Rinehart's cattle call traces iron ore pathway

If following the mega-rich and how they invest their spare cash is a strategy that appeals, then it's getting awfully hard to ignore the best part of $1 billion which Gina Rinehart has plunged into agricultural-related assets.

Already the owner of beef breeding properties in Queensland and NSW, the Western Australia-based iron ore billionaire has launched three new farm-linked investments in the past month.

Rinehart's first deal in early October was the smallest, the $7 million purchase of 1500 prime Wagyu cattle destined for one of her properties near Dubbo in western NSW, where they will be bred and sent to other properties in Queensland.

A few weeks later, but only after a bidding duel with a syndicate of rival cattle owners, she won the approval of the board of S. Kidman & Co to acquire one of Australia's great pastoral empires.

For $386.5 million Rinehart, and a minority Chinese partner, get a century-old business that runs 185,000 cattle on 101,000 square kilometres of pastoral lease across four states.

Chart 1: Australian cattle price benchmark, 1996 to present – Eastern Young Cattle Indicator (c/kg)

Source: Meat and Livestock Australia, Eureka Report

Capping off a busy month for the miner returning to her family roots in the pastoral business was a $400m plunge into potash, a fertiliser which boosts crop yields and can be an essential additive in some soils low in potassium.

The fertiliser investment neatly combines Rinehart's two major interests, mining and farming, but it is also interesting because of its location in the English county of Yorkshire, which introduces another aspect to her recent moves: a modern currency play – with a touch of history attached.

For $US300m Rinehart has acquired a parcel of shares in Sirius Minerals plus a future royalty on the value of potash produced at the North Yorkshire Polyhalite Project, with polyhalite being a type of fertiliser rich in potassium, magnesium and sulphur. She also gets the right to buy 20,000 tonnes of polyhalite a year for use on her Australian properties.

The fact that Rinehart's Sirius investment involved $US50m for Sirius shares and $US250m for the royalty is a flashback to the time her late father, Lang Hancock, negotiated a similar royalty on most of the iron ore mined by Hamersley Iron (now Rio Tinto) in the Pilbara region of WA.

It was that 2.5 per cent royalty which laid the foundations for the $10bn fortune which Rinehart and her sometimes fractious family control today.

Apart from the royalty structure the Yorkshire investment is a rare step for Rinehart into a foreign destination. Until now most of her investments have been in pure-Australia (although, while not well known in Australia, the Yorkshire potash project is located near the historic coastal town of Whitby – home of James Cook, one of the first Englishmen to visit Australia).

The North Yorkshire Polyhalite Project is a potentially massive development and calls for a deep mine and underground tunnels to deliver the raw material to a processing centre at an all-up cost estimated at $US2.6bn.

Rinehart has bought an early and cheap seat at the fertiliser table thanks to the the collapse of the British pound after the country voted to quit the European Union.

From an exchange rate of close to $US1.50 as recently as May the pound today is down 18.5 per cent to $US1.22 – and US dollars are what Rinehart has to invest, because that's the currency in which she sells iron ore.

The billionaires harvesting new fields

Following Rinehart, and other rich Australians adding farming interests to their private portfolios, is more than a curiosity because it is often the people who have made money in one field who repeat the money-making process in another.

Andrew Forrest also made his fortune in iron ore but is now busy building his farming interests, like Rinehart.

Media and industrial equipment billionaire Kerry Stokes has also been expanding his agricultural interests, as have top retailers, Gerry Harvey and Brett Blundy.

Australian agriculture has also proved attractive to foreign investors, as shown in Rinehart's Chinese partner in the Kidman deal and a move by British billionaire, Joe Lewis, into another famous cattle business, Australian Agricultural Company (AA Co), via the conversion of debt instruments into equity.

Lewis, who Forbes magazine estimates is worth more than $US8bn, made his fortune as a currency trader and investor who famously teamed up with George Soros to attack the pound in 1992, a deal that generated billions of dollars in profits and allegedly “broke” the Bank of England.

AA Co, which was once owned by the late Robert Holmes a Court (and then by his widow, Janet) is a business of roughly the same size as S. Kidman with cattle stations across northern Australia.

The strategy being followed by the mega-rich beef investors is a top level example of an investment theory that Asia's adoption of a Western diet, with its high intake of protein and calories, will drive demand for products such as beef, dairy, wine and other foodstuffs.

It is a concept likely to prove successful, but it will not be without the risks that go with all forms of agricultural investments as has been demonstrated recently by the collapse in the share prices of Bega Cheese and Bellamy's after encountering problems marketing infant health milk in China.

Other listed Australian agricultural stocks have also blossomed and faded over the past 12 months, in a demonstration of the risks that all farmers face with challenges varying from seasonal changes (floods, fire and frost), crowded markets because of low barriers to entry, government regulation and health scares.

But, for the average investor, it's comforting to see that the mega-rich reckon that agriculture is starting to enjoy the same Asian-demand boost that drove mining over the past decade.