Fortescue Metals [ASX:FMG] unveiled a US$6.2 billion plan for ‘industry leading decarbonisation’ that will also reduce operating costs by US$818 million per year.
FMG shares were flat on the release, with the iron ore giant down 10% year to date.
Mining peers BHP Group [ASX:BHP] and Rio Tinto [ASX:RIO] are down 8% and 5% year to date, respectively.
Source: tradingview.com
Fortescue Metal’s US$6.2 billion green plan
FMG has announced a strategy to become a ‘world leader’ in decarbonisation, avoiding fossil fuel use and hitting net zero carbon emissions for its entire iron ore operations by 2030.
In chasing this goal, FMG will invest US$6.2 billion.
The goal isn’t purely altruistic.
FMG thinks the investments can reduce operating costs by US$818 million each year.
All else equal, the investment could then pay for itself in 7.5 years through cost savings.
According to FMG, the cost savings stem from eliminating diesel and natural from its supply chain, displacing about 700 million litres of diesel and 15 million GJ of gas.
What will the US$6.2 billion be spent on?
In Fortescue’s words:
‘This investment includes the deployment of an additional 2-3 GW of renewable energy generation and battery storage and the estimated incremental costs associated with a green mining fleet and locomotives. The capital expenditure to purchase the fleet will be aligned with the scheduled asset replacement life cycle and included in Fortescue’s sustaining capital expenditure. Studies are underway to optimise the localised wind and solar resources.’
FMG thinks its strategy will block three million tonnes of CO2 equivalent emissions annually, bring a further US$3 billion in cost savings, and allow payback of capital by 2034.
FMG’s emissions reduction strategies will be audited by the Science Based Targets Initiative (SBTi), in line with initiatives developed under the Paris Agreement to lower global warming.
Fortescue’s Executive Chairman, Andrew Forrest, said:
‘There’s no doubt that the energy landscape has changed dramatically over the past two years and this change has accelerated since Russia invaded Ukraine.
‘We are already seeing direct benefits of the transition away from fossil fuels… but we must accelerate our transition to the post fossil fuel era, driving global scale industrial change as climate change continues to worsen. It will also protect our cost base, enhance our margins and set an example that a post fossil fuel era is good commercial, common sense.
‘This investment is expected to generate attractive economic returns for our shareholders through energy cost savings and a sharp reduction in carbon offset purchases, together with a lower risk cost profile and improvement in the integrity of our assets.’
Source: FMG
Outlook for FMG
Fortescue intends to ‘lead the market’ through a refurbished operational strategy and by dropping diesel (around 700 million litres), natural gas (15 million GJ) and carbon.
FMG said it began making decarbonisation changes in August 2020, with its move to create a ‘world first’ hydrogen-run mining truck.
It is also working with FFI and WAE to build another ‘world first’ regenerating battery electric iron ore train, expected in 2026.
With the introduction of the US Inflation Reduction Act this year, FMG anticipates an upscale in green energy production and further pushing for these investments globally.
Avoiding exposure to fossil fuels and their associated prices means Fortescue Metals will de-risk the operating costs of future endeavours.
It will also mean FMG won’t be exposed to carbon offsetting taxes, saving excessive expenses.
FMG pivot proves the green race is on
Vehicle manufacturers are madly securing supply chain deals, and governments are handing out funding programs for EV initiatives across the globe.
The US is allocating US$20 billion in low-interest loans while Biden campaigns for the importance of renewable energy in the US.
And yet our energy expert, Selva Freigedo, says that the global push could be forming a new type of threat.
And with a new frenzy also on the horizon, the question is, how can you play it from here?
Check out ‘Three Ways to Play the Great EV Battery Race’, for free, here.
Regards,
Kiryll Prakapenka,
For Money Morning
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