TERRY MCCRANN

BHP and Rio Tinto have been showering shareholders with billions of dollars in special payments – mostly generated from asset sales and paid out hurriedly in anticipation of Bill Shorten getting to sleep with the prime minister‘s wife in The Lodge.

But it’s the third, smallest and weakest of the ‘Big Pilbara Three’ – Andrew ‘Twiggy’ Forrest’s Fortescue – which has actually produced the most dazzling performance for its shareholders.

Since its share price bottomed, along with not only the rest of the Aussie market but indeed the entire world of share markets, just before Christmas, Fortescue has rocketed a stunning 61 per cent to close yesterday not far short of its post-GFC high.

That’s the sort of performance we’ve got used to thinking you only see with 21st century tech stocks like Amazon and Apple and our own Atlassian.

Not what you’d expect from not just a 20th century style of business, but arguably the clunkiest of them all: digging up raw, albeit rich red, Pilbara dirt and shipping it off by the tens of millions of tonnes, these days mostly to China.

BHP and Rio have also done spectacularly, easily outpacing the broader market over this period. But barely half as well as Fortescue in Rio’s case, up 34 per cent from its preChristmas low-point; and in BHP’s up 29 per cent.

Interestingly and somewhat ironically, Fortescue’s outperformance is a function of it doing the exact opposite of the investment admonition “not to put all your eggs in one basket”.

It is precisely because Fortescue is 100 per cent geared to iron ore that it’s performed the best as a consequence of the sharp rise in the ore price, thanks to Vale’s trial and tribulations on the other side of the Pacific.

Not so much a case of a butterfly flapped its wings in Brazil, chaos theory style; more the brutal reality of actual chaos from bad engineering.

In simple terms the more you were geared to iron ore the bigger the profit – and share price – benefit.

Fortescue is 100 per cent geared, Rio somewhat less so, getting 62 per cent of its 2018 profit from iron ore; while the more diversified BHP got ‘only’ 41 per cent of its first half profit from that source.

There’s a further irony: Fortescue got a second boost from also being geared to inferior ore.

When it was a buyer’s market - and Forrest was bitching about BHP and Rio producing too much (good) ore – Fortescue had to cop a bigger discount on Rio and BHP’s premium ore price.

Now that the tables have been turned, thanks to Vale, the discount has shrunk sharply. And with Fortescue able to get its costs as low as BHP and Rio, this has leveraged its benefit.

If we expand it to a Pilbara Quartet, Gina Rinehart’s Hancock Prospecting, which is very close to the Fortescue end of the geared-to-iron spectrum, would have enjoyed a similar surge in value.

Except we don’t get to see it because Hancock’s allRinehart private.