Mining's man with the Midas touch
Evy Hambro has a knack of making the right call at the right time, writes Peter Ker.
Long before he was controlling the biggest shareholding in several of the world's biggest mining companies, Evy Hambro was just another young Briton enjoying a stint in Sydney's eastern suburbs.
Barely four years into an investment career with Mercury Asset Management, twenty-something Hambro flew south and set up digs in Rushcutters Bay, where he developed a taste for Sydney's sunny lifestyle.
The Asian financial crisis had rendered the region an economic backwater, and the Australian dollar was fetching half its current value against both the British and US currencies.
But for a man who would become one of the world's most influential mining investors, 1998 was the perfect time to arrive Down Under.
"I spent most of my time down there doing research on the Australian resources sector, its people, and its companies and getting to understand the supply and demand dynamics," he said.
"We did a huge amount of work on the iron ore sector to understand the iron ore markets and what was likely to change."
Iron ore was worth seven times less than it is today, and household names like Fortescue Metals Group didn't yet exist.
But what Hambro found in Australia was a few iron ore producers who had built their infrastructure and were ripe for optimisation and consolidation.
"You could see all this potential for value release, it just took the demand to change," he said. "That gave me a picture of the iron ore market and allowed us to make these very large investments in iron ore during the tech boom when no one else was really interested. That was the foundations for the performance of a lot of our funds over the following decade."
That early exposure to Australia's resources boom reaped lucrative rewards and helped turn Hambro into one of the most important figures in the global mining industry.
Mercury and Merrill Lynch merged with BlackRock in 2006, and Hambro soon became chief investment officer of BlackRock's natural resources team, which manages close to $US30 billion across multiple funds.
One of those - the World Mining Fund - held more than $US10 billion ($A9.65 billion) at last count, and is considered to be the industry's biggest.
BlackRock ranks as the biggest shareholder in BHP Billiton, Barrick Gold, Newmont, Anglo American and Newcrest Mining.
It is the second-biggest holder of Rio Tinto shares and a top-four shareholder in both Fortescue and Woodside Petroleum, to name just a few.
Suffice to say that when Hambro speaks, the chief executives of big mining companies do more than listen; they tend to act.
The most celebrated example came in 2011 when Hambro publicly campaigned for big miners - and particularly BHP - to improve shareholder returns rather than pursue growth for growth's sake.
BHP had plans to spend $80 billion on new growth projects, but Hambro's calls prompted a groundswell of support, which escalated as commodity prices began to cool.
Vindication came in 2012 when the growth plans - including South Australia's Olympic Dam project - were put on the backburner at the same time as dividends increased by 11 per cent.
Improving shareholder returns has since become fashionable across the mining industry despite sliding profits. Rio Tinto's recent decision to increase dividends by 15 per cent in a year when underlying profits slumped by more than 30 per cent is a case in point.
In a nation where big miners are accused of controlling governments, the level of influence Hambro wields over Australia's biggest mining companies is intriguing. But he laughs off suggestions that he lives a master-of-the-universe type of existence.
"We are just voicing things that we think are common sense, and we will voice our view when we believe it is in the best interest of our clients," he said.
In January Hambro declared that investors had lost trust with the mining industry and its tendency to destroy billions in shareholder value through impairments. Reflecting on those comments, he said the problem persists despite the recent changes of leadership at several big mining companies.
"Just because you've had the management change at BHP, Rio Tinto, Anglo American and Xstrata take place, it doesn't mean you automatically rebuild the trust. I think it's going to take several years of management showing they are not going to be profligate with the margins that they're able to reinvest, and to share a much higher ratio of those margins with the shareholders because, at the end of the day, it's the shareholders who are the owners of the business," he said.
Influence comes naturally to the Hambro family, which has held a position of esteem in London banking circles for centuries.
The family tree reveals members of Parliament, high-profile financiers, company directors and multi-generational links to prestigious Eton College.
Hambro continues to work from London despite being far removed from most of the mines he invests in, describing it as "the centre of the mining universe" and a place where investors have more appetite for risk.
His father, Peter, is a well-known mining entrepreneur with a particular focus on gold exploration in Russia, and his two brothers are also involved in Peter's business empire.
Mining investment may be in the blood, but it was softer commodities that initially caught Hambro's attention while studying "agricultural food marketing" at Britain's Newcastle University.
He completed his honours there in 1994, and says he can "absolutely" foresee a time when agricultural commodities command as much investor interest as the harder commodities produced by mining companies.
"Agricultural commodities are much more important for the world than hard commodities, because without them nobody would be able to eat," he said, stressing he was not referring to the sort of commodities trading that has been blamed for increasing the cost of food.
"It's a sector that has a great future, but it's a very young, nascent sector with regards to people investing in that theme, so it's a very small part of the BlackRock business today, but it has got huge potential."
But for now Hambro's focus remains very much on mining and resources, despite the recent slowdown in the sector taking a toll on his funds (the World Mining Fund lost more than 17 per cent over the past year).
Hambro says the sector can still deliver good returns for the right investment, and BlackRock is increasingly looking for innovative ways to invest.
Last year BlackRock paid $US110 million to a company called London Mining in return for 2 per cent of all revenue from its iron ore sales, and last month it struck a preferred shares deal worth up to $90 million with Canada's Banro Corporation that will deliver cash dividends linked to the volume of gold produced at its African mines.
Hambro says there will be plenty more deals of this type, which are designed to secure more certain dividend flows.
"We are planning to do a whole series of transactions into instruments that deliver exposure to commodity prices, to production levels and to the fortunes of companies, but not necessarily at the equity level. We believe there is a massive opportunity out there in the market right now based on this huge divergence in the cost of capital for resource companies."
The reporter travelled to Britain under an internship at London's Financial Times sponsored by the British high commission and British Airways.
BlackRock and the big miners
BHP Billiton: Biggest shareholder
Anglo American: Biggest shareholder
Newmont Mining: Biggest shareholder
Barrick Gold: Biggest shareholder
Newcrest Mining: Biggest shareholder
Freeport-McMoRan: Biggest shareholder
Rio Tinto: Second-biggest shareholder
Woodside Petroleum: Third-biggest shareholder
Fortescue Metals Group: Fourth-biggest shareholder
Glencore International: Sixth-biggest shareholder