Rocky wager: Andrew Forrest.

Rocky wager: Andrew Forrest. Photo: Tony McDonough

ANDREW Forrest is used to dealing in high stakes - in the form of Fortescue Metals, he has created arguably the biggest, most highly leveraged multibillion-dollar bet available on the price of iron ore.

In the space of less than an hour yesterday, he lost the best part of $500 million, as the value of his one-third stake in the company he founded tanked by 14 per cent.

The equation now is simple. The way Fortescue is structured, if the price of iron ore makes a quick recovery to about $US120 a tonne, and stays there, it would seem like nothing but a bad dream.

But if the price hangs around at current levels of about $US100 a tonne, the fears about its debt levels will not dissipate.

Having previously mixed it with the blue-chips of BHP Billiton and Rio Tinto, Fortescue is now a volatile play only those with a more than healthy appetite for risk will touch. Short-sellers are revelling.

As chief executive Nev Power put on a brave front while presenting at the prestigious CLSA investor conference in Hong Kong yesterday, back home, Fortescue was forced to cobble together a statement confirming to the stock exchange that it had asked its lenders to waive its debt covenants should ''extended volatility'' in the iron ore market eventuate. It was a ''prudent measure'', the company said.

The market remains convinced that if things stay the way they are, Fortescue faces Forrest's worst-case scenario - a damaging, discounted, and dilutive equity raising.

But the source of Forrest's riches is almost completely held in the company he dreamt up on his kitchen table. And like any gamble, the result is out of Forrest's hands.

Despite having shaken hands with senior Chinese politicians, and having flirted on and off with the deep pockets of the Chinese sovereign wealth fund, China Investment Corporation, Forrest has no influence on where the flagging Chinese economy pushes the iron ore price next.

Two weeks ago, the billionaire magnate splashed another $40 million into the growing pot of chips, buying up shares in an attempt to shore up confidence in his stock. That amount, according to industry chatter, was borrowed from a margin facility. And the market, for now, is calling his bluff.