IN A week where markets have started to turn feral on ferrous mining companies, and a few groups that provide them with services, about the last thing it needed was Gina Rinehart's voice pleading for tax breaks and the ability to cut wages to insure the industry.
Insider would have far more faith of the accuracy of her assertions and home-spun economic philosophy if the article printed this week in an industry magazine had her accurately naming her home state (and that of Insider's) as Western, rather than "West" Australia.
Frankly, she does an important industry a disservice with chalk and cheese comparisons of Australian and US labour rates (Insider would much rather live in a country that tries to offer its people a more comprehensive social safety net), and citing as her friends only those who are multi-millionaires.
You would have to wonder how her employees feel about being seen only as a means to her ends.
Her rosy and self-serving view of Australia's past somehow neatly avoids its origins as a convict dumping ground, but instead invites more of a US-style pattern of development by pioneering capitalists. That is almost as mythical as her $29 billion of worth.
Insider suspects that Rinehart might be better focusing on tying off the funding for her $9.5 billion Hope Downs Iron Ore Project as quickly as possible, because if iron ore prices continue on their current trend, nailing nervous bankers to commit to the financing will become even more difficult.
At least she is sole shareholder and does not have to serve the short-term objectives of quarterly returns-driven managers of superannuation funds.
Rinehart has been banging on for some time about the excessive costs of labour, tax and bureaucracy in getting mines up and running and even blamed them as the reason that she sold almost 80 per cent of her stake in Queensland coal prospects to India's GVK, rather than a lesser amount.
In reality, the costs of getting things done are rising, not just because labour costs have hit dizzying heights, but because commodity prices have made so many more mining prospects bankable propositions increasing the demand for (and therefore prices of) equipment and services.
Rinehart is simply frustrated that she is not getting the adoration she feels businesspeople like herself deserve, and is not yet able to cut the ribbon to open her own major mine.
Her Hancock Prospecting website reeks of insecurity of someone desperate for recognition as a mining heavyweight, not just a custodian of a family investment portfolio. Insider hopes her skills do lie in mining, because her investing forays into Fairfax Media and Ten Network have so far been duds.
No real choice
INSURANCE companies are always fascinating, if for no other reason than that they seem to make more money from investing the punitive premiums levied on customers, than from actually pricing their product accurately.
Rusted-on customers always seem to be subsidising discount wars on general insurance premiums for cars, houses and the like.
Insider recently switched vehicle insurers after receiving renewal notices pitched at prices that could have bought the cars in question.
The old insurer, having been told by Insider they were dumped after obtaining several online quotes, asked if there was anything that could be done.
Given that every quote was cheaper than the renewal notice including the old insurer's by a margin of more than $200 the answer was obvious: "Yes no matter how sheep-like loyal customers are, they will eventually work out they are being fleeced".
Investment markets are more pragmatic, and Insurance Australia Group has been rocketing up the charts in price and volume terms for the past fortnight from $3.70 to a peak this week of $4.16 a 12 per cent gain.
Most of that was its strong results a week ago, but the shares began turning a week or so beforehand, helped along by analysts' assessments that IAG and other insurers have been able to justify increasing their premium charges after all the recent flood and fire disasters not that they would have had much choice.
Companies that reinsure those risks i.e. bet on their bets have borne the brunt of claims and would be demanding higher prices, so IAG and its competitors can either push back on customers by passing on the extra costs, or cop thinner profit margins. And that is no real choice.
Fond farewell
THIS Insider is going outside, and may be gone for some time. Thanks to all those urgers, purgers, readers, writers, colleagues and friends, who have offered direction, correction, threats, laughter, abuse and letters from their lawyers.
It has been a privilege.
Frequently Asked Questions about this Article…
Who is Gina Rinehart and why is she being discussed by investors?
Gina Rinehart is the mining magnate behind Hancock Prospecting. The article discusses her public calls for tax breaks and the ability to cut wages to support the mining industry, her role as sole shareholder (so she is less constrained by short‑term fund managers), the $9.5 billion Hope Downs iron ore project she is trying to fund, and her past investments (the piece notes her Fairfax Media and Ten Network ventures have so far been duds).
How could iron ore price trends affect funding for the Hope Downs iron ore project?
The article warns that if iron ore prices continue their current trend (weaker), it could make bankers more nervous and harder to secure financing for large projects like the $9.5 billion Hope Downs development. Everyday investors should know that commodity price falls can directly impact project funding timelines and developer risk.
What reasons does Rinehart give for rising mine development costs, and what else is driving those costs?
Rinehart blames high labour costs, taxes and bureaucracy for making mines expensive to bring online, and even cited such costs when selling about 80% of a Queensland coal stake to India’s GVK. The article adds that costs are also rising because higher commodity prices have made many more projects bankable, increasing demand — and prices — for equipment and services.
What should investors know about Hancock Prospecting’s public profile and past investments?
The article suggests Hancock Prospecting’s public presence appears eager for recognition, and it points out that Rinehart’s media investments (Fairfax Media and Ten Network) have not performed well to date. For investors, this highlights that successful mining credentials don’t always translate into other sectors and that public perception can matter.
Why did Insurance Australia Group (IAG) shares lift recently and what does it mean for shareholders?
IAG’s shares rose from about $3.70 to a peak of $4.16 (around a 12% gain) after strong reported results and analysts’ views that insurers can justify premium increases following recent flood and fire disasters. For shareholders, this reflects the market responding to improved near‑term earnings prospects as insurers pass higher reinsurance and claims costs onto customers.
How do reinsurance and natural disasters affect insurance company profits and premiums?
The article explains that reinsurers — who insure the insurers — bore much of the recent claims burden and are demanding higher prices. That pushes primary insurers to either raise customer premiums to cover added costs or accept thinner profit margins. In short: big disasters raise reinsurance costs, which typically filter down into premiums or lower insurer profitability.
Is it worth switching personal insurance providers when renewal quotes are high?
The author’s experience in the article suggests yes: they shopped around after receiving an expensive renewal and found cheaper online quotes, including one from their old insurer that was still more than $200 higher. The takeaway for everyday investors and consumers is to compare quotes at renewal — loyalty can be costly when premiums rise.
What practical investment lessons for everyday investors does the article highlight?
Key takeaways: monitor commodity price trends because they affect mining project funding and supplier costs; watch labour, tax and regulatory pressures on capital‑intensive sectors; in insurance, follow claims, reinsurance costs and premium pricing; be cautious about headline PR from big shareholders and consider company track records across sectors before investing.
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