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Published 23 May 2012 12:26, Updated 23 May 2012 15:00
A number as large as $29 billion warrants some explanation. BRW’s valuation of Gina Rinehart is completed entirely with publicly available information. She is difficult to value given her wide range of mines, which are at various stages of development. But the process is aided by her propensity to partner with, and sell stakes to, large and reputable international companies.
The big increase in her wealth this year is partly due to the acquisition earlier this year by a Japanese company and two South Korean companies of a combined 30 per cent of the nascent Roy Hill 1 mine. The acquisitions provide Rinehart’s Hancock Prospecting with $3.2 billion to help develop the Pilbara-based iron ore project and give it an implied value of $12.8 billion. Previously, it was given a zero valuation.
The Hope Downs 1 project, also in the Pilbara, is a joint venture between Hancock Prospecting and mining giant Rio Tinto. Taking its annual iron ore production listed in Rio Tinto’s annual report and multiplying it by the iron ore price (we used $US144.73 a tonne) gives estimated revenue. Rio Tinto’s profit margin for its iron ore business, also taken from the annual report, is then applied to come up with an annual net profit and a price-earnings ratio of 10.2 (determined by assessing competitors and discounted to ensure its conservatism) to provide an estimated value of $19.4 billion. This suggests Rinehart’s 50 per cent stake in Hope Downs 1 is worth $9.7 billion.
Neighbouring joint venture Hope Downs IV is also being developed by Rio Tinto. It is expected to produce 15 million tonnes of iron ore a year and production is expected to start in 2013. A similar method is used to determine its value and the value of Rinehart’s 50 per cent stake ($3.1 billion).
The Hamersley Iron royalty stream is generating large sums for Rinehart (about $182 million a year). This is paid by Rio Tinto and is in perpetuity. She also has a big stake in the Nicolas Downs mine (a joint venture with Mineral Resources). Her stake in this manganese project is determined by assessing annual tonnage, the manganese price as well as industry profit margins and earnings multiples (estimated value to Rinehart: $262 million).
Then there are Rinehart’s coal projects in the largely undeveloped Galilee Basin in Queensland where she has an $8 billion joint venture with India’s GVK.
Apart from relatively small stakes in Ten Network and Fairfax Media, Rinehart also has access to several other mining sites that remain undeveloped and this leaves scope for her wealth to grow much larger than the lofty level it has already reached.