Fortescue chief Elizabeth Gaines looks to a future beyond iron ore
!["The analogy I use is, I am the coach of a high-performing team and we like to think of ourselves as a star team rather ...](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/h/1/7/e/2/6/image.related.afrArticleLead.620x350.h1663x.png/1541649105401.jpg)
Elizabeth Gaines' husband Kevin came home with exciting news.
It was 2001, and his work in technology consulting had caught the attention of a leading professional services firm, which had earmarked him as the next managing director of its European office.
Like most once-in-a-lifetime opportunities, it came with a catch: relocation to London, half a world away from the couple's home in Perth.
In an era of global careers, it is the dilemma that countless Australian couples have had to confront: for one person to fulfil their career potential, the other must put their career on the backburner. Rarely, though, is that sacrifice made by the chief executive of a sizeable, high-profile company.
That was the dilemma facing Gaines, who just 14 months earlier at the age of 37, had landed her big break when named chief executive of the Holmes à Court family's flagship company, Heytesbury.
"I had not been in the role at Heytesbury for that long as chief executive, so that was a tough decision for us," says Gaines, who will soon mark her one-year anniversary as chief executive of Fortescue Metals Group.
Heytesbury was an extraordinary opportunity for a first-time chief executive: its diverse assets gave Gaines exposure to one of the nation's biggest construction companies in John Holland, sprawling beef and thoroughbred businesses, and Vasse Felix, one of the Margaret River wine region's foundation vineyards. Could she really walk away from it all for love?
Janet Holmes à Court was chairman of Heytesbury at the time, and remembers how Gaines broke the news. "I can remember her saying: 'I am not going to lose this one, so I have got to go with him.' The only reason she ceased to be our CEO was because her husband was transferred to London."
Seventeen years later, Gaines is convinced she made the right decision.
"It was the right thing for [Kevin] and his career," she says of the London job, which lasted eight years rather than the two years they originally expected.
The couple are still together, and Gaines says their relationship has been a journey of alternating priorities. "That was his time, it was his opportunity. But then the call came for me to move to Australia and that was the right thing for my career at that time, so that is what bought us back to Sydney."
Corporate success story
Gaines returned to Sydney to work for private equity firm CVC, but if she thought this was her moment in the sun, she was in for a pleasant surprise. By 2014 she was given a second chance to be a CEO, this time at ASX-listed travel company Helloworld, which had emerged from CVC's 2008 acquisition of Stella Group and several restructuring rounds.
!["The only reason she ceased to be our CEO was because her husband was transferred to London," Janet Holmes à Court says ...](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/g/z/4/r/o/e/image.imgtype.afrArticleInline.620x0.png/1508457885474.jpg)
In late 2017, Gaines landed the third and biggest role of her career when announced as the successor to Fortescue Metals Group chief executive Nev Power; a role that put her at the helm of arguably Australia’s greatest corporate success story of the past two decades.
Fifteen years ago, Fortescue was a micro-cap stock called Allied Mining and Processing, but an amazingly prescient bet on China's growing demand for iron ore would turn the company into a $12 billion giant and one of the 30 largest on the ASX. Just 10 years ago, its share of Chinese iron ore imports (an industry with extraordinarily high barriers to entry) was zero, but an ambitious, debt-funded expansion means it can now export 170 million tonnes of iron ore each year for a market share of about 15 per cent.
Fortescue has in recent years reported annual revenues between $US7 billion and $US8.5 billion, and its pure exposure to iron ore has shaken up an industry that was for decades dominated by big, diversified miners Rio Tinto, BHP and Brazil-based Vale.
Despite producing lower volumes than those three rivals, Fortescue has counter-intuitively become the world’s lowest-cost producer of iron ore, thanks largely to an ore processing and blending strategy that, among other things, allowed ore with low iron grades to be turned into a valuable product.
![Gaines with her husband, Kevin Manuel.](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/h/1/7/d/a/o/image.imgtype.afrArticleInline.620x0.png/1541034559945.jpg)
While Fortescue is now well established and has mostly solved the debt concerns that hovered over the company in 2012, Gaines' first year in charge has been anything but a bed of roses.
She took the helm as Fortescue's products, where the iron content in the ore was between 56 per cent and 59 per cent, came under price pressure from Chinese steel mills.
The prices received by Fortescue have always been determined in reference to the price paid for Rio's iron ore, which typically has iron content of about 62 per cent.
Fortescue's lower iron content meant it traditionally received about 85 per cent to 90 per cent of the price paid for Rio’s product, but China’s growing preference for high-grade ore has over the past year seen Fortescue receive between 60 per cent and 70 per cent of the Rio “benchmark” price. In August, it reported a 58 per cent slide in annual profits on the back of the wider-than-expected iron ore price discounts encountered in 2017-18.
![Gaines with former Fortescue Metals Group chief executive Nev Power.](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/h/0/w/e/9/d/image.imgtype.afrArticleInline.620x0.png/1519164169548.jpg)
The drivers behind China’s recent preference for high-grade ore are disputed. BHP and Rio think the trend is permanent, and mostly caused by China’s desire for its heavy industry to be more efficient and environmentally friendly. Higher-quality raw materials mean less waste in the manufacturing process.
Fortescue, however, believes the trend is mostly driven by a cyclical high in Chinese steel mill profitability, which is giving the mills the financial firepower to buy the most expensive, high-quality raw materials. Power once equated the tactics to buying wagyu beef to make sausages, and Fortescue continues to insist the trend will retreat as soon as mill profitability does.
But two things are not disputed: the trend has lasted much longer than Fortescue expected, and the Chinese market is crucial to the company, being the source of more than 90 per cent of its revenues.
"If indeed it is structural, then they have some considerable challenges ahead of them," says Todd Warren, a resources fund manager at Colonial First State.
A new strategy to tackle the price penalties was revealed by chairman and founder Andrew Forrest on the same day that Gaines was announced as the company's next chief executive. "In the future, a majority of Fortescue’s production will be [greater than] 60 per cent [iron], competing head to head in the higher-grade markets," Forrest said in a statement on November 30, 2017.
Rising from within
The potted history of Gaines' career reveals some recurring themes, not least her habit of occupying CEO roles for relatively brief periods of time. Family forced her exit from the top job at Heytesbury after just 14 months, and her stint at the helm of Helloworld lasted barely 15 months. On face value, it's not a flattering trend for a chief executive, and inevitably poses questions about her longevity in the top job at Fortescue.
But the truth is more complex and, in Gaines' case, far more flattering than first glances might suggest.
!["We wanted the new CEO to advance a unique leadership structure," says Andrew Forrest.](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/h/0/y/1/j/y/image.imgtype.afrArticleInline.620x0.png/1522135107097.jpg)
At Heytesbury and Helloworld, her time as chief executive was part of a much longer association with those companies. Her stint at the top of Heytesbury was preceded by several years in the company's finance team, and followed by several more years on the board. By the time she stepped down as CEO of Helloworld, Gaines had been deeply involved in the business, and its antecedents, for more than six years, including as chief operating officer and chief financial officer.
"My connection with that [Helloworld] group had really been through the [CVC] private equity ownership, and that private equity ownership was coming to an end, so I made the decision that there were a number of opportunities for me to pursue a non-executive director career," she says.
The same was true at Fortescue, where Gaines was a director for almost four years before being appointed to an executive role.
This all highlights another recurring theme of her career: when she has been appointed chief executive, she has risen from within. While some CEOs win their positions by impressing virtual strangers with strong interview performances, Gaines was elevated to the leadership of all three companies by people who had worked closely with her for years and had full knowledge of her strengths and weaknesses.
"Culturally they are on the same wavelength and you know them," says Holmes à Court when asked about the merit of appointing internal candidates. "That was one of the things with Elizabeth – culturally we were on the same wavelength."
Gaines says there are many benefits to picking an internal candidate, not least the "continuity of thought leadership".
"Strategy does not begin and end in a three-year cycle," she says. "Particularly for organisations that have a very strong culture … knowing how they fit with that culture is really important if you want culture to survive, because culture can take years to build, but it can take weeks to destroy."
They talk a lot about culture at Fortescue. The spirit of a start-up is still evident in the way Forrest sets excruciatingly high targets for his teams, and there is an evangelical edge to the description of staff as "the Fortescue family" and the regular group prayers that take place in the worksheds and mine sites before each shift.
![Gaines, left, with Forrest and deputy CEO Julie Shuttleworth.](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/g/z/w/8/u/r/image.imgtype.afrArticleInline.620x0.png/1512024271536.jpg)
Forrest is barely three years older than Gaines yet, despite growing up in the same sparsely populated state, their paths did not cross until 2012 when Forrest was on the hunt for new directors to join what was then a heavily indebted company fighting for its survival.
"We gave a couple of search firms a brief to look for new directors who were fantastic, experienced people but not necessarily big names," Forrest recalls. "We wanted people who could make a really valuable contribution without being overworked on numerous other boards. Elizabeth appeared on that list."
Gaines and Forrest are cut from different strands of Western Australia’s social fabric.
Forrest belongs to arguably one of the state’s most significant establishment families, and spent much of his childhood on the family's pastoral holdings in the Pilbara before being educated in Perth’s exclusive Christ Church Grammar and Hale schools.
Gaines' father was a school headmaster and her mother a journalist. Like her three siblings, she won a music scholarship at government-funded Perth Modern School, opting for french horn after being told classes for her first and second preferences, flute and saxophone, were full.
Gaines says the scholarship came with an "intense" workload, particularly for a student forced to make the two-hour-each-way commute from her home in Perth's far eastern hills. "There was not a lot of time for rebellion. It is fair to say I was a goody two-shoes."”
Not an obvious move
Mining industry veteran Owen Hegarty says there was no obvious plan for Gaines to become an executive when she joined Fortescue's board in February 2013.
![Owen Hegarty says there was no obvious plan for Gaines to become an executive when she joined Fortescue's board in ...](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/h/1/7/0/j/d/image.imgtype.afrArticleInline.620x0.png/1540277535006.jpg)
"You would have to say it was evolutionary," says Hegarty, who served on the Fortescue board between 2008 and 2016. "Was anybody thinking that [Gaines was a future CEO] at the time? Not really. We were really thinking about the board and the skill sets [it required]."
By 2016 Gaines had collected directorships at Nine Entertainment, data company NextDC, biomed company Impedimed and Tourism WA. The notion of returning to an executive role had not dawned on her until well after multinational miner Anglo American poached Fortescue chief financial officer Stephen Pearce in late 2016.
"It really only unfolded when Nev Power called me to advise that Stephen Pearce had resigned," she says. "I did not immediately think that was an opportunity for me. I was involved in that process to recruit Steve's replacement and I think during that process, and having discussions with Nev, that is when the idea and the opportunity started to take hold for both of us."
Nor did she envisage that Power would also exit within a year of Pearce.
"It has since cascaded fairly rapidly, it is fair to say," she says with a smile. "Which is one of the other lessons in life: you never know what is around the corner."
Collective culture
Forrest was in a typically ebullient but contrarian mood on November 30, 2017, as he announced that Gaines would become the third chief executive of the company he created. Where some companies present their leader as the "smartest person in the room", Forrest took a different spin, noting that Gaines ensured she was never the smartest person in the room.
Gaines shows good humour when reminded of that well-intentioned but slightly clumsy description.
![Gaines at Fortescue's Christmas Creek mine in the Pilbara region.](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/h/1/0/u/2/0/image.imgtype.afrArticleInline.620x0.png/1527814102977.jpg)
"I know what Andrew meant," she says. "This is not about me taking credit for every decision that is made at Fortescue, this is about empowerment. We are a team and I am more than happy to give the credit to those who have contributed."
Holmes à Court remembers Gaines as a woman of intellect and work ethic.
"She is highly committed," she says. "Whatever role she takes on she would do to 110 per cent of her ability, passion and skill. She is well educated, she has broad interests and a terrific work ethic."
More than most mining companies, Fortescue has traditionally allowed those beneath the chief executive to shine.
When rival miners such as BHP and Rio Tinto report their results, the chief executive is typically sent out alone or flanked by the chief financial officer for help on detail. Fortescue has always presented a more collective front, with investor briefings typically delivered by the company's four or five top executives.
Forrest says he wanted the transition from Power to Gaines to entrench that collective leadership culture even deeper.
"We wanted the new CEO to advance a unique leadership structure," he explains. "I wanted to lessen the focus on the CEO and put more of a focus on the leadership team around them.
"Elizabeth was identified as someone who could glue the organisation and core leadership team together so Fortescue, at any one time, could have one of four interchangeable leaders always at its helm."
![Fortescue will take an important step towards its goal of higher-grade iron ore when it starts shipping small volumes of ...](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/g/s/k/z/e/l/image.imgtype.afrArticleInline.620x0.png/1478635369407.jpg)
Fortescue now speaks about its "core leadership team", which includes Gaines, chief financial officer Ian Wells, deputy chief executive Julie Shuttleworth and former Rio Tinto executive Greg Lilleyman, whose chief operating officer role straddles operations, product development and marketing. "It is not about the cult of one person … it is not one person that makes 170 million tonnes of iron ore in a year and delivers on all our objectives," Gaines says.
High-grade goal
But within such a collective leadership environment, what exactly is the chief executive’s role?
"The analogy I use is, I am the coach of a high-performing team and we like to think of ourselves as a star team rather than a team of stars," Gaines says.
"I’ve learnt the style of leader I want to be probably more from where I have seen poor leadership … that would be people who are aggressive, assertive, rude, bombastic and don’t necessarily treat people the way they would probably want to be treated themselves.
"If you actually encourage people, regardless of what their role might be, that is where the best ideas come."
The Gaines era at Fortescue is defined by the fight to raise iron grades and obtain better margins, and the company will take an important step towards that goal in coming weeks when it starts shipping small volumes of a new iron ore product called West Pilbara Fines, which will have iron grades of 60.1 per cent.
Forrest's vow for the "majority" of Fortescue's product to have iron grades beyond 60 per cent appears unlikely to be achieved any time soon.
![The Gaines era at Fortescue is defined by the fight to raise iron grades and obtain better margins,](http://web.archive.org./web/20181124231445im_/https://www.afr.com/content/dam/images/g/v/d/a/a/n/image.imgtype.afrArticleInline.620x0.png/1541647586743.jpg)
Fortescue has signalled recently that closer to 23 per cent of its product will have iron grades above 60 per cent in the foreseeable future, thanks largely to the development of the new $US1.3 billion Eliwana mine. But Gaines refuses to concede that Fortescue will never be able to meet Forrest's stated aim of having a majority of its ore with iron grades above 60 per cent, describing it instead as an "ambitious, long-term goal".
"There are other opportunities we are considering as well, for example our Iron Bridge magnetite project," she says, referring to the exploration site 100 kilometres south of Port Hedland. "We haven’t made an investment decision on that yet, but that is a very high-grade iron ore product."
Broader horizons
Colonial's Warren does not expect the majority of Fortescue's product to have iron grades above 60 per cent any time soon.
"I think they will struggle, frankly, to achieve 60 per cent across their entire portfolio in the near term," he says. "They will certainly get some tonnes away at that level, and therefore reduce their discount, but it is challenging.
"Nev did a wonderful job dealing with what could have been a near-death experience," Warren says of Fortescue's liquidity crisis in 2012, "and he managed to successfully sail that ship through very stormy waters.
"Obviously the challenge for Elizabeth is now to navigate a different set of challenges."
If the fight to raise Fortescue's iron grades and price realisations looms as the biggest challenge of her time at the top, Gaines hopes there might be other legacies.
Since the early days of the millennium, Fortescue has been a pure iron ore play, an exposure that has created extraordinary wealth but also nerve-racking volatility.
If the planets align, Gaines hopes she might be able to lead Fortescue into a realm beyond its iron ore heartland.
"We are looking for opportunities for growth," she says, pointing out the exploration work the company has funded in copper-rich parts of NSW and Ecuador.
Fortescue has also looked at lithium opportunities in Western Australia, and will soon start exploring for lithium in Argentina, amid expectations that demand for the minerals that go into modern batteries (lithium, cobalt, graphite, nickel) will grow as the world transitions to electric vehicles and greater use of energy storage.
"If we could replicate Fortescue in another commodity, maybe in another country, that would be success."