Article by Tim Treadgold courtesy of Small Caps.
Invest like the rich is advice, which nearly always works, because most rich people have a knack for growing their fortunes – something small investors can learn from the latest financial adventures of three mining billionaires.
Amassing a collective fortune of more than $65 billion, Gina Rinehart, Andrew Forrest and Chris Ellison have generated the bulk of their wealth in the iron ore mines of WA.
Rinehart leads the way on the Bloomberg billionaires list with an estimated net worth of $35 billion. Forrest is said to be worth $31 billion, while Ellison has just joined the ranks of Australia’s “billies” with a modest $1.5 billion.
Iron ore investors dip into energy
The first lesson from observing the super-rich trio is that while their interest in iron ore remains rock solid, it is fading relative to the new ways they’re found to make money in the world of energy, old and new.
While there are differences, Rinehart, Forrest and Ellison are building businesses designed to profit from energy transition, one of the major investments of the next 20 years – and all three look like being winners even though they’ve chosen different routes to the prize of fat profits.
Rinehart staked her claim in the gas industry last year with the takeover of Senex Energy in partnership with Posco, Korea’s biggest steel maker
She’s now in the process of trying to add to her gas business with a bid to buy Warrego Energy (ASX: WGO), which is a part owner of the West Erregulla gas discovery near Dongara north of Perth
Forrest this week took his biggest plunge into energy through the $4 billion acquisition of CWP Renewables, one of Australia’s biggest wind farm owners.
Renewable energy has been a focus of Forrest for the past few years, though mainly through investment in assets related to green hydrogen and through nickel, an old economy metal with new energy application as an important battery metal.
Ellison’s primary energy interest is through the extensive lithium interests of the company he heads, Mineral Resources (ASX: MIN), but he has put a foot in the world of old energy through a significant gas discovery adjacent to the West Erregulla field which has attracted Rinehart.
Expanding energy exposure
The common thread connecting the three billionaires is that they’re using cash generated in their mining interests to expand exposure to energy which is benefiting from attempts to wean the world off fossil fuels (without much success, yet) and expand exposure to renewables, a long-term process.
Ellison, the “poorest” of the three billionaires appears to have the most balanced approach with his lithium-plus-gas strategy, potentially blending the two energy streams by using gas to power lithium (and iron ore) processing facilities.
Rinehart’s energy exposure is largely through fossil fuels, though she was also an early investor in European lithium project developer, Vulcan Energy Resources (ASX: VUL).
She has also been working for two decades on a plan to create a big coal mining business in Queensland, but that is becoming more difficult to achieve as environmental opposition to the fuel grows.
Rare earths have also caught Rinehart’s eye, through a cornerstone $60 million stake in a capital raising by Arafura Resources (ASX: ARU) and reported interest in another two rare earth companies, VHM Ltd and Brazilian Rare Earths
While critical metals with important technology sector applications, rare earths are not strictly energy assets with Rinehart’s growing exposure probably more a case of investing in assets which are benefitting from a western world drive to break Chinese market control – another investment thematic worth watching.
For Rinehart, gas is a halfway house on the road to a renewables future, and appears to have picked up where coal could be left off with Senex a winner from Australia’s east coast gas shortage and the bid for Warrego a west coast play with the potential for LNG exports.
The fight for Warrego
Rinehart’s bid for Warrego has pitted her against a fourth west coast billionaire, the media and industrial equipment owner, Kerry Stokes.
It was Stokes, through an oil and gas company he controls, Beach Energy (ASX: BPT), which made the first move to take control of Warrego with a bid of $0.20 a share, upsetting a plan by Warrego’s partner in the West Erregulla field, Strike Energy (ASX: STX).
Rinehart came in with a $0.23 a share offer, which was subsequently lifted to $0.28 – while Strike has also signalled that it’s not giving up easily, increasing its direct investment in Warrego to 19.9%.
Forrest, who has been named as a potential player in the Warrego bidding duel, is an unlikely participant now that he has splashed out $4 billion on the CWP Renewables acquisition, though he has looked at ways of becoming an importer of LNG to capitalise on the east coast gas shortage.
More shots are likely to be fired in the battle for Warrego which last traded at $0.31, and while a high-stakes bidding game is always fun to watch the lesson for investors is that the value of all energy assets is rising – and will keep increasing until a clear picture emerges of total energy supply, whether old or new.
