Primordial soup

4Q23 PRODUCTION

Need To Know

• FY23 shipments 192mt at top end of guidance.
• Realised FY23 iron ore price US$95/dmt -5% on last year, discount to benchmark shrinks.
• Earnings leakage into FFI increasing, keeps risk profile high, in our view.

Investment Implications

Fortescue’s iron ore business achieved full year guidance and now has the Iron Bridge magnetite project contributing to FY24. Higher grade shipments are closing the discount to the benchmark price. FMG’s infatuation with green hydrogen keeps evolving and costing more.

New Fortescue Metals boss, Fiona Hick, was able to front a solid set of figures for the core iron ore business in 4Q23 and FY23. At 192mt, FY23 production just topped the guidance range and the improved material grade shipped attracted a closer price to the benchmark Platts 62% FeO index.

The FY24 guidance range of 192-197mt includes approximately 7mt from Iron Bridge (100% basis) at an average C1 cost of US$18-19/wmt (FY23 US$17.54/wmt). Iron Bridge will eventually ramp up to 22mtpa within two years.

FMG had balance sheet cash of US$4.3bn as at 30 June 2023 and net debt of US$1.0bn.

First ore at the Belinga Iron Ore Project in Gabon (west coast of Central Africa) was railed to port in the quarter and will be shipped by the end of the year. No operational or financial details accompanied this announcement.

FMG is now 20 years old and the new FFI offshoot will be subsumed into the Fortescue Energy division which encapsulates FMG’s global green energy investments. FMG will allocate US$300m of capex to FFI in FY24 and will expense between US$400-500m. The range of projects has been drastically refined to a handful of more likely ventures including the development of battery-electric haul vehicles and trains to be used in the Pilbara operations.

Investment View

All is well in the iron ore business even considering the difficulties encountered in getting the Iron Bridge project finally into production and ramping to capacity. The relative calm of the iron ore business is in contrast to the primordial soup that is green energy over at FFI. Some sense of shape is emerging as the mammoth project wish-list has been whittled to a more serious selection of projects with seemingly viable pathways. That is about all that can be deduced from the motherhood statements regularly spouted from FFI, and investors are still none-the-wiser on any financial parameters of the green cabal. We do know that Fortescue Energy is a ravenous capital and opex muncher at this point and hence our Hold recommendation to reflect the wild ride into the new galaxy of green hydrogen.