Commodity Tycoons Try, Try Again: Australia’s leading commodity tycoons are moving ahead with huge investments—in spite of their falling fortunes

Commodity Tycoons Try, Try Again

Australia’s leading commodity tycoons are moving ahead with huge investments—in spite of their falling fortunes

REBECCA THURLOW

Dec. 13, 2013 11:25 a.m. ET

THE BIGGEST COMMODITY bull-market run in a generation now appears to be over. But don’t try telling that to some of the world’s richest mining tycoons—at least not the ones in Australia. Despite some spectacular price declines in everything from coal to nickel—and even worse hits to their own personal wealth—a handful of the country’s commodity moguls are pressing ahead with projects of a mountain-moving scale. If they all get the financing they need, investors could spend as much as $18 billion to build out new rail lines, fix up ports and dig out some truly enormous holes deep in the Australian outback.

Australia has long been a key natural-resource hub, and its mining tycoons became fabulously rich supplying commodities to China and India during those countries’ booms. More recently, a slowdown in China and other emerging economies has brought a rude end to the go-go days of Australia’s resources bonanza—but not, apparently, to the ambitions of some of the country’s headline-grabbing minerals magnates.

Though they face a long line of skeptics, the tycoons are making a case that demand in Asia and the rest of the world will inevitably return once economies rebound and demand for rich-world conveniences kicks into high gear again. “There is no doubt there is a great demand for thermal coal in India and in China that can’t be met,” says Clive Palmer, a 59-year-old coal and iron-ore magnate, in an interview in the private dining room of his 370-acre Palmer Coolum Resort on Australia’s Queensland coast. “There is no substitute for it really, for all those economies—unless they are sentenced to poverty for the rest of their life.”

Palmer saw his estimated net worth fall by more than $1.5 billion last year. Yet not only is he still throwing around millions of dollars to buy vintage Rolls-Royces and other toys, he’s also planning to launch a massive new coal mine in remote parts of Queensland that will greatly increase the world’s supply if completed. The mine, called Galilee Coal, is expected to produce 40 million tons of the black rock per year and will require more than $8 billion in investment, including money to build a 281-mile railway.

For her part, Gina Rinehart, a reclusive mining heiress who lost more than $6 billion—or about $18 million a day—when iron ore prices fell last year, is now hoping to crack open an enormous new mine in Western Australia, with work starting as early as late this year. The total cost is more than $10 billion, and the project includes a new rail line and its own port, if Rinehart can arrange the financing.

Andrew Forrest, another iron-ore magnate whose ancestors were among the first European settlers of Western Australia, also is moving ahead with plans for the company he chairs, Fortescue Metals Group. Just a year ago, Fortescue was axing about 1,000 jobs and asking staff to bring their own cutlery to work to shave costs, while Forrest’s fortune shriveled. But Fortescue restructured its debts, and in May, it opened a new phase of its big Solomon Hub project in Western Australia that will produce 20 million metric tons of iron ore.

“Their plans run up against an industry looking to cut costs and curb production.”

Even the once-mighty empire of Nathan Tinkler, a colorful mining impresario who owned sports teams and racehorses before the commodity market fell, is rebounding—though he likely won’t be along for the ride. Tinkler had to sell his 19 percent stake in his main mining vehicle, Whitehaven Coal Ltd., in June to repay debts after falling coal prices stretched his finances. But under new ownership, Whitehaven Coal is moving forward with plans to mine the so-called Maules Creek thermal coal deposit in New South Wales, with expectations of adding 12 million tons of supply to the global market per year.

Mining for More

Megaprojects set for the land down under

1. Roy Hill, $10 billion, Pilbara, Western Australia | Before this mine can produce up to 55 million tons of iron ore annually, its backer—mining heiress Gina Rinehart—and other partners need to raise about $6.6 billion—and build a 213-mile railway.

2. Galilee Coal, $8.3 billion, Galilee Basin, Central Queensland | Property developer-turned-mining-magnate Clive Palmer failed—four times—to fund this coal mine’s development but now says banks are willing to back it.

3. Solomon Hub, $3.2 billion, Pilbara, Western Australia | Andrew Forrest’s Fortescue Metals aims to ramp up annual iron ore production, though his company slowed expansion plans last year, and entered into emergency talks with lenders, due to slumping commodity prices.

4. Maules Creek, $722 million, Gunnedah Basin, New South Wales | Former mining hotshot Nathan Tinkler sold his stake in Whitehaven Coal to repay debts after thermal coal prices plummeted. His company, under new ownership, still plans to produce 12 million tons of fuel from this mine.

Forrest declined to be interviewed for this article; Rinehart and Tinkler didn’t respond to requests for comment.

Their plans run up against the seam in an industry that, for the most part, is looking to cut costs and curb production, as the biggest mining companies hunker down in the face of weaker commodity prices. With nickel prices down 70 percent since their 2007 peak, and thermal coal prices wallowing at half their 2008 peak, several big companies have canceled or delayed huge projects. “Since 18 months ago, things have turned quite a lot in the negative,” says Mark Pervan, head of commodity analysis at ANZ Bank in Australia.

Still, some mining experts argue these curbs in expansion plans will someday sow the seeds of another boom, by ensuring there’s not enough fresh supply on hand whenever China and other emerging markets fully recover. Of course, no one knows exactly when that will be—or how much China will need when the time comes. The excitement is in trying to time that cycle—or risk losing a fortune if the timing is wrong.

Palmer isn’t stressing. In addition to his big new mine project, he’s building a life-size replica of the Titanic for tourists, complete with Edwardian period costumes in the guest rooms. He jets around between houses in Australia, Hong Kong and Beijing and plays with kangaroos on the grounds of his five-star resort.

But it’s the dirt out back—and the prospect of another turn at the wheel—that gets him really excited. “A lot of people have panicked” about falling commodity prices, he says, dressed casually in jeans and a checked shirt. But “really, there’s nothing surer than the fact that if commodity prices are so low, they’ll be higher next year.”