Fortescue approves US$750 million in global green energy projects

Fortescue (ASX: FMG) has given the green light to its first-ever green hydrogen projects in the US and Australia. A total investment of US$750 million over the next three years will aim to bring two green energy projects and a green metal project online by 2026.

The Three Projects

Phoenix Hydrogen Hub:

• What is it: An 80 MW electrolyser and liquefaction facility in Arizona, US with a production capacity of up to 11,000 tonnes per annum of liquid green hydrogen

• Cost: US$550 million

• First production: 2026

• The quote: “The Phoenix Hydrogen Hub establishes Fortescue in one of the most attractive energy markets in the world, facilitated by the Inflation Reduction Act.” – CEO Mark Hutchinson

To add some perspective, 11,000 tonnes of liquid green hydrogen is enough to power approximately 150,000 homes for a year, according to the US Department of Energy.

Gladstone PEM50 Project:

• What is it: A 50 MW green hydrogen project in Queensland with a production capacity of 8,000 tonnes of green hydrogen

• Cost: US$150 million

• First production: 2025

• The quote: “... will produce hydrogen at an industrial scale, allowing us to demonstrate the high quality of Fortescue’s own hydrogen systems.” – CEO Mark Hutchinson

Earlier this year, US hydrogen company Plug Power withdrew its plans to operate as Fortescue’s 50:50 joint venture partner for PEM50. “On Fortescue ... we decided we didn’t want to build a factory with them because we saw the economics; we could do better,” said Plug Chief Executive Andrew Marsh, the AFR reported.

Christmas Creek Green Iron Trial Commercial Plant: 

• What is it: A commercial plant which seeks to produce more than 1,500 tonnes of green iron ore via green hydrogen and green electricity from solar generation

• Cost: US$50 million

• First production: 2025

• The quote: “We are confident that our approach will drive growth for Fortescue through new, high value products being sold into new markets, ultimately leading to an increase in the number of iron units we sell.” – CEO Mark Hutchinson 

It’s All About Capex

Analysts have continued to flag Fortescue’s capital commitment towards renewable energy as a key risk for near-term cash flow and dividends.

The FID resulted in a minor change in capex guidance including:

• Fortescue Energy FY24 capex of $500 million, up from prior guidance of $400 million

• Fortescue Metals FY24 capex unchanged at $2.8 billion to $3.2 billion 

The capex guidance is largely in-line with analyst expectations:

• Macquarie (26 Oct): Analysts forecasted $400 million in Fortescue Energy Capex and $2.8 billion to $3.2 billion in Group capex

• Goldman Sachs (26 Oct): Analysts forecast Group capex of $3.48 billion – The $500 million for Fortescue Energy plus $3.0 billion (midpoint) is largely in-line

Iron Ore Prices

Macquarie analysts viewed the FID updates as a near-term catalyst. There were no major surprises in terms of FID capex, so investors can take a breather. We can now turn our attention to the all-important iron ore price.

Singapore iron ore futures continued to power ahead on Tuesday, up 1.5% to a 17 month high of US$132.75 a tonne. Prices are now up:

• 2.2% in the past week

• 17.7% in the past month

• 26.8% in the past six months

Singapore iron ore futures (Source: TradingView)