Fortescue going green at all costs: Twiggy promises to remove fossil fuels by 2030

Tue 20 Sep 22, 10:05am (AEST)
EV battery logo in a forest
Source: iStock

Key Points

  • Fortescue will invest US$6.2bn between FY23-30 to eliminate the use of fossil fuel across its mining operations
  • The transition is expected to deliver cost saving of US$818m per annum at prevailing market prices
  • Fortescue shares are down -9.7% year-to-date

Billionaire iron ore magnate Andrew Forrest has set Fortescue Metals (ASX: FMG) on an ambitious path to "eliminate fossil fuel use" across its iron ore operations by 2030.

The capital estimate for such an expeditious pivot is estimated to be US$6.2bn, with most of the investment expected to take place between FY24-28.

The investment to generate a positive net present value (NPV) as fossil fuels are replaced with lower cost alternatives and cost savings.

“We are already seeing direct benefits of the transition away from fossil fuels - we avoided 78m litres of diesel usage at our Chichester Hub in FY22 - but we must accelerate our transition to the post fossil fuel era," said Andrew Forrest.

Capital investment breakdown

The US$6.2bn capital investment is expected to ramp up from FY24 onwards and peak between FY26-27. Annual capex expenditure is expected to be capped at a maximum of US$1.5bn.

The investment will be allocated towards:

  • US$3.2bn (52%) for renewables, battery storage and infrastructure

  • US$1.3bn (21%) green fleet

  • US$0.9bn (14%) site based infrastructure

  • US$0.8 (13%) demand response

The project is expected to generate a positive NPV through the elimination of fossil fuels.

By 2030, Fortescue forecasts the investment to deliver cumulative savings of US$3bn and annual cost savings of US$818m at prevailing market prices.

The breakdown of cost savings include:

  • 84% diesel (displace approximately 700m litres of diesel)

  • 9% gas (displace approximately 15m gigajoules of gas)

  • 7% carbon offsets

Decarbonisation roadmap

Fortescue decarbonisation roadmap
Source: Fortescue Metals

Valuation and revenue opportunities

Fortescue hinted that the green transition "supports higher price to earnings ratios".

Iron ore majors including BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue have historically traded around low-to-mid single digit price-to-earnings. Which is surprisingly below the Materials sectors average PE ratio of 9.3, according to Morningstar.

But what would Fortescue's valuation look like in the event that it begins producing a carbon free iron ore product alongside the advanced infrastructure and technologies its developed to progress its green ambitions?

Fortescue share price chart
Fortescue share price chart


Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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