Billionaire Rinehart Feuds With Fortune-Hunting Children

Australia’s Gina Rinehart, the world’s 36th-richest person, transformed her father’s Hancock Prospecting into a leading mineral resources company. Now, she’s battling three of her four children over the family fortune, just as iron ore prices plunge.

Photographer: Nelson Ching/Bloomberg

John Hancock, the estranged son of Australia’s wealthiest citizen, the iron ore billionaire Gina Rinehart, recently flew to the U.S. to join 400 guests at a four-day wedding celebration in Bar Harbor, Maine.

Apart from acting as a groomsman at the September nuptials of an Australian friend and his New Yorker bride, Hancock says he had another reason to count the trip worthwhile.

“It was wonderful to spend time in a normal family environment,” the 36-year-old scion told Bloomberg News in an e-mail. “It was a pleasure to see the unconditional love the bride’s parents gave each of their three daughters and the groom.”

Such outpourings of affection aren’t the norm in the Rinehart-Hancock clan, a Down Under dynasty whose feuding rivals even the most feverish, Dallas-like plotlines, Bloomberg Markets magazine reports in its December cover package, “The World’s Richest People.”

Rinehart, 58, chairman of Hancock Prospecting Pty, has accumulated an $18.6 billion fortune from vast iron ore and coal deposits -- most of which were discovered in the 1950s, 1960s and 1970s by her late father, Lang Hancock.

Now, she’s locked in a bitter courtroom battle with three of her four children over control of a $4.4 billion slice of it.

‘Holidaying Lifestyles’

Last year, John Hancock, Gina’s only son, together with his sisters Bianca Rinehart, 35, and Hope Rinehart Welker, 27, sued in New South Wales Supreme Court to have their mother removed as fiduciary of a trust Lang Hancock set up for his grandchildren.

The trust holds a 23.5 percent stake in Hancock Prospecting; Gina owns the rest. For her part, the matriarch chastises the three children for “adopting holidaying lifestyles and attitudes.”

The rift resonates far beyond one family’s feud. Australia is the world’s No. 1 exporter of the iron ore and coal that have fueled the growth of China and other emerging Asian giants. In the sun-scorched Outback, Hancock Prospecting owns or partly owns some of the country’s most valuable deposits.

As prices skyrocketed, Rinehart rode the commodities boom to become the world’s 37th-richest individual and sixth-richest woman as of Nov. 6, according to the Bloomberg Billionaires Index.

Among women, Rinehart ranks behind only Wal-Mart Stores Inc. heiresses Christy and Alice Walton, L’Oreal SA’s Liliane Bettencourt, Mars Inc.’s Jacqueline Badger Mars and Iris Fontbona, matriarch of Chile’s richest family. Rinehart accumulated more of the family wealth than the dynasty’s founder.

Political Influence

“Gina enhanced what was given to her and has taken it to the next generation,” says George Boubouras, head of investment strategy at the Australian wealth-management unit of Zurich-based bank UBS AG.

With China’s growth slowing and iron ore prices having tumbled by more than 50 percent from February 2011 to September 2012 before partially recovering, the China-dependent Australian economy has weakened, and Rinehart is struggling to protect her fortune. From Jan. 1 to Nov. 6, her wealth declined by $1.6 billion, according to the Bloomberg Markets rankings.

A conservative who describes even centrist politicians as socialists, Rinehart has sought to accrue political influence by buying stakes in the country’s second-biggest newspaper publisher and its third-ranked commercial broadcaster.

‘Strong Personality’

“Gina’s like Rupert Murdoch: a tough, smart and strong personality,” says Prasad Patkar of Sydney-based Platypus Asset Management Ltd. “For these people, there’s nothing that stands between them and success. It would be a very brave or foolhardy person to bet against her.”

Now, three of her children are doing just that. John Hancock, who dumped his stepfather’s surname in favor of his grandfather’s, has been battling his mother since 2004, when he sought to view the accounts of the trust set up by Lang.

John said he was concerned that mining interests had been transferred out of the trust. Last year, he teamed up with his sisters Bianca and Hope to file a lawsuit.

Rinehart, supported by her youngest daughter, Ginia, 26, claims in court filings that the other children broke an agreement requiring disputes over the trust to be settled in private mediation.

On Oct.31, New South Wales Supreme Court Justice Paul Brereton rejected Rinehart’s request to throw the case out of court.

Dynastic Saga

Rinehart said in a statement to the Australian Broadcasting Corp. in June that the feud had already contributed to a delay in raising as much as A$7 billion (US$7.3 billion) to develop one of the world’s biggest iron ore deposits. The project, known as Roy Hill, is scheduled to yield an estimated 55 million metric tons a year, starting in 2015 -- equivalent to one-eighth of Australia’s total 2011 production.

It’s the most ambitious venture Rinehart has ever attempted. If she succeeds, Hancock Prospecting will for the first time operate its own mine instead of leaving management to a joint-venture partner.

The family’s legal infighting is merely the latest twist in a dynastic saga that began with Gina’s father.

Lang Hancock was a teetotal rancher and prospector who grew up on Mulga Downs, a vast sheep farm in one of the hottest, driest and most sparsely populated places on Earth: the Pilbara region of Western Australia, a state four times the size of Texas.

Vast Seams

In 1952, two years before Gina was born, Hancock and his second wife, Hope, took off in his single-engine Auster light plane on a trip to Perth, the state capital.

Crossing the mineral-rich, ocher-colored Hamersley Range that borders Mulga Downs, he flew into a storm. Confronted by thick clouds, he descended into a gorge, where he spotted vast seams of iron ore.

Back then, Australia banned the export of the steelmaking material and didn’t allow claim staking. Ha

ncock kept the discovery secret while he lobbied for the laws to be changed.

When that happened, in the early 1960s, Hancock and his partner, Peter Wright, struck a momentous deal with Rio Tinto Group that gave the London-based mining company access to the riches Hancock discovered. Hancock and Wright each received a 1.25 percent royalty on every ton mined -- in perpetuity.

Gina, an only child, became the heir to Hancock’s share of this fortune.

Business Philosophy

Sent to boarding school in Perth, she spent weekends and holidays in the Outback with her father, absorbing his business philosophy and far-from-mainstream political ideas, including support for the secession of Western Australia state and the use of nuclear weapons to blast out space for ports, mines and dams.

In 1973, just before her 19th birthday, Gina married one of Hancock’s hired hands, Greg Milton.

According to Adele Ferguson, author of Gina Rinehart (Macmillan, 2012), Gina told her father, “I want him.” Hancock replied, “We’ll get him for you, then.” The couple had two children, John and Bianca, before divorcing in 1981.

Two years later, when she was 28, Gina married a 65-year-old, American-born, Harvard-educated lawyer, Frank Rinehart, just three months before her mother lost a long battle with cancer.

The decision and the timing drove a wedge between father and daughter, according to Ferguson.

‘Baby Elephant’

The biographer wrote: “Lang had an innate mistrust of people, as does Gina, and when he met the charismatic and clever Frank, he had suspicions that the American had his sights set on Hancock Prospecting.”

Gina had two more children, Hope and Ginia, before her husband died in 1990.

The deterioration of Gina’s relationship with her father is apparent in letters they exchanged. After her mother died, Gina had approved the hiring of a housemaid, Rose Lacson, 34, to look after her 75-year-old father. Within weeks, Hancock and Lacson had become lovers.

In one letter, which Gina read out during a court case in 1999, she described Lacson as “a Filipina prostitute” and told her father he had become a laughingstock.

He replied in kind, according to Ferguson, saying Gina had gone from being an attractive young woman to a “slothful, vindictive and devious baby elephant.”

In 1985, Hancock and Lacson married. Hancock bought her a $10 million colonnaded mansion, Prix d’Amour.

Lurid Tales

During the next seven years, he spent A$30 million on the new Mrs. Hancock, paying for a Bentley and extravagant round-the-world shopping trips, according to Debi Marshall, author of The House of Hancock (Heinemann, 2012).

By the time Hancock died in 1992 at 82, Rose and Gina were already fighting over his much-diminished wealth. Afterward, Gina went so far as to claim her father hadn’t died of natural causes. She campaigned for the next nine years for an inquest to be held.

When the Western Australia coroner finally agreed to hold one, witnesses told lurid tales of Rose Hancock attempting to harm or kill her ailing husband.

The case against the widow collapsed, however, after it was disclosed that Hancock Prospecting had paid as much as A$200,000 to witnesses to give evidence, much of which turned out to be made up, according to the inquest.

The coroner ruled that Hancock had indeed died of natural causes. A subsequent investigation by Western Australia’s solicitor general held that while the payments were “highly improper,” there was insufficient evidence to prove that they amounted to an intent to pervert the course of justice.

Prix d’Amour

Finally, in 2003, Rinehart and Rose Hancock reached a financial settlement. Rose kept A$50 million of assets, including Prix d’Amour. Rinehart kept the royalty stream from the Hamersley mines, which had amounted to just $14 million when she took over the company.

Rinehart then proceeded to rebuild the House of Hancock. In 2005, she formed a 50-50 joint venture with Rio Tinto, now the world’s second-largest iron ore exporter, to mine Hope Downs, a Pilbara property named after her mother.

The pit, which Rio Tinto operates, opened in 2007. By then, Rinehart was riding Australia’s biggest mining boom since a mid-19th century gold rush.

In 2002, iron ore prices were just $28 a ton. In February 2011, they hit a record $191.91. Last year alone, Rinehart’s income from the Hamersley royalty had burgeoned 15-fold since 1992 to $211 million, according to data compiled by Bloomberg.

‘Socialist’ Policies

Rinehart has used part of her wealth to try to mold the world’s 12th-biggest economy in her -- and her father’s -- image. In speeches and videos, she rails against the “socialist” policies of the country’s center-left Labor government, especially its taxes on carbon emissions and on profits from iron ore and coal.

In 2010, Rinehart, decked out in pearls, clambered onto the back of a pickup truck to attack the mining tax proposed by then-Prime Minister Kevin Rudd.

“Ax the tax,” Rinehart yelled to a crowd of 2,000. Two weeks later, Rudd was toppled by his own party and replaced by Julia Gillard, who this year introduced a watered-down version of the tax.

In 2010, Rinehart bought a 10 percent stake in Ten Network Holdings Ltd., a commercial broadcaster, earning herself a seat on the board. This year, she acquired 15 percent of newspaper publisher Fairfax Media Ltd.

When Bloomberg News approached Rinehart for an interview, she declined.

‘Do Something’

She did send by e-mail an article she wrote for a mining publication in which she offered this advice:

“There is no monopoly on becoming a millionaire. If you’re jealous of those with more money, don’t just sit there and complain; do something to make more money yourselves -- spend less time drinking, or smoking and socializing, and more time working.”

Rinehart herself has no time for frivolity. She’s embroiled in an 11-year legal struggle with Wright Prospecting Pty, run by descendants of her father’s old business partner, over ownership of billions of dollars of iron ore assets.

On Oct. 30, she lost an appeal to reclaim a 25 percent stake in Rhodes Ridge, one of the world’s richest undeveloped iron ore deposits. Wright Prospecting is also seeking 50 percent of Rinehart’s stake in three properties at Hope Downs.

Her media investments have also soured; shares she bought have fallen as much as 80 percent, and Fairfax directors thwarted her bid for a board seat after she refused to sign a charter that guarantees editorial independence for its newspapers.

‘Annus Horribilis’

Rinehart’s prospects for a better new year aren’t good, Ferguson says. Her biggest challenge will be developing Roy Hill. Although Asian investors, including South Korean steelmaker Posco, have agreed to pay her $3.6 billion for a 30 percent stake, Rinehart still needs to raise billions to achieve what Ferguson calls the billionaire’s lifelong dream.

“If 2012 is Rinehart’s annus horribilis, 2013 could conceivably be worse,” the biographer says. “The importance of Roy Hill can’t be underestimated.”

Any hopes Rinehart had of a harmonious family life have long since been dispelled. If Roy Hill is derailed, her greatest corporate ambition may continue to prove elusive as well.

* * *

How We Crunched the Numbers

In calculating a billionaire’s net worth, we valued his or her stakes in publicly traded companies using closing prices of Oct. 5. Valuations of foreign assets were converted to U.S. dollars.

Closely held companies were valued in several ways. We compared the average enterprise value-to-sales; enterprise value-to-earnings before interest, taxes, depreciation and amortization; price-to-book value; or price-to-earnings multiples of similar publicly traded companies. Comparables were chosen based on the closely held company’s industry, size and location. Estimates of company debt were based on the average net debt-to-Ebitda multiple of peers.

A liquidity discount of 5 percent was applied to most closely held companies where assets might be hard to sell. Higher liquidity discounts were given to companies for which the structures were more complex. No liquidity discounts were used in calculating public stakes. In some instances, we also applied a country risk discount based on a person’s concentration of assets.

Expert Assessments

We usually valued real estate by applying average regional occupancy and capitalization rates to the square footage of closely held commercial properties. For personal property, we used its appraisal value. Land was valued using the market price per acre.

Estimates for art, furniture and jewelry were based on their insured value and expert assessments. Yachts, planes and other vehicles were assessed based on market value. Net worth estimates include dividend income, proceeds from asset sales and real estate.

In cases where most of a fortune comes from closely held companies, estimated dividends are calculated only if historical financial information is available.

We deducted taxes based on personal income, dividend and capital gains rates in a billionaire’s country of residence. Taxes were applied at the highest rate unless there was evidence to support a lower percentage. For estimates of cash and other invested assets, we applied a hybrid market return based on holdings in cash, government bonds, equities and commodities.

Potential Liabilities

We attempted to identify and confirm all potential liabilities. No assumptions were made about personal debt. Family members often hold a portion of the billionaire’s assets. Such transfers don’t change the nature of who ultimately controls the fortune. We operate under the rule that all billionaire fortunes are inherently family fortunes.

Each billionaire or his or her representative has been given an opportunity to respond to questions regarding the net worth estimate. Bloomberg News editorial policy is to not cover Bloomberg LP. As a result, Michael Bloomberg, the founder and majority owner of Bloomberg LP, wasn’t considered for this ranking.

-- With assistance from Elisabeth Behrmann in Sydney. Editors: Stryker McGuire, Gail Roche

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