across more than 14 properties in Western Australia, the Northern Territory, Queensland and NSW and is the nation’s second-largest producer of beef.

Hancock’s balance sheet shows almost $300m worth of livestock across both current and non-current assets and $137m in agriculture revenue in 2019.

Outback Beef cut its losses from $20m to $15m, according to its 2019 financial report, and it has net assets of $352m.