Fortescue CEO: A Mining Giant on a Mission to Change the World | Podcast | In Good Company

Thank you. Great to be here.

In Western Australia, on a big sheep and cattle station. It's about a bit shy of a million hectares. Sounds like a lot of land here in Norway, but over there it's not that big. It's normal.

Yeah. But actually by boarding school, from I think it's eight or nine, I went to boarding school. But my early years were by School of the Air. You literally had a radio schedule for 30 minutes each day. And kids from like a 500 kilometer radius used to jump on this, it was called School of the Air. And that was all cool and groovy for the other kids to speak on a radio to their teacher 400-500 km away, but not for a kid with a bad stutter, and I had a very bad stutter, so I found that really hard.

I didn't kick it really till I entered the school debating team. So it was either do or die. When I was about 15, 16, I started to kick the stutter.

Yeah. You get teased a lot. I mean, that's how it was in those days.

Exactly.

Well, see, I'd protest that enormously, but the lessons from it were spectacular. But look, let's just talk about Anaconda. So it started from nothing, like Fortescue. We did a $1.4 billion financing, which back then a billion dollars had a lot of respect. It's a long time ago. And it was bringing in a new technology which has stood the test of time. Like it got taken over by Glencore. It's now their purest nickel and cobalt metal for batteries, cathodes, etc. supply. But you know, I was like a kid, right? So I didn't kick off with a big percentage. You know, you immediately got pushed around by big shareholders. And of course, being a naive kid, I thought, well, if I enter into contracts, then surely the company will be protected. Now, I've learned a big lesson from that. Never rely on contracts. Rely on people, because it was an innovative technology, innovative flow sheet, huge, like straight up to 45,000 tons of nickel, 3,500 tons of cobalt, 2 km long, 1 km wide, utilizing about a third of Perth's water supply, but it had to discover all its own water out in a desert. I mean, it had everything going against it. But it had this big type of nickel deposit which no one could commercialize except for this particular technology, which was breaking tech. So I built this huge plant on the back of a big engineering company who said we'll guarantee it. It's called lump sum fixed price. Anyway, they did guarantee it, but they took some shortcuts. So on a lump sum contract you pay them the amount of money you agree, and if they can build it for less, that's more money in their pocket. And they took too many opportunities like that. It was a company called Fluor Corporation, and the process failed from the outset, and we had to rebuild it, and we had to rebuild things which really shouldn't have failed, like an acid plant, a power station, a pressure letdown system. These are fairly basic technologies. They weren't part of the innovative system.

Well, I did, because before my 40th birthday, I reached an agreement. Glencore coming in there saying, 'Oh, we're going to blame you for everything.' I said, 'You can't do that.' But people want us in this podcast to talk a bit more about things that went wrong, you know, because everything goes so well. So, I'm happy to talk about it.

Look, I touched on it. Contracts are behind, and way behind people. Now, if I'd relied on people, like I did at Fortescue, we've run into equally big problems at Fortescue. But if you have a passionate group of people committed to the same set of values, so you're running with the same culture, galloping with the same culture, then you run into these huge problems and you don't dive to lawyers, which people do, right?

Well, we weren't. I mean, and I think that's probably why we've been able to move with such speed and be so successful, because I believe in people. I believe in taking a group of people around you. Could be from every part of the world, black, white, brindle, any sex you like, who cares? But you abide by 10 values.

Yes. Well, Fortescue 2003 kicked off with a—well, it was like Anaconda, a concept stock. I announced that I was going to take on the iron ore industry, but not adversarially, but through building a railway and port system which they could all share. Now BHP, Rio Tinto, even Vale, they all own their own port and rail systems and they don't share them with anyone. And of course, they were underutilized, fully underutilized, but instead of being infrastructure we all share, they were used as a barrier to entry. Now, I didn't really get that. So I said, I'll build a port rail system and we can all share it. We can all do well and I'll just be an infrastructure provider. And they really said, 'Well, how does get stuffed sound?'

I think I had a mortgage. That's about it.

Look, I think grit and determination. I mean, you have your eye focused on a goal. So we had our eye totally focused on building a port and rail system. And when the incumbent players said, 'Well, we're never going to use it,' so okay, we'll then extend that target. We'll lift instead of going backwards, we'll increase the danger, increase the level of difficulty, and also become an iron ore producer. And we thought through being port and rail to transport other people's ore. When they said get nicked, I said, okay, well, we'll go find our own ore bodies and explore them and try and get into the business ourselves, which was several times harder than just providing infrastructure.

I decided to take them on, and everyone I know thought it was impossible.

Oh, there were so many times where your heart felt absolutely broken, Nikolai. What was the hardest? Oh, I think the financing was immensely difficult. The terms of the financing kept changing. We had a cyclone, which is like a big hurricane, come through. It killed three people, including two people on our site. I flew straight back. I was at an investment conference in America. I flew straight back and went with my father and stood beside the beds of those people who had survived but were injured. And I remember holding this big burly bloke's hand, tattoos all over him. And I just started to cry. And he did too. And he's a huge guy all bandaged up. And he said, 'How do you feel, young fellow?' My nickname was Twiggy. And I said, 'Well, I don't care how I feel. How do you feel?' He said, 'I'm going to get through. Will you get through this?' And I said, 'I don't know. I feel like giving up. No one was meant to die. No one was meant to be injured.' And he said, 'If you give up,' and he was holding my hand, big guy, still injured, big guy, and said, 'If you give up, none of this was worth it. You must not give up.' And it really shook me. And I said, 'Well, I'm not going to.' And really, the rest is history. But I needed that message to come at me hard from someone in a much worse position than me.

Oh, look, we planned a crash or crash-through scenario. I mean, we went for—what I'd say to anyone who's trying to start something off, work out what your goal is and then work out what your biggest barrier is. So our biggest barrier then, our biggest size limitation challenge, was believe it or not, a rail line—not a port, but a ship loader. A ship loader at that stage could only do 25 million tons a year. There was a new technology which arguably could do 40 million tons a year. Now, if we could get hold of that technology for a ship loader which could do 40 million tons, then that justified the huge cost of the port behind it and the railway behind it and the mines behind it. But it had to be big, and that's what sized it.

It was. Always have crazy brave plan A. They most often fail, but you don't have a crazy brave plan A. There is no crazy brave plan A unless, Nikolai, you have a bulletproof plan B. You don't go anywhere for your plan A unless your plan B is bulletproof. So we have that at Fortescue even now. You don't need permission to go and have a crack at something which no one else has done. You just go and do it. But when it fails, because it most likely will, then the company's not at risk, you're not at risk, and everything keeps going because of your bulletproof plan B. Well, if you've got big ambitions, you achieve great things even if you fail. Exactly. Failure.

Because focus is the key to success. You know, I had this culture which evolved around leadership. Leadership is the sum of leadership and membership, and the membership is critical. Everyone's got to believe in the same goal, in the same dream, and not be distracted. Now we had plenty of people saying, 'Well, we've got a great idea for nickel or zinc or copper,' and so on. I said, 'Look, if you want to pursue that, pursue that with another company. But for us, we're going to stay just on this goal.' The biggest critical mineral, the most important mineral in the world, is iron ore. Stay fixed on that.' And we did. And it's focus, focus, focus saved us many times.

That was hard work in the beginning, because we had to persuade huge companies across the world, but particularly in China, to take this little upstart seriously. And they said, 'Hold the phone. You've got BHP and Rio Tinto.' Back then they were the biggest companies in the world, right? I mean, they were huge. And iron ore was the most profitable element to be in—seaborne iron ore. Now you've got big tech and everything else, but back then, massive profit margins in seaborne iron ore, dominated by Vale, BHP and Rio Tinto. And they said, 'No way. If you deal with him, you're not going to get any iron ore from us.'

They couldn't deal with everyone. There were enough small mills and rebels who could look at BHP, Rio Tinto, Vale and say, 'Well, actually, I don't like that. I don't like the fact that you're using us to push him around.' So some big steel mills broke rank, but many smaller mills said, 'Well, they don't look after us anyway. We'll deal with you.' And it was enough to get us going.

Well, it's a contact sport, right? So it's rough and tumble. And look, I think the Chinese are very pragmatic. Remember that they're chasing this dream that they want to leave a better world and a better living standard for their kids. That's the primary motivator. It doesn't sound that different from ours, but for them it's really serious. When I started Fortescue and I went around all the steel mills, we'd hold these occasional large dinners, which you know, the dinner bill was more than the market was worth sometimes, but we'd hold these large dinners and everyone would introduce themselves. And I'd say, 'Well, what did your dad do? What did your mom do?' And in almost every case, their mom and dad were farmers—not farmers to make money, farmers just to survive. So that Cultural Revolution nearly undid China. And from there to the new leadership to the mixed free enterprise economy, you had this burning ambition sparked by the suffering they've had to never go back to that suffering, to never go back to that poverty. And that ambition still runs deep in Chinese psychology. Now, the coming generation will, of course, not be anywhere near as determined, because their parents can make ends meet. They can feed the kids. They can pay off the mortgage. But back then, it's only one generation—they couldn't.

You know, it's a great question. It's typical, mate. So what we did with our kids is sit them down when they're young and say, 'Hey kids, we're talking telephone numbers of capital. Now, it's not really cash you can go down to the shop and buy ice creams with. It's held in a company. Now, do you want to inherit that and be obscenely rich, or would you like to actually make your own way?' And they literally said, 'Well, what's best, Dad? What's best, Mom?' I said, 'So much better that you know you're probably not going to starve if things go wrong, but you make your own way. And we take all that capital and we give it to philanthropy, to people who will need it so much more than you.' And they said, 'Well, we don't have anything. We might need it.' I said, 'No, no, no, kids. You've got what most people never get. That's a great education and a loving home. So that's where that capital should go.' And they said, 'Sounds great by us. Yeah, we agree.'

Well, you've done your research. It was late 2015. It was a kind of life-changing event. I was hiking through canyons up in one of the most remotest regions of the world. It was absolutely wild. We took a weapon with us because there are crocodiles which were around all the time. But we knew if we climbed higher and higher and higher, then the crocodiles would only stay in the salt water, not in the fresh water. So we climbed a long way as a result to make sure that when we stopped and met a helicopter with the family, that we'd be right out of danger. Part of this climb involved going around a ledge over a large pool of water, and the ledge gave way, and I slipped into the water. And my leg got caught on a tree root which came out of the bank of the river into a loop and back into the bank of the river, and it snapped my leg like you snap a matchstick—but the wrong way. It went the opposite way to how knees normally bend. And I think I might have passed out. But I remember when I first realized where I was, and I was looking up at the surface of the water and it had gone still—it had gone still like a mirror. I realized that a) I was on my own, and b) I was drowning, and c) I'd been there for a little while because there were no ripples in the water. I'd fallen and it was flat. And I then had to get back to the bank with my leg facing away from the bank, but I had to bring my body to face towards the bank to climb out. And so I had to—this is not a pretty story—but I had to break my leg even further to twist it to get back to the bank to pull my head above water. And anyway, I got flown out. I had a wonderful helicopter pilot, and I had surgery, and I came out of that in a wheelchair.

Look, what it did is the kids really had the biggest impact. The kids said, 'Dad, you're in a wheelchair. They say you'll be able to walk again one day if you're lucky. Maybe, maybe not. There's still discussion whether the leg be amputated.' So it was an unhappy time. And the kids said, 'Look, on the bright side, you've always taught us that you've wanted to study the oceans all your life. I mean, the whole time, when you get more than two or three days' holiday with us kids, you start talking about the damn oceans all the time. Go study the oceans. You're in a wheelchair. What could go wrong? Go do it.' And I thought, 'Oh my God, okay.' And I applied for a master's. I got rejected. I said, 'Why did I get rejected?' And they said, 'Well, master's degrees are for people who want to learn how to do research. You've been doing research for 30 years. In fact, every one of your business enterprises involved new and breaking technology. That's research. You can do a PhD. We're not going to take up a master's position on you.' So I said, 'What? PhD or nothing?' They said, 'Yeah.' Oh, okay. And so I applied for a four-year PhD and studied marine ecology.

That was in 2016 I applied. So, you work it out, mate.

Yeah. 54, yeah.

Oh, because it's the most important part of the planet by a mile. You know, in this very thin veneer of atmosphere we have above terrestrial Earth, above land, that's one or two percent of the world's livable space. The other 98-plus percent is all ocean. You know, from top to bottom it's full of life. It doesn't matter if it's in the bottom of the Mariana Trench or on the coast of Norway. It's full of life.

Because of that. Because you know, I actually grew up in the middle of Australia, right? So I mentioned that huge sheep and cattle station. They call it a ranch or farm over here, but it was massive. And whenever I could get to the ocean, which was a long way away, I used to just love it. I'd just marvel at it and get in it and try and put goggles on and see what else was underneath it. So yeah, I've really loved it.

Ah, that's a big question. Okay, I'll be quick. The study of marine ecology taught me the four major threats are plastic pollution, overfishing, and climate change. And I was able to do papers in my thesis on the first two. But climate change was such a huge area—I was allowed to study it, but if I tried to publish on it, then they said it's going to delay your PhD by up to two years. But the most impactful part of that PhD was learning the massive impact which global warming is making on the oceans, on the marine environments. And I thought, I've got to do everything I can personally to stop that. Now, I had this very successful company called Fortescue. By that stage it was already Australia's most successful company by a margin in shareholder returns in stock exchange history. I thought, I've got to do more with this company than just a bit of a tacky question in here—how much money did you have then?

Tacky question. Yeah. I had a third of the company, so say 20 billion. It was a $60 billion company.