Bloomberg News

Rinehart Seeks to Reclaim 3 Billion-Ton Iron Ore Stake

June 12, 2012

Gina Rinehart

Gina Rinehart, chairwoman of Hancock Prospecting Pty. Photographer: Ron D'Raine/Bloomberg

Gina Rinehart, Asia’s richest woman, is attempting to reclaim a stake in one of Australia’s most valuable iron ore assets, after a judge awarded the holding to Wright Prospecting Pty two years ago.

The judge who awarded the 25 percent stake in the Rhodes Ridge property to Wright Prospecting failed to consider provisions that nullified an agreement between Rinehart’s father Lang Hancock and his former partner Peter Wright, a lawyer representing Rinehart’s Hancock Prospecting Pty said today at an appeal hearing in Perth. The lawyer, Steven Finch, urged the judges to overturn the decision.

The appeal continues an 11-year dispute over the property between the heirs of Hancock and Wright, whose iron-ore discoveries in the Australian state in the 1950s and 1960s made Rinehart the richest person in the country and Wright’s children, Angela Bennett and Michael Wright, the 14th wealthiest, according to BRW’s Rich 200 list. Michael Wright died in April.

“The parties had agreed between themselves that Rhodes Ridge would be shared,” Finch told a three-judge appeal panel in the Supreme Court of Western Australia today at the start of a scheduled four-day hearing.

Development of Rhodes Ridge may generate A$2.5 billion ($2.5 billion) a year in operating profit for Rio Tinto Group (RIO), which owns half the project, and its joint venture partner, said Peter Strachan, a resources analyst at StockAnalysis.

“Iron ore is the new black,” Perth-based Strachan said in a telephone interview, referring to the current popularity of the commodity.

Biggest Earner

Iron ore has more than doubled to $131.40 a ton as of June 8 from $59.10 on March 27, 2009, helping Rinehart rise to the 29th spot on a list of the world’s wealthiest people with a net worth of $18.4 billion, according to the Bloomberg Billionaires Index.

Iron ore generates the most revenue for both London-based Rio Tinto and BHP Billiton Ltd. (BHP) of Melbourne. China is the largest customer for both companies, providing 31 percent of sales to Rio and 28 percent to BHP in their most recent financial years, according to data compiled by Bloomberg.

Gervase Greene, a spokesman at Rio Tinto in Perth, declined to comment on the dispute between Wright and Rinehart. Mark Bickerton, a spokesman at Rinehart’s Hancock Prospecting Pty, also declined to comment.

In his March 8, 2010, decision that stripped Rinehart of her stake in the project, Supreme Court Justice Michael Murray said discussions of the value of the property were held in closed court during the trial because they were deemed commercially sensitive.

Rio Tinto is spending at least $15.6 billion to expand iron ore operations to meet demand from China.

Life-Long Friends

The Rhodes Ridge property lies between the operating Hope Downs 1 mine and the Hope Downs 4, where Rio Tinto plans to start mining by the end of the year. The Hope Downs mines are equally owned by Hancock Prospecting and Rio Tinto.

Lang Hancock and Peter Wright, whose lifelong friendship and business relationship appeared to be deteriorating by the early 1980s according to court records, initially agreed in 1983 to carve up some of their properties, with each having the option of taking full control of their portion.

Further negotiations broke down with Hancock accusing Wright of reneging on their agreement on Dec. 30, 1984, over development of the Marandoo iron ore project in Western Australia, Murray wrote.

Properties Split

“As long as you insist on tying a string that prevents things going, my choice is between spending money on a hopeless cause or continuing to carry an ever-increasing burden,” Hancock wrote to Wright, with the judge citing the letter in the reasons for his decision. “This, I am not prepared to do any longer; so as far as I am concerned it means the end of doing anything together.”

Under the 1983 agreement, which was completed in 1984, properties were divided into two groups, with one including the interests in the McCamey and Marandoo Western Australia iron ore joint ventures along with coal interests in Queensland. The second group included Rhodes Ridge and limestone, chrome and base metal interests in Western Australia, with Hancock identified in the agreement as LGH and Wright as EAW.

Division Option

“The note at the foot of the memo in the hand of Lang Hancock reads: ‘Agreed in principle subject to documentation with choice of list of assets to be made by EAW before the end of the week. EAW now chooses Group 1 & X, LGH to take Group 2 & Y,’’ Murray wrote in his decision.

The agreement didn’t divide up the assets, rather it provided a mechanism to do so with each party having the right to exercise an option to implement it, Murray said.

A 1989 agreement that again redistributed the assets, including Rhodes Ridge, lapsed in 1992, when Hancock died, the judge ruled. The redistribution plan reverted to the 1984 accord, Murray said.

The judge failed to take into consideration statutory limitations, including approvals from the state’s mines minister, that were required before any transfer could occur, Finch said today.

Wright Prospecting sought to take Hancock’s 25 percent stake in Rhodes Ridge, by exercising the option, in 1997 and again in 2000. The company sued in 2001 to press its demand.

‘‘The 1997 and 2000 options were invalidly executed,” Finch said, because they didn’t comply with the requirement for ministerial approval.

Survivor’s Rights

Murray ruled the agreement was a valid and effectual contract and that Rinehart’s Hancock breached it by refusing to comply with Wright Prospecting’s decision to exercise its option.

Transfers also required the approval of 80 percent of shareholders of the joint venture and gave management rights to the survivor of the partnership, the lawyer said.

“If Mr. Wright dies, as he did, and Mr. Hancock survives him, as he did” Hancock gets to manage the partnership, according to the agreement, Finch said. “He could sell Rhodes Ridge and the proceeds would have to be split.”

The appeal case is: Hancock Prospecting Pty. v. Wright Prospecting Pty. CACV43/2011. Supreme Court of Western Australia (Perth).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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