Resources billionaires' nightmare

Fortunes at risk as iron ore and coal prices plummet

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 24, 2012 4:51 pm AEST

Question. What do many of Australia's billionaires have in common?

Their wealth is tied up in mining assets. Gina Rinehart has her fortune tied up iron ore and coal, while Ivan Glasenberg has his wealth in Glencore, the global commodities trader and miner. Andrew Forrest owns a large chunk of Fortescue Metals Group (ASX: FMG). Clive Palmer and Nathan Tinkler both derive the majority of their wealth from coal mining companies.

Those at the top of the rich list have a lot to lose should the iron ore and coal prices fall much further.

Rio Tinto Limited (ASX: RIO) boss Tom Albanese proclaimed the mining boom is not over, saying "Over the next ten years at least we'll see slowly growing steel production that will support our expansion to 353 million tonnes per annum."

Larger competitor, BHP Billiton's (ASX: BHP) CEO, Marius Kloppers has taken a different view, cancelling the US$20 billion Port Hedland outer harbour project, which would have allowed the company to export 100 million tonnes of iron ore each year.

For those whose fortunes are tied to iron ore, the recent falls in the commodity's price is the stuff of nightmares. Despite some experts' views that the iron ore price could not fall below US$120 a tonne for any length of time, it fell to a new low of below US$100 a tonne overnight, for the first time since 2009. At around $120 a tonne, many of China's iron ore miners stop production or start stockpiling ore.

Some other analysts have suggested the price could fall below US$80 a tonne with UBS' Glyn Lawcock saying "Now that it has broken through $US100 per tonne, traders I speak to think the price could get a seven in front of it."

As if the falls in the iron ore price weren't bad enough, coal prices have also fallen by around 30%. Yancoal Australia said that coal prices are falling faster than miners can keep up, and said it would halt its expansion plans at all of its seven mines. The falling coal price may have already claimed its first casualty, with Nathan Tinkler pulling out of his bid for Australia's largest independent pure play coal miner, Whitehaven Coal (ASX: WHC).

If they are not careful, it could be look out below for Australia's billionaires.

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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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