|Three years ago this Australian rabbi was a laughing stock.
Now he controls companies worth $2.4 billion and is calling Israeli elections.
|ON HIS SECOND VISIT to the U.S. after becoming prime minister of Israel,
Benjamin Netanyahu visited a small cemetery in Queens, N.Y., not far from
Kennedy airport. There he paid respects at the grave of Menachem Mendel
Schneerson, the Rebbe (grand rabbi) of Judaism's ultraorthodox Lubavitcher
sect. Netanyahu was paying a political debt.
Escorting the prime minister was another Hasidic rabbi, Joseph Gutnick, a Schneerson disciple. But Gutnick is more than a rabbi.
Little-known outside of Australia and Israel, the bearded, black-coated Gutnick, 44, has amassed a $400 million fortune in Australian mining. But for Gutnick, Bibi Netanyahu and his Likud Party would probably have lost the Israeli elections.
The story begins in Brooklyn, N.Y. in 1990, when Rebbe Schneerson became concerned about Israel's left-leaning politics. He summoned the wealthiest among his 200,000 followers—Joseph Gutnick— and made him his special emissary for the "integrity of the land of Israel."
Lubavitchers and most other Orthodox Jews felt Israel's Labor government was giving too much to the Palestinians for too little in return. Gutnick reportedly spent millions campaigning against the Labor Party and for Netanyahu, who takes a harder line with the Palestinians.
With money and propaganda from Gutnick, 5,000 Lubavitcher volunteers went door-to-door in Israel campaigning—especially among Russian immigrants. "Netanyahu is good for the Jews," proclaimed Gutnick-financed bumper stickers and billboards throughout Israel. Netanyahu and Likud won by a narrow margin—probably supplied by Gutnick.
Whence came all those millions Gutnick spent supporting Likud? From
his stockholdings in Australian mining companies. Gutnick is the son of
Russians who immigrated to Melbourne. He comes from a long line of rabbis;
his father is currently the chief rabbi of the State of Victoria.
|After marrying the daughter of a wealthy Australian textilemaker, Max
New, in 1974, Gutnick studied to become a rabbi at Lubavitcher headquarters
in Brooklyn and returned to run a girls' seminary in Melbourne.
But his father-in-law's business beckoned, and soon Gutnick found himself more interested in trading stocks than in making garments. He bought mostly mining shares and eventually accumulated enough large stakes to sit on more than a dozen boards, including that of gold mining company Great Central Mines. In the 1970s and 1980s Gutnick rode the boom in Australian mining stocks.
By the mid-1980s he had built an initial $200,000 or so into over $100 million, but he then lost two-thirds of it when the Australian stock market collapsed in October 1987.
"I learned that cash flow assets are much more important than paper assets," says Gutnick, whose Australian accent is right out of Crocodile Dundee. What he means is that paper assets can lose their value in a short time but income-producing properties keep money coming in day after day. To that end he invested in gold production at Great Central Mines.
Unlike most religious Jews who believe in keeping a low profile, Gutnick understood the value of publicity. He began saying that Rebbe Schneerson had encouraged him to forge on after the crash by blessing him and assuring he would make major discoveries in gold and diamonds. He even displayed a video showing the Lubavitcher Rebbe blessing him while he held a map of Western Australia. Great Central had already announced gold discoveries (but no production) in Western Australia, and the prospect of diamond finds, bolstered by the alleged prophecy, sent Great Central's ADRs from $5 to over $12 per share in a fortnight.
The rapid runup caused the Australian Stock Exchange to question Gutnick's claims. DeBeers, Gutnick's partner in diamond exploration at the time, cautioned that his diamond finds in the Nabberu region of Western Australia had yet to prove economical. The DeBeers statement sank Great Central's ADRs to $7.50, and Gutnick was widely ridiculed.
But Gutnick had the last laugh. His 20%-owned Great Central is now Australia's
fourth-largest gold producer, at a rate of 600,000 ounces per year, and
owns reserves of 4.8 million ounces. In 1996 it should generate $38 million
in net income. Its market capitalization exceeds $764 million.
|Of Gutnick's eight actively traded Australian companies (see
table), the only other that actually produces minerals is 14%-owned
Centaur Mining & Exploration. It produced some 80,000 ounces of gold
this year and has the potential to produce nearly 250,000 by 1998. Centaur,
which has also discovered nickel and cobalt, has a market capitalization
of more than $600 million.
These days the Australian press calls Gutnick "Diamond Joe." His 26%-owned diamond mining company, Astro Mining, was recently relisted on the Australian Stock Exchange, and though it is not yet producing diamonds, its shares have since climbed 25-fold to give it a market capitalization of $276 million.
Seven of the eight public companies have yet to turn an operating profit, but all eight have a combined market capitalization of $2.4 billion.
One of the most highly touted issues is Mt. Kersey Mining, which has all the mineral rights to lands surrounding a major nickel discovery, called Silver Swan, just north of Kalgoorlie in Western Australia. Mt. Kersey's stock has run from 80 cents to $5, even though it hasn't produced one ounce of nickel. At least 45% of Mt. Kersey's shares are owned by Gutnick or his companies. Typically he controls these outfits through a web of cross ownerships. Even the Lubavitch main charity owns his stocks.
Australian institutions seem to take the Rebbe's alleged prophecy seriously and have bid up Gutnick's stocks. But while he pursues wealth in Australia, his political interests are in Israel. Gutnick says he is planning to buy a newspaper there to present a conservative voice in a media dominated by liberals. He recently bought a house next to the Rebbe's gravesite in Queens, where pious visitors can pray and study. Each Friday he takes out small advertisements on the front page of the New York Times urging Jewish women to light Sabbath candles.
At home in Australia, Gutnick cuts a prominent figure. He has a city
home and a beach home in Melbourne. A Bentley transports his wife and ten
children around Melbourne. His name is frequently in the headlines, his
face and voice on TV. He is courted by Australian politicians, including
the prime minister. "They even serve me kosher food when I dine with
them," he brags.
The messiah of mining stocks
All stocks are Australian except for Great Central Mines,
which is an ADR. *Does not include cross ownership through affiliated companies.
**Fiscal 1996, before extraordinary items and income tax. NA: Not available.