Twiggy (11 page)

Caruso does admit, however, that Forrest has an almost mystical ability to convince people to do things. In 2005, Caruso was in South Africa when he received a call on his mobile phone from Forrest. It was the same day that the 1 million options Caruso held in Fortescue could be exercised. Forrest, who wanted the money in the company, asked Caruso to convert the options into shares for
$200,000. “The bank wouldn’t transfer the money because they wanted my original signature so I rang Andrew and said, ‘I can’t do it, mate.’ Forrest then gave him a motivational talk. “So I rang the bank back and yelled, ‘You’d better transfer that fucking money!’ He wound me up to that point. It’s hilarious how he has that power, it’s like a magnetic enthusiasm that draws you in. It’s extraordinary,
I’ve not seen a man like that.”

Forrest’s next move was to hire another former Rio executive, Philip Kirchlechner, as Fortescue’s head of marketing, a role that would entail selling iron ore to China’s steel mills before it had even been discovered. Kirchlechner, who had worked in Shanghai, was astounded by Forrest’s energy when he first met him in his Cottesloe study. “It felt like the movie
Wall Street
, where Charlie Sheen meets Gordon Gecko for the first time and he walks out mesmerised by what he’s just heard,” he says. “As I was walking out I could hear him say, ‘Get me the prime minister’s assistant on the phone, please.’ At the time I didn’t quite believe it. But later he told me that whenever John Howard was in town, Howard would contact him in some way or another.”

Forrest
was determined to move at a breakneck pace. In August 2003, he outlined plans to start building Fortescue’s railways by early 2004 and to ship iron ore to China by 2006. The target for first exports was then delayed until 2007, which later became 2008 – still an ambitious deadline, given Fortescue hadn’t even existed until mid 2003. It was Forrest’s ability to inspire others to work towards these
unrealistic goals that would become his trademark at Fortescue. As he had done at Anaconda, Forrest dismissed the unbelievers who raised doubts about technical problems or cash shortages. His self-promotional abilities also had not waned. A photograph on the cover of a glossy Fortescue brochure in the early days showed a beaming Forrest surrounded by prime minister John Howard and senior ministers
of the Coalition government. To the Chinese investors and customers who saw it, Forrest appeared to be at the centre of national power.

At Forrest’s house in John Street, Cottesloe, the number of people turning up to work each day continued to grow. The Fortescue team soon moved out of Forrest’s study and into the larger dining room. After a few weeks they also took over the family’s living
room to create a bigger command centre. Nicola, who was looking after three young children, was relieved when her husband and his new colleagues finally found an office in the leafy suburb of Nedlands in October.

When geologist David Mendelawitz started at Fortescue in 2003, he was convinced he’d made a bad decision. Mendelawitz was hired in the same week as another geologist, Eamon Hannon,
and the pair would become key figures in Fortescue’s success. They headed straight to Fortescue’s main mining tenements at Mount Nicholas in the Chichester Range, but soon realised the low-grade ore was riddled with shale and other impurities and would never be economic to mine. The company’s exploration campaign also seemed poorly targeted and unprofessional. For Mendelawitz, it appeared Fortescue
was just another small explorer with outsized dreams. “It was the most disorganised show I’d ever seen in my life,” he says. “Eamon and I said: ‘Should we leave today or should we see it out until bankruptcy?’”

A Fortescue metallurgist, John Clout, had the unenviable task of telling Forrest about the woeful drilling results at the Mount Nicholas tenements, which Allied Mining had once estimated
contained up to 1 billion tonnes of iron ore. It looked as though Forrest had been sold a pup. At this point, the Fortescue dream could easily have ended. Some of the company’s geologists began openly flicking through newspapers in the office, hunting for other jobs. But Clout, who had worked for the CSIRO and is regarded as one of Australia’s foremost experts on iron ores, had an idea. He ran
some tests on the samples from Mount Nicholas and was surprised to find very small amounts of what is known as microplaty haematite – the same high-grade ore that is mined in huge volumes by BHP and Rio in the Hamersley Range to the south of Mount Nicholas. Microplaty haematites had never been detected in the Chichester Range and Clout was ridiculed by some for even suggesting it existed there. But
he was convinced he was right; the challenge would be finding enough of the premium ore to justify a mine.

Until that time, the conventional wisdom at BHP and Rio was that potential ore bodies in the Pilbara ended only a few hundred metres from any iron ore outcrop. But John Clout and David Mendelawitz suggested Fortescue’s geologists should drill further out, in the hope of finding thinner
“sheets” of iron ore over an extensive area rather than the usual deep deposits. It was another example of how those at Fortescue, spurred on by Forrest’s leadership style, saw themselves as challenging the status quo. “We had to think outside the box,” says Mendelawitz. “BHP and Rio didn’t have any entrepreneurial people – they would have to go through a lot of processes and procedures to get
anything done. We wrote the procedures after we did them.”

One of the region’s more promising deposits, Christmas Creek, was located on the 400,000-hectare Roy Hill pastoral station, whose grizzled owners
,
Ray and Murray Kennedy, wore pistols on their hips and hated the mining industry. Fortescue did not have any tenements covering Roy Hill, but Forrest was able to sweet-talk his way on to
the property using his old pastoral industry connections. He told the Kennedy brothers that he would pay them if they drilled some bore holes on their land. If they found water, they could have it – as long as they handed over the dirt to him for testing. The brothers agreed and the results vindicated the theory that the Chichester Range ore stretched for kilometres in shallow deposits. “We assayed
the samples,” Forrest recalled, “and we picked up huge traces of [microplaty haematite] again and that’s when we thought we have a sheet on our hands, a huge sheet of iron ore.”

Forrest put Eamon Hannon in charge of exploration and the pair became close. Former executives say Forrest and Hannon got on so well because both dared to dream about the Pilbara’s potential. “Andrew liked Eamon
because he used to promise the world; he treated him like a son,” says one former employee.

David Mendelawitz says Hannon was the pivotal figure in Fortescue’s exploration success between 2003 and 2005, when the company spent $170 million drilling an astonishing 9000 holes. “Morale was good with Eamon in charge,” he says. “He would take a bullet for his team and he would stand up to the executives
in Perth in the name of employee welfare.” Hannon also developed a reputation as a party boy. A keen surfer, he recruited old mates from around his home town near the surfing mecca of Margaret River to work in his exploration team in the Pilbara. After a scorching day’s work drilling in the dust, plenty of alcohol flowed freely each night among the exploration team, most of whom were in
their twenties and thirties. The workers even created a makeshift nightclub, dubbed Club Strange, by pushing together two old caravans, fastening speakers to the walls and outlining a dance floor on the red dirt.

With Fortescue’s cash reserves running perilously low in mid 2004, Forrest asked Hannon to see if he could find iron ore closer to Fortescue’s proposed port at Port Hedland, in an
attempt to reduce the rail costs of the project. By this time, Hannon had been instilled with the Forrest-led mantra that “nothing is impossible”. Those who doubted they would find the ore in the middle of nowhere were banished from the exploration camp. “I wouldn’t have anyone up there who didn’t assume we were going to be successful,” Hannon said. “Come hell or high water, we were going to find
the ore somewhere. It was just non-negotiable. And everyone was empowered with that vision.”

On 9 June 2004, Hannon made a monster discovery of iron ore to the west of Christmas Creek that would become known as Cloudbreak, named after a famous hollow left-hand curve in the waters of Fiji. At last, Fortescue had enough iron ore for a mining project. In fact, it had enough to last decades.
An emboldened Forrest then told Hannon: “Scour the entire Pilbara and don’t stop until you find 10 billion tonnes of iron ore.” Forrest decided that Cloudbreak would be Fortescue’s first mine, followed by Christmas Creek. The two deposits have 1.5 billion tonnes of iron ore between them.

A year later, Fortescue geologists Neil Clarke and Doug Kepert were able to decipher clues from forty-year-old
geological maps to discover another rich deposit called Solomon, containing 3 billion tonnes of iron ore. Unlike the earlier discoveries, Solomon was smack bang in the middle of the rust-brown hills of the Hamersley Range, which had been the domain of BHP and Rio for forty years. In fact, Rio had once held the Solomon tenements but discarded them as surplus to requirements. The Solomon find
was doubly pleasing for Forrest because the Hamersley Range was named in 1861 after the family of his great-great-aunt, Margaret Hamersley, the wife of Sir John Forrest. Margaret’s father, Edward Hamersley, a wealthy landowner, had sponsored the first expedition to the area. Andrew Forrest would later compare the work of his ancestors in “opening up” the Pilbara to Fortescue’s “modern-day explorers
and developers”.

The discoveries vindicated Forrest’s aggressive and unprecedented campaign to acquire huge numbers of mining tenements. The company began life with tenement holdings in the Pilbara covering only 487 square kilometres. But a small team of employees led by geologist Damon Edwards sat glued to computer screens all day, instantly picking up any ground that became available.

Most of the tenements had been previously explored by BHP and Rio but discarded because they contained what was believed to be poor-grade iron ore. In some cases, the big miners simply hadn’t drilled enough holes to realise the extent of the mineralisation that existed under their feet. Forrest ordered his team to peg every inch of land they could, regardless of past geological findings. It
was to prove the making of the company. By the end of 2004, Fortescue’s tenements covered almost 4000 square kilometres. Four years later, when the miner began exporting iron ore, it had 52,000 square kilometres, making it a bigger tenement holder than either BHP or Rio. Today, it has more land than BHP and Rio combined, with tenements covering an area more than 1500 times larger than Sydney Harbour.
At one point, Rio’s then head of iron ore, Sam Walsh, referred to Fortescue’s rapidly growing land bank by quipping that it appeared to be operating in real estate rather than mining.

After acquiring so many tenements, Forrest thought he had a strong case to put to BHP and Rio for them to share their infrastructure in the Pilbara. It would be pointless, he argued, to duplicate the region’s
existing railways. He put a proposal to the majors centred on improving the operating efficiencies of their rail and port operations. But the big boys viewed Forrest as an irrelevant minion who was attempting to gain a free ride on the railways they had built and operated for forty years. Forrest’s meetings with BHP and Rio didn’t last long, but they did serve to bolster his belief that the Pilbara
was a kind of El Dorado. “The rejection I received was so blunt and so firm that it really firmed my resolve that there must be something really very interesting there, if these companies would deliberately choose inefficiency in order to keep ports and rails as barriers to entry,” he said.

When Herb Elliott pleaded Fortescue’s case during a meeting with then BHP chairman Don Argus in 2003,
he too came away with nothing. Elliott recalled: “I said to [Argus] that we can both save a lot of money by sharing facilities and working together, and he said, ‘Quite frankly, I’ve never heard of your company but leave it with me, I’ll talk to the staff about it and I’ll give you a ring in a couple of weeks, Herb.’ Well, that’s ten years ago and I still haven’t heard from him.”

Forrest
didn’t abandon his plan to force open the BHP–Rio railways. In 2004, Fortescue applied to the National Competition Council to “declare” one of BHP’s railways as critical national infrastructure, which would force the mining giant to carry its ore. Wrapping himself in the flag, Forrest argued that his application to the NCC was in the national interest as it would create opportunities for all small
explorers with stranded deposits in the Pilbara who had no viable way of exporting their iron ore.

For their part, BHP and Rio seemed content for the dispute to be tied up in litigation, in the hope that Forrest’s grand vision would come to nought. The big miners argued that their rail networks were integral parts of a highly efficient mine, rail and port system, and that allowing others
on the lines would reduce the amount of iron ore they could export. The legal battle dragged on for eight years, at a cost of tens of millions of dollars. It ended in a virtual stalemate, by which time Forrest had built his own rail lines. To this day, BHP and Rio have not had to carry one tonne of another company’s ore on their Pilbara rail networks.

In 2003, Charles “Chip” Waterhouse Goodyear
IV, the descendant of a wealthy American family that made its fortune out of tyres and railways, was appointed chief executive of BHP. Like Forrest, Goodyear could see the dizzying potential of China, which was on its way to becoming the world’s biggest steel producer. But BHP, like Rio, had been too slow to expand its iron ore production capacity in the Pilbara and had been cutting back on
its exploration work for several years. Goodyear set about boosting investment in new mines and by March 2004 had signed deals with Chinese steel mills that locked them into iron ore contracts worth $US9 billion over twenty-five years.

Goodyear, the boss of the world’s biggest mining house, was in no mood to bother with irritants like Andrew Forrest who were talking up their chances of smashing
the duopoly of BHP and Rio in the Pilbara. “You hear about new ideas every day,” a dismissive Goodyear said. “Somebody threw a bag of rusty nails into their backyard ten years ago, they think they have an iron ore mine. It’s gotten to the point where promoters are taking over this business and production’s the secondary part.”