Notes from the Analyst Investor Call June QtlyGreen Energy...

Notes from the Analyst Investor Call June Qtly

Green Energy Projects:

CEO Mark Hutchinson made it really clear that Fortescue is steadfast in their commitment to green hydrogen.

What did he mention?

That their financial discipline always comes first.

They will never do projects that are not economically viable.

As the green hydrogen market develops around the world, the cost of green power has to be in the US$30 range to make projects viable.

Costs need to come down.

If power costs are not at this level, they will work with those economies to help bring down the cost of electricity by producing electrons.

They will even consider opportunities to produce electrons from their portfolio in Western Australia and Queensland.

The four projects that they’re focused on, are going to require capex over the next couple of years and that is reflected in their plan for this coming year.

As those projects move forward, a significant amount of capex is going to be required over the next few years.

The other projects mentioned, ie Kenya, Oman, Morocco, Jordan and Egypt will then come through the system later on.

The One Fortescue structure:

Will be lean and efficient.

Will result in savings across the board.

Which will include the Energy segment.

Note, that the energy operational expenditure is mainly around the ramping up of their decarbonisation plans.

That spend and R&D will obviously reduce over time.

And the split is going to be 64/40 between Green Energy Projects and Fortescue Zero.

Fortescue have given guidance on the Fortescue Energy capex which is US$500 million.

That's going to be roughly a third split between approved FID's, Fortescue Zero, and other Green Energy Projects.

Guidance for Energy for net operating costs of US$700 million - will be operating costs after external revenue and includes administration expenses for the segment.

Where exactly is that going to be allocated? Mostly green hydrogen projects and electrons if they see any opportunities to take to the board. But, it's too early to tell and say at this stage is what the response was.

A few other points worth highlighting is that feasibility studies for their green hydrogen projects are ramping up for the big projects in Holmaneset, Norway and Pecem, Brazil. These are big projects.

Fortescue Zero includes decarbonisation related opex and green technology research and development.

Going forward with other projects, they're not going to provide specific guidance as yet until the projects reach FID status.

"Mark Hutchinson: Yes, thanks. Look the opex is a mix between really getting ready for our decarb, it’s the technology investment for Fortescue Zero and our electrolyser business and also our projects, which are moving through a process to get to FID. So a part of that goes into opex before it flips into capex."

Fortescue's guidance is US$2 billion to US$2.3 billion, overall the Fortescue Metals capex of US$3.2 billion to US$3.8 billion.

Capital allocation will be lumpy - a third around replacement, as fleet replacement cycle ramps up over the next couple of years.

And at last a question came through about Fortescue Capital!

Response...

They've been working hard on putting the team together.

Getting the right structures in place.

So they're ready to go raise money, but that will all depend on how the projects stack up.

That's why they're working hard on understanding the financing aspect and how that will fit in with their future plans.

Tony