Resources resurgence

Demand for coal has turned Queensland geologist Chris Wallin a billionaire

Chris Wallin has never been mentioned in the same breath as James Packer, Kerry Stokes or Lindsay Fox.

Yet the 57-year-old geologist who spent the early part of his career with the Queensland mines department is now among the ranks of the nation’s billionaires, a beneficiary of the massive rebound in global demand for resources and the grab for mining assets by Asian investors over the past nine months.

The recent outcry over the federal government’s proposed resources super profits tax may suggest otherwise but the past 12 months have been very good indeed for the country’s mining magnates.

After the financial crisis brought the much-vaunted, mid-decade resources boom to a grinding halt in the second half of 2008 and ensured life remained difficult for miners into early 2009, global demand for resources has roared back with the help of liberal stimulus spending by the Chinese government.

This has been great news for BRW Rich 200 list stalwart billionaires such as Gina Rinehart, Clive Palmer and Andrew Forrest, who have watched their combined wealth surge by more than $3.5 billion.

Yet they have been overshadowed by Wallin, who made his debut last year with a personal fortune of $595 million. This year he is worth $2.59 billion, enough to propel him into the top 10. The reason for the massive jump is a deal he cut with Japanese steel producer JFE Steel Corp last year.

In December, JFE agreed to pay $500 million for a 20 per cent stake in the Byerwen coal project owned by Wallin’s private company, Q Coal . The deal valued Q Coal’s remaining stake in Byerwen, located in Queensland’s Bowen Basin, at $2 billion.

Q Coal also has a majority stake in the Sonoma coal mine in the Bowen, which is a joint venture with JFE, US miner Cliffs Natural Resources, China Steel and Watami Trading. Sonoma produces about 4 million tonnes of coal – a mix of coking coal used in steelmaking and thermal coal used for power generation – a year.

JFE’s interest in Wallin’s projects is broadly reflective of the global grab for resources that has resumed over the past 12 months. In Australia, this has been most noticeable in the coal sector, where buyers and mining companies seeking to expand have driven an explosion in corporate activity.

This has led to a group of mining veterans who, having toiled away for decades, have suddenly become extremely rich. Not that they are considering retirement, however.

A recent example was the $3.5 billion sale of Felix Resources to China’s Yanzhou Coal Mining in August. Felix chief executive Brian Flannery and chairman Travers Duncan, who have worked together for more than 30 years, qualified for the Rich 200 for several years as Felix shares surged. The sale to Yanzhou crystallised this wealth, with each receiving about $530 million.

Flannery puts the successful sale of Felix down to good timing and years of hard work. “I haven’t been sitting on my backside for the past 20 years,” he says. “We started off as a private company putting our own money at risk. It’s come together fairly well for the shareholders of Felix because we’ve made it work. But at the end of the day you have to have a lot of good luck, too.

“The market’s good at the moment, it’s maybe starting to slow down a bit. But who knows what it will be like next year? This is stuff you have to look at year by year. I can remember when we were worried about how we were going to keep mines going because we had just about run out of money.”

Flannery could have easily retired after selling Felix but he stayed on to work with the new Chinese owners. In August, he will start as chief executive of listed White Energy, a coal technology company that has plans to expand into coal mining – and one that is chaired by Duncan.

Flannery tells BRW he would have missed the personal aspect of his industry too much in retirement. “I very much enjoy employing people,” he says. “I’m having lunch with a bunch of people at Yarrabee [a Felix mine] at the moment in between shift change. There are a lot of young people that have a job here and probably will for the next 20 years. That sort of thing gives me great satisfaction. I’m not in a hurry to quit any of that sort of stuff.

“I’ll do other work like charities and that sort of thing, but my main interest is to keep active and stay in the mining business. Mining is a real people’s business. There’s a lot of entrepreneurs, real doers and risk-takers and they create a lot of wealth for all sorts of people.”

Another Rich 200 coal miner who has not been able to give the game away after making big money selling a company is Tony Haggarty ($453 million). Haggarty was a large shareholder in, and one of the team behind, Excel Coal, which was bought by US coal giant Peabody Energy for $2 billion in 2006. He has since moved on to become chief executive of Whitehaven Coal, taking another former Excel executive, Andy Plummer, with him. Plummer makes his debut on the Rich 200 this year with a fortune of $255 million.

“At the time [of the sale], I wasn’t even 50,” Haggarty says. “The idea of going and sitting on the beach, that’s a sure-fire way to die young. I wanted to do something. It’s the sector I’ve worked in all my life, I know it and it was a good group of people at Whitehaven. It seemed like an ideal opportunity.”

Haggarty and Plummer were initially invited by Whitehaven’s founders to invest in the company and join the board as non-executive directors. Haggarty says that arrangement suited him perfectly and that he never intended to take on an executive role, but “that’s the way things worked out”.

For all the trouble the financial crisis created for the mining sector, he says he always had confidence that the Asian growth story would resume and put things back on track. “I don’t think you stop something like that happening because the Western world has got itself into strife.

“I just keep coming back to the basics, which are in China and India, you’ve got a third of the world’s population trying to improve their standards of living. That’s a big trend and I don’t think it’s likely to stop.”

Palmer, who boasts strong links to China, subscribes to the same theory. He says that was the reason he paid $120 million for Toronto-listed Waratah Coal at the end of 2008 when everyone else in the mining sector was preserving capital.

“We gambled the other way because we bought the coal project at the height of the crash,” he says. “We had information there was no real downturn in China. Growth went from 10 per cent to eight. Eight per cent growth isn’t bad, is it?”

That trend has helped boost the wealth of many Rich 200 miners this year (see table).

But it wasn’t all one-way traffic. Linc Energy chief executive and major shareholder Peter Bond’s wealth has fallen from $469 million in 2009 to $259 million. Linc’s share price has slumped more than 40 per cent over the past 12 months as investors’ impatience has grown over the long-awaited sale of Queensland coal assets.

“The hard appetite for coal properties didn’t really come back until late 2009-early 2010,” he says. “It’s only the past few months that we’ve seen really serious people come banging on the door . . . I’m confident it’s going to be a good year for us, but by gosh, it was a tough 2009.”

Most of the other rich miners would probably beg to differ.

BRW

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