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02-Nov-2024: The bear case for FMG is currently that the iron ore price has softened and the outlook is unclear, and FMG is a single commodity producer. Why does that matter? Well, the easiest way to explain is using a share price graph that tracks FMG's SP against the share prices of BHP and RIO, the other two largest iron ore companies in Australia, and the iron ore price:
Graph Source: MarcusToday.com.au Saturday newsletter.
BHP and RIO do tend to shadow iron ore price movements, but they have both outperformed the iron ore price and FMG over the past six months, as shown above. The main reason for that is that they produce other commodities despite iron ore being a large part of their business.
FMG move far more on iron ore sentiment, because they don't produce any other metals - just iron ore.
FMG did have investors who were in them for their green hydrogen ambitions and the other parts of their "Fortescue Energy" division, formerly known as Fortescue Future Industries (or FFI), however while NOT abandoning Green Hydrogen altogether, Twiggy has finally capitulated and backed away from his stance that green hydrogen was the ONLY way to progress towards and actually achieve net zero carbon emmissions. Green Hydrogen is currently just too expensive to roll out at scale. Technological improvements will make hydrogen cheaper to use as an alternative power source, but in the meantime there are other ways to progress the same objectives that don't involve hydrogen, and Fortescue (FMG) as a company is pivoting more towards those alternative technologies now, so there are some people who believe that FMG isn't as green as they were, while my own belief is that Andrew "Twiggy" Forrest is now finally accepting the reality that wishing really hard that something becomes commercially succesful at scale and throwing billions of dollars at it doesn't ALWAYS achieve the desired outcome, at least not within his desired timeframe. So he's exploring alternatives AS WELL AS continuing to progress green hydrogen technologies.
And that's a good thing. His dogged refusal to accept alternatives in the past is likely one reason why dozens of his senior exectutives have moved on from Fortescue - especially those who were running FFI, now Fortescue Energy. In prior years there seemed to be a revolving door not only in FMG's C-suite, but throughout senior management across their divisions. In essence it was Twiggy's way or the highway, and most chose the highway.
Some have returned, in different roles, like Liz Gaines (pictured below), who originally joined FMG in 2013 as an executive director and CFO, before becoming FMG's CEO in 2018; Elizabeth stepped down from that role in 2022, however she returned as a "Global Ambassador" for FMG's FFI division (now called Fortescue Energy).
However the majority who left have not returned to the company.
There are other factors that may have caused investors some concern, such as Twiggy and wife Nicola Forrest (shown below) splitting after 31 years of marriage (in July 2023) and then this year retiring as co-chairs of the Minderoo philanthropic foundation they founded more than two decades ago - see here: https://www.abc.net.au/news/2024-10-17/andrew-nicola-forrrest-step-down-from-minderoo-foundation/104485400
The pair's private family investment company, Tattarang Pty Ltd, still own 36.74% of FMG today, a stake that is worth $21.7 Billion, as FMG's market cap based on yesterday's $19.49/share closing price is $59.02 Billion (according to the ASX website).
However, while Twiggy and Nicola continue to present a united front, despite the two of them having seperated and no longer working together at Minderoo, there are no guarantees that Nicola's intentions regarding her own $10 billion plus worth of shares in FMG (her half of the 36.74% of FMG owned by Tatterang) will remain 100% aligned with Twiggy's stake.
Much to ponder, however, in summary, what we have with FMG is:
- A single commodity producer. It's all about iron ore for FMG. They will probably become a significant alternative energy producer as well at some point, but they're not there yet.
- A very driven and passionate founder and majority owner who is their Executive Chairman and often does not work well with others.
- His wife who has left him - they are seperated, since mid-2023, but have not yet divorced - who is entitled to over 18% of the company and could decide to sell down at any time.
So there's risk there, and I'm on the sidelines with FMG at this point, despite having made plenty in them in prior years.
On the flip side, if sentiment around iron ore turns decidedly positive again, FMG could run - hard!
However, my risk tolerance is lower than it used to be, and I see FMG as just a tad too risky for mine right now.
02-Feb-2024: FMG tagged a new all time high today of $29.95/share, and closed at $29.73, their highest close ever.
Many of the brokers who have been consistently bearish on FMG above $20 have some egg on their faces now with FMG look set to push through $30 next. The iron ore price has remained higher than most "experts" predicted, and, more importantly, Twiggy has been much more measured and strategic in terms of Fortescue Energy spending.
Fortescue now has two distinct business units, Fortescue Metals - which currently houses their iron ore business, and Fortescue Energy which was previously known as FFI: Fortescue Future Industries.
FFI is now a division of Fortescue Energy. Analysts at some brokerage firms were concerned that 10% of iron ore profits had previously been targeted to fund FFI projects, and they had put a "sell" call on FMG as a result of the uncertainty associated with the rate of return that FFI might generate, and the unknown timeframes for those returns on capital employed.
Apart from that uncertainty - and the market hates uncertainty - as do brokers - FMG had other issues that might have resulted in additional downside risk to the business, such as the seperation last year of Andrew "Twiggy" Forrest and Nicola Forrest after 31 years of marriage, and what that might mean for the 36.74% of FMG that they jointly hold through their family investment company Tattarang Pty Ltd. When they announced their separation in July, they said, “Our friendship and commitment to our family remains strong. There is no impact on the operations, control or direction of Fortescue, Minderoo or Tattarang. We will continue our shared mission to create and gift our wealth to tackle community and global challenges, as recently shown by last months’ donation of one-fifth of our Fortescue shareholding to Minderoo Foundation.” (source: Andrew and Nicola Forrest announce separation; no impact on Fortescue or Minderoo Foundation | news.com.au — Australia’s leading news site [12-July-2023] - see also: Andrew ‘Twiggy’ Forrest reveals truth behind split | news.com.au — Australia’s leading news site [31-August-2023])
And they are indeed continuing to invest together: Andrew 'Twiggy' Forrest and Nicola increase AACo investment to near takeover threshold - ABC News [04-Jan-2024]
And then there's the expected decline in the iron ore price, which has stayed stubbornly above US$105/tonne for the past 12 months, is now around US$130/tonne, and the moving average (red line below) is actually trending up again now - against many expectations.
Source: https://markets.businessinsider.com/commodities/iron-ore-price
And then there is the continuing exodus of KMP (key management personnel) at FMG: FMG ASX: Former NT chief minister Michael Gunner quits Andrew Forrest’s Fortescue energy business (afr.com) [01-Feb-2024 - yesterday] by Kylar Loussikian, Deputy editor - Business, AFR.
Excerpt:
Former Northern Territory chief minister Michael Gunner has quit Fortescue less than 18 months after joining the Andrew Forrest-chaired energy and iron ore major.
His departure followed the exit of Deborah Caudle, the chief financial officer of Fortescue’s energy division, this week and the resignation of former prime minister Malcolm Turnbull earlier in the month. All three were part of Fortescue’s energy business, which is pursuing green hydrogen developments around the world.
Mr Gunner, who resigned as chief minister in May 2022 after leading Labor to government in 2016, said working with Dr Forrest “was an incredible opportunity” and he would remain “an advocate for Fortescue and the path they are forging”.
Former Northern Territory chief minister Michael Gunner joined Fortescue in November 2022. Getty
But his departure, and those of Ms Caudle and Mr Turnbull, will bring greater investor scrutiny on Fortescue’s energy business. There has been an extended executive exodus over the past five years, with former Reserve Bank deputy governor Guy Debelle lasting just five months as chief financial officer, while his successor, Felicity Goodman, remained in the job for eight months before being replaced by Ms Caudle.
Moody’s, a major rating agency, in September said the departures represented a “credit negative, with the potential to impact strategy and operations, which may have implications on the group’s balance sheet, financing and capital structure”.
Fortescue’s lucrative mining division has lost two chief financial officers – Ian Wells and Christine Morris – since August 2022. Its chief executive, Fiona Hick, was replaced by Dino Otranto in September after just six months in the position.
Investors have, so far, shrugged off the elevated executive turnover, with Fortescue shares more than 30 per cent higher over the past 12 months.
The company is also proceeding with the first projects under plans to transform it from an iron ore major into a major force in renewable energy. In November, it agreed to proceed with investments worth $US750 million ($1.14 billion) in Australia and the United States, including $US550 million for a hydrogen hub in Phoenix.
A Fortescue spokesman said: “We respect Michael’s decision, and his personal reasons for making it, and wish him and his family well.”
--- end of exceprt ---
Further Reading: FMG ASX: Andrew Forrest throws hat into asset management with Fortescue Capital (afr.com) [16-Nov-2023]
And: FMG ASX: Fortescue makes green land grab over plots twice the size of Singapore (afr.com) [12-Nov-2023]
And: Fortescue’s true believers back green energy push (afr.com) [21-Nov-2023]
And: FMG ASX: Andrew Forrest’s Fortescue pulls trigger on $1.14b in green energy projects (afr.com) [21-Nov-2023]
And: Why Fortescue wants to be like Brookfield (afr.com) [16-Nov-2023]
And: FMG ASX: Fortescue becomes lead investor in $600m electrolyser firm fundraising (afr.com) [04-Oct-2023]
And: Andrew Forrest flags lower returns for green projects as Fiona Hick exits (afr.com) [29-Aug-2023]
And then there were two influential proxy advisory firms - CGI Glass Lewis and Institutional Shareholder Services (ISS) - who told their clients in Oct/Nov that they should vote against FMG's Rem Report at their 2023 AGM in November on the basis that millions of dollars of bonuses have been paid to retiring executives with little benefit to the company's investors: FMG ASX: Fortescue faces shareholder revolt over ‘special’ exec payments (afr.com) [02-Nov-2023].
That Rem Report resolution was the only one not carried at their AGM on 21-Nov-2023, with 47.63% votes FOR and 52.37% votes AGAINST. So that's "Strike 1" - See here about the "Two Strike Rule" concerning Remuneration Reports.
But anyway - there have been - and still are - plenty of reasons to go negative (bearish) on FMG, and I did personally lighten my FMG positions in recent months a couple of times - to lock in profits, although I do still have FMG as a top 7 position in my real money portfolios.
I think you just have to back the man and his vision, based on his outstanding passion and track record to date of exceptional total shareholder returns (dividends plus capital appreciation).
I wouldn't go "all in" and have FMG as a one-stock-portfolio, but I like them as part of a good diversified portfolio.
Andrew Forrest, Chairman and Founder, Fortescue Metals Group speaks at the Global Energy Transition 2022 conference in New York City, New York, U.S. June 14, 2022. Photo credit:REUTERS/David Dee Delgado
Australia's Forrest promises investments for 14 gigawatt of clean energy | Reuters [11-Jan-2024] By Lewis Jackson
SYDNEY, Jan 11, 2024 (Reuters) - Australian mining billionaire Andrew Forrest committed on Thursday to launch new projects that will help deliver 14 gigawatt (GW) of clean energy in the country by the end of the decade, or a third of the government's renewable energy target.
"The time for talk is over, we are investing right now in Australia’s green energy transition and creating jobs and economic development for regional Australia," Forrest said in a statement.
The commitment is one of the biggest in Australia and will come through a combination of wind, solar and battery projects, many of which are still in the planning stage. They will be shepherded by Squadron Energy, which is wholly owned by Tattarang, the Forrest family holding company.
A spokesperson declined to provide a cost estimate for the project pipeline but said it would be funded by a combination of Tattarang equity and external parties.
Forrest made the announcement at a ceremony marking the start of construction at the 414 megawatt (MW) Uungula wind farm in rural New South Wales state. The 69-turbine, A$1 billion ($671 million) project is the largest under construction in the state.
Squadron Energy on Thursday also signed an A$2.75 billion agreement with GE Vernova to supply wind turbines for Uungula and two other proposed wind projects in the state.
Should it be built, the portfolio of projects will go a long way in helping the centre-left Labor government achieve its goal of 82% of electricity generated from renewable energy by 2030.
It is an ambition which has faced serious hurdles, ranging from community opposition to new transmission networks to uncertainty over government subsidies and support.
Forrest's announcement came as plans to turn the seabed off Victoria state into a giant wind farm hub were dealt a blow after the federal government rejected a proposal to expand facilities at the Port of Hastings due to the risk to local wild life.
Energy Minister Chris Bowen said on Wednesday the government would welcome a fresh proposal and the decision would not delay the start of an offshore wind industry because of the long lead times already built into projects.
($1 = 1.4896 Australian dollars)
--- end of excerpt --- link to full article above.
So, yeah, there are always risks, and not just a couple, there are plenty of risks, but this company just keeps on kicking goals, they're not going broke, they have one of the lowest costs of any global iron ore producer, they're expanding into areas that I'm happy to see them expand into, and I reckon I'm lucky to be a long for the ride.
03-August-2023: This straw is about Wyloo, a company wholly owned by Tattarang, Andrew and Nicola Forrest's private investment group. The Money of Mine podcast boys have managed to get Wyloo's CEO, Luca Giacovazzi, as well as Wyloo's General Manager of Strategy and Business Development, Joel Turco, to talk to them at length about their takeovers of Mincor and the Canadian-based Noront Resources, as well as Wyloo's deal creativity with Hastings Technology Metals, Western Areas, IGO, Regis Resources, and more.
In fact, the chat was so long they had to split it into two halves - here are links to them - you can click on the image or the link below it (both should work). I'll include their show notes and "Chapter Lists" as well.
The Former Bankers Behind Wyloo's Bold Plans (Part 1) - YouTube
Show notes:
We’re delighted to be able to provide the Money Miners with (as far as we know) the first full-length interview with Wyloo CEO Luca Giacovazzi and GM Strategy & BD Joel Turco.
This is the team behind the creative acquisitions of Noront Resources and Mincor Resources. Their deal creativity has extended to Hastings Technology Metals, Western Areas, Regis, and more.
Now the team is looking to translate their deal innovation into mining innovation as they become an integrated nickel producer with the completion of the acquisition of Mincor.
In this Part 1 we get the genesis behind Wyloo and what they are all about today. We go further into the commodities they’re excited by and the tools and their disposal.
CHAPTERS
0:00 Preview
0:48 Introduction
3:19 Luca Giacovazzi and Joel Turco Introduce themselves
5:51 Wyloo Metals Insight and their Mandate
8:28 Did Wyloo Consider Lithium?
14:40 Wyloo’s perspective on the Nickel Market
31:43 Wyloo’s WA Nickel Sulphide Plans
40:33 Does Downstream in Australia make sense?
51:55 Wyloo’s thoughts on Rare Earths
That was Part One, and Part Two is below:
Behind the Curtain on Wyloo’s Big Deals with Luca Giacovazzi & Joel Turco (Part 2) - YouTube
Show notes:
We’re delighted to be able to provide the Money Miners with (as far as we know) the first full-length interview with Wyloo CEO Luca Giacovazzi and GM Strategy & BD Joel Turco.
Part 2 is all about the deals. We go deep unpacking the dealmaking creativity on Wyloo's very public transactions. Think of the bidding war versus BHP for Noront. Remember the raid on Regis? Recall the exchangeable note with Hastings? Surely the "hostile" takeover of Mincor is fresh in your mind? The brains trust at Wyloo takes us through a thrilling and detailed rundown of how it all played out behind the scenes.
CHAPTERS
0:00 Preview
0:55 Introduction
3:41 Investment in Hastings for Neo
6:28 Battle for Noront vs BHP
19:03 Wyloo's wedge in IGO's takeover of WSA
25:21 Wyloo's acquisition of Mincor - Deal of the Year?
41:51 Too much focus on EVs in the Transition
45:00 Where will we see Wyloo next?
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DISCLAIMER
All Money of Mine episodes are for informational purposes only and may contain forward-looking statements that may not eventuate. The co-hosts are not financial advisers and any views expressed are their opinion only. Please do your own research before making any investment decision or alternatively seek advice from a registered financial professional.
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The story about how Wyloo was formed and why they went so hard into Nickel is very interesting. Andrew Forrest was one of a number of Australian billionaires who had been buying up large farming properties and diversifying into agriculture and food, and they were looking at other megatrends that were also worth pursuing. Decarbonisation was a standout, and that lead them to look at the supply and demand dynamics with a number of materials, and two of the standout opportunities within those were nickel and rare earths. And they explain why.
Another reason why this is so interesting is that when you have Andrew Forrest's money behind you, there are many more options available to you, and you can become very creative in deal structuring. One of the earliest examples is how Wyloo beat the world's largest mining company, BHP, in a bidding war for the Canadian Noront Resources, which has now been renamed Ring of Fire Metals under Wyloo ownership - see here: https://www.newswire.ca/news-releases/noront-resources-renamed-ring-of-fire-metals-as-activity-recommences-885623544.html
After "scouring the globe", Wyloo believes that the Eagles Nest project in Northern Ontario's Ring of Fire region is one of the two best nickel sulphide projects on earth. The other one is Mincor's Kambalda project. They've now bought both of them.
They wanted to become serious players in the nickel market, however their vision for Wyloo goes beyond nickel. Their comments of lithium are interesting as well. And on Rare Earths. And on being integrated supply chain producers, being able to - in the future - approach large OEMs and say, we have the mine, the mine life, and the production facilities to produce these rare earth magnets for you for the next 10 or 20 years and we can lock in the cost price for you now as well. And you'd be dealing with Australia and an Australian-based company; China would not be involved at all.
My words there by the way, not theirs. I'm paraphrasing a fair bit. But that's the gist of it I reckon.
Wyloo believe that very few companies will be in that sort of negotiating position, so it would be a great position to be in, if they can do it.
There are too many insights in these two podcasts to list here, so I'll just say... if you're interested in battery metals, or how a smart billionaire likes to invest his family's money, or just like the art of the deal, this is worth your time. As Molly used to say, "Do yourself a favour!"
Further Reading:
Andrew Forrest’s Wyloo gains control of ASX-listed nickel miner Mincor Resources (smh.com.au) [5-July-2023]
Andrew Forrest’s ‘whatever it takes’ call on nickel for batteries (afr.com) [5-July-2023]
Australian Billionaire Andrew Forrest’s Wyloo Metals Beats BHP In Bidding War For Canada’s Noront (forbes.com) [19-Oct-2021]
Land secured at Kwinana for Australia’s first proposed integrated battery material facility | Wyloo Metals [14-Apr-2023]
Disclosure: I hold FMG shares. Wyloo is a private company owned by Tattarang, and Tattarang is a private company owned by Andrew ("Twiggy") and Nicola Forrest. Tattarang owns 36.7% of FMG, so around $24.35 billion of FMG (which is currently a $66.35 billion company, and one of the 10 largest companies in Australia). Tattarang own a heap of other stuff as well however, even a small position (15.37%, was 19.9% but they've been diluted by a couple of share placements) in Swoop (SWP.asx), one of my worst performing investments at this point in time. So we can't buy shares in Wyloo, or Tattarang, but we can buy shares in FMG which owns FFI (Fortescue Future Industries), another one of Twiggy's passions. And of course, FMG is the largest position in the Tattarang portfolio of investments. Wyloo is probably the second I would guess.
12-July-2023: Andrew and Nicola Forrest confirm break-up, insist 'no impact' on Fortescue, Minderoo or Tattarang - ABC News
Andrew and Nicola Forrest have split up after 31 years of marriage. (Supplied: Mindaroo Foundation)
Andrew and Nicola Forrest confirm break-up, insist 'no impact' on Fortescue, Minderoo or Tattarang
By Keane Bourke
Posted 2h ago [9:30pm eastern time, 12-July-2022]
updated 1h ago [approx 10:30pm eastern time]
One of Australia's richest couples have announced their separation, but insist there will be no impact on their shared ventures, including mining giant Fortescue Metals Group (FMG).
Billionaire philanthropists Andrew and Nicola Forrest, who have been married for more than three decades, issued a statement confirming their split on Wednesday evening.
"After 31 years of marriage, we have made the decision to live apart," the statement said.
"Our friendship and commitment to our family remains strong.
"There is no impact on the operations, control or direction of Fortescue, Minderoo or Tattarang.
"We will continue our shared mission to create and gift our wealth to tackle community and global challenges."
Together they control 37 per cent of FMG, which last year reported $US6.2 billion ($9.2 billion) net profit after tax.
Andrew Forrest and Nicola say they have have "made the decision to live apart". (ABC Capricornia: Tobi Loftus)
Wide range of business interests
The couple partner on a number of business and philanthropic ventures, including the Minderoo Foundation and their private investment company Tattarang.
Their investments stretch across agriculture, energy, property and resources, including RM Williams, Harvest Road and clothing brand Camilla.
The statement announcing their separation highlighted their donation of one-fifth of their FMG shares to the Minderoo Foundation in June.
The day before that donation was made public, a company called Coaxial Ventures was created, with documents showing it is entirely owned by Ms Forrest.
When the donation to Minderoo was disclosed, so too was a transfer of 50 million FMG shares to Ms Forrest's new company.
Andrew Forrest has been ranked as Australia's second-wealthiest person. (AAP Image: Bianca De Marchi)
With a fortune estimated at about $33.2 billion by the Australian Financial Review, Mr Forrest was ranked as the second-wealthiest person in Australia behind fellow WA mining magnate Gina Rinehart.
Mr Forrest has spent the past few years seeking government funding from around the globe for his green hydrogen ambitions, believing the technology can bring the fossil fuel industry to an end.
It contributed to a bitter scrap with fellow WA billionaire Kerry Stokes, who he accused of abusing his media power, including his ownership of the state's only daily newspaper, to damage his "green energy mission".
Last year Mr Forrest committed $US500 million to a multi-billion-dollar fund to help rebuild Ukraine alongside the country's president, Volodymyr Zelenskyy.
--- ends ---
Posted 2h ago, updated 1h ago
Disclosure: I hold FMG shares.
09-June-2023: FMG-Board-Changes.PDF
Reasonable Salary, but not overly excessive for an ASX20 company executive. FMG are Australia's 14th largest ASX-listed company.
Home | Fortescue Metals Group Ltd (fmgl.com.au)
Gaines is the first woman to run a major Australian publicly listed mining company. She joined the world's fourth-largest iron ore producer in 2013 as its first female board member, bringing management and board experience from the banking, construction and travel sectors. She became CFO in early 2017 before being named CEO in November and has reduced Fortescue's heavy borrowing costs through refinancing and debt repayment.
Her appointment came at a challenging time for the miner: Prices of its lower-grade iron products were under pressure as Chinese steelmakers, complying with tougher anti-pollution measures, move to higher-quality grades that can be processed more efficiently. China, the miner's biggest customer, remains its core focus, Gaines says, though the company is looking to broaden market share in Asia and Europe. Gaines stresses her highest priority at work is safety and wants "to empower the entire Fortescue family to look out for their mates."
Source: Elizabeth Gaines (forbes.com)
28-July-2022: FMG-June-2022-Quarterly-Production-Report.PDF
'Tis the season... for Q4 reports.
Highlights:
So, Record iron ore shipments, average revenue of US$100/dmt (dry metric tonne) for FY22 with average revenue of US$108/dmt in the June Quarter, C1 cost of US$15.91/wmt (wet metric tonne) for FY22 and C1 cost of US$17.19/wmt for the June Qtr, net debt reduced in the quarter from US$2.4b (as at 31 March) to US$0.9b (as at 30 June) with $5.2 billion of cash on hand, FY23 guidance for similar volume with C1 cost for hematite of US$18 to $18.75/wmt.
That guidance for FY23 includes ~1m tonne of iron ore from Iron Bridge, which will process magnetite ore. The majority of FMG's ore is hematite ore which requires very little processing; magnetite ore on the other hand requires a large and complex processing facility - the following AFR article from the AFR in April 2019 explains it well.
The first point to emphasise here is that, unlike the new $US1.3 billion Eliwana mine being to the distant west of Fortescue’s new joint venture, Iron Bridge is an expansion project. It will see Fortescue’s marketable tonnes cross the 190mtpa range by the end of 2022. And, like Eliwana, Iron Bridge will allow Fortescue the opportunity to ship a greater volume of higher quality ore.
FMG's dichotomous quality mission
Grade improvement remains an abiding but slightly dichotomous mission at Fortescue.
From the early months of 2016 until very recently indeed, lower grade ores have sold at a discount to the now standard 62 per cent iron ore index because highly profitable steel mills were focused firmly on productivity rather than their blended costs of production.
Both the bigger Pilbara majors – Rio Tinto and BHP – predicted that this focus on productivity would persist because China’s central government wants cleaner air around its major cities.
But successive Fortescue chief executives, first Nev Power and now Elizabeth Gaines, have insisted this was a passing rather than structural event. Despite that narrative, Fortescue has moved quickly to improve the quality of its offering, a new 60 per cent blend called West Pilbara Fines (WPF). Once Eliwana is up and running, WPF will make up more than 20 per cent of the New Force’s product.
And now, with the hot air pretty suddenly removed from the ballooning spread between the Pilbara benchmark 62 per cent product and the circa 58 per cent material that Fortescue more usually ships out, Gaines has moved to further buttress the quality end of the portfolio with the 67 per cent material that Iron Bridge will manufacture.
Critical to the outcome here is that, being majority owned and operated by Fortescue, Iron Bridge will be fully integrated into the existing production and logistics footprint. Fortescue will retain marketing rights over 100 per cent of production. And, through that device, the miner will be able to further flex its quality muscles. Through periods like now when the jaws of the quality spread close, it will pump out as much direct ship hematite as it can and ship Iron Bridge’s 22mtpa as a discreet, premium option.
But if and when the quality discount starts to hurt again, Fortescue has a call that will enable it to blend all of its Iron Bridge entitlement with the direct ship ore (DSO). That would see more than 50 per cent of Fortescue’s portfolio sift through the 60 per cent grade level.
Indeed, the math as explained to us is that blending all of Iron Bridge with Fortescue DSO would see 100 million tonnes of product through that 60 per cent grade target.
Patience the new virtue at FMG
The patient progress on Iron Bridge sits in encouraging contrast to the harem scarem that was such a feature of Fortescue’s occasionally controversial progress from figment of an entrepreneur’s imagination to the world’s fourth iron ore super-major.
In many ways, Iron Bridge is just so un-Fortescue.
It will mine a distinctly different type of iron ore from the rest of the Fortescue fleet; it will arrive with financial risk comfortably isolated from the mothership; it will deliver a different-type of product that will be distilled from a large and complex processing facility and it has been born of six years of patience, collaborative study, technical review and financial validation.
As it turns out, while he may have taken a punt on finding big-time magnetite back in 2003, Forrest took a whole lot of convincing that the complexity of the project needed to transform it into cash.
Apparently this prudence was the product of past failure. Forrest learned to distrust complex metallurgy and processing through the failure of his first tilt at mining glory. Anaconda Nickel was ultimately undone by the processing needed to extract nickel from the Murrin Murrin mine it developed.
As a result, the gap between Iron Bridge passing through its first major investment gateway and its last has been long and punctuated by ever more deeply informed scrutiny.
The framework of Tuesday’s success first became public in August 2013 when the guy leading the Iron Bridge project, Michael Masterson, lured Taiwan’s Formosa Plastics Group into joint venture with an entity that was 88 per cent owned by Fortescue and 12 per cent by Baosteel.
That deal, which left Fortescue with a foot in each of the Chinas, saw Formosa pay $US137 million to join a joint venture that few had imagined would ever get anywhere and then commit to fund the first phase of development to the tune of $US527 million.
Over subsequent years Power and Gaines have led successive rounds of innovation and project refinement that have more than doubled its scale, improved its environmental footprint, redefined its technologies, secured its cost and customer base and then generated advantage by embedding it in the future Fortescue product suite.
Calibrated delivery
Mind you, having finally waved the green flag on its new wing there will be no hanging around. Fortescue intends to build its new plant around an existing full-scale pilot plant and will have the new kit ready to roll by 2021 and it will spend but a year ramping up to its 22mtpa nameplate.
Again, the timeline here is the product of careful calibration. Quite sensibly, Fortescue will have largely completed work on the new Eliwana mining complex before the financial and engineering heavy lifting starts at Iron Bridge.
Eliwana is two things. It is a replacement project which fills production holes left by the retirement of the Firetail complex on the western wing of Fortescue’s now five-strong community of mines. And it is critical to fulfilling the grade and volume promise of the West Pilbara fines strategy.
All of the current Fortescue fleet produce from the same sorts of hematite ore bodies that have made the Pilbara the world’s biggest iron ore production province.
What makes those hematite deposits so attractive is that they have been naturally enriched over the eons, they are generally close to or above the surface and the best of them can be dug up, crushed and shipped out as either lump or fines products. These are direct ship ores that require very limited processing to leave the country at grades that range between maybe 57 per cent and 63 per cent.
That said, Fortescue has made an art over time of value-adding through the embrace of low-cost ore processing that has allowed it to make the most of shallow, lower grade ores that otherwise would have been moved to waste dumps.
Deep understanding
But Iron Bridge is not a hematite deposit. It is magnetite. Magnetite ore bodies can be competitively large but they host lower grades. The background grade at Iron Bridge, for example, is 30 per cent.
Making a buck out of magnetite requires a deep understanding of the metallurgy of the target deposits, a substantial investment processing technology and then finding the right people to operate those new machines.
There are a host of working magnetite operations in Australia. The most rancorous is the Sino Iron project, which is a joint venture between SinoSteel and Clive Palmer. Things have not gone swimmingly on many fronts. Outside of the fact that the partners have been at daggers drawn pretty much since production began in 2013, the mine and processing complex cost nearly $20 billion and has not yet got close to running at its 24mtpa nameplate.
The relatively short but productive history of Fortescue says that no one should now doubt that Fortescue will manage is stakeholders and its operations with considerably more aplomb and profitability.
Matthew Stevens writes on business, specialising in mining, energy and opinion. Matthew is a senior business writer and columnist. Email Matthew at [email protected]
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Also: https://www.afr.com/companies/mining/fortescue-metals-to-develop-3-7b-mine-20190402-p519uv
Chinese conglomerate CITIC Limited poured $US12 billion into the Sino Iron project in the Pilbara, which produced 19 million tonnes of magnetite concentrate last year and remains caught up in a bitter royalties dispute with Clive Palmer. The loss-making $2.6 billion Karara project in the state’s midwest is set to become 100 per cent owned by Chinese steelmaker Ansteel after it agreed to buy out Australian partner Gindalbie Metals for about $25 million in March.
Fortescue chief executive officer Elizabeth Gaines said the company had an “unparalleled track record” of developing and building mining infrastructure in the Pilbara and some of the players involved in other magnetite projects lacked the same level of experience.
Ms Gaines said Fortescue, Taiwan’s Formosa and China’s Baosteel had already gone a long way to de-risking Iron Bridge, about 145 kilometres south of Port Hedland, by investing $US500 million in construction of large scale pilot and demonstration plants to validate key equipment and magnetite production processes.
Confident over long-term demand
Fortescue, which will operate Iron Bridge and has full marketing rights, has already secured binding off-take agreement for 5.3 million tonnes a year with five different steel makers.
When combined with ore from Fortescue’s under construction Eliwana mine, it is expected to increase Fortescue’s product grade and give it the option of delivering the majority of its products at greater than 60 per cent iron.
Ms Gaines said Fortescue was confident in the long-term demand for the premium product, supported by market fundamentals, including global supply conditions, and investment in higher efficiency steel-making capacity.
“We are confident this project will deliver growth in earnings and cashflow, resulting in enhanced returns to our shareholders and our joint venture partners through all market cycles,” she said.
Ms Gaines said Fortescue had not been motivated by the current strength in iron ore prices driven by Vale’s production problems in Brazil or by the heavy discounting applied to its low-grade product last year in making a call on Iron Bridge after being more than a decade in the pipeline.
Iron Bridge will deliver a premium product with iron content of 67 per cent. Photo: Erin Jonasson
She said Fortescue and its partners had taken their time to make sure the project and its cost profile were right and that long-term market fundamentals were also strong.
Macquarie analyst Hayden Bairstow said Fortescue could either sell the concentrate at a premium or blend it with lower grade iron ore to attract higher prices depending on market conditions.
“What this does is allow them to upgrade their product suite forever,” he said.
Surprise price tag
Mr Bairstow said the project had been talked about for a long time but the price tag came as a surprise.
“I don’t think $US2.6 billion for 22 million tonnes a year was in anyone’s numbers when you look at the capital costs of Karara and Sino Iron that are much higher,” he said.
“Clearly Fortescue have a lot of their own infrastructure and will leverage off that.”
Macquarie expects Iron Bridge to generate strong margins in the long term based on all-in cash costs estimated at $US45-55 a tonne.
Fortescue chief executive officer Elizabeth Gaines is confident in the long-term demand for premium product. Frances Andrijich
Fortescue chief operating officer Greg Lilleyman said the completion of the bulk of the work on Eliwana would fit in well with the start of work in earnest on Iron Bridge.
He said the “neat thing” about the concentrate production was that it allowed Fortescue to adapt its product suite to meet market conditions.
Capacity to handle more production
Iron Bridge has a mineral resource of 5.45 billion tonnes and a mine life of more than 20 years, including an ore reserve of 716 million tonnes.
The development includes a 195 kilometre-long Canning Basin water pipeline and a 135 kilometre-long concentrate pipeline to Fortescue’s Herb Elliott Port Facility in Port Hedland.
The pipeline will run alongside Fortescue's rail line for part of the journey into Port Hedland where the company has enough land and ship loading capacity to support the increase in production from 170 million tonnes a year to 192 million tonnes a year.
Hong Kong-registered FMG Iron Bridge, 88 per cent owned by Fortescue and 12 per cent by Baosteel, controls 69 per cent of the project with Formosa owning the remaining 31 per cent.
The Fortescue share of development costs is $US1.85 billion, which it intends to fund through a combination of cash and debt.
Brad Thompson writes across business and politics from Western Australia for The Australian Financial Review. Brad is based in our Perth bureau. Connect with Brad on Twitter. Email Brad at [email protected]
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Further Reading:
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That was published this afternoon. FMG closed up 52c, or +2.86%, at $18.70/share. Back in a bit of an uptrend I think.
Source: Commsec.
Disc: I hold FMG shares and I'm happy with this report. It bodes well for the full year report in August and the declaration of their dividend for the full year, which will no doubt be significantly less than the $2.11 fully franked dividend they paid out last year (as a final dividend), but should still keep FMG as a very decent above-market dividend yield play, which is not even the main reason for holding them. They are also one of the lowest cost iron ore producers in the world, and they have FFI (Fortescue Future Industries) now too, which is all about clean and green energy production and storage technologies and FFI is going to give them a big kick-along in future years, IMHO.
Forrest says green hydrogen market could be worth $16 trillion by 2050 | SWM News (swmgroup.com.au)
03-July-2022: FMG has recently been an excellent dividend stock. The founder of the company, Andrew ("Twiggy") Forrest, whose real first name is actually "John" but is known as "Andrew Forrest" or "Twiggy Forrest" (or just Twiggy) is the largest shareholder - he owns 36.74% of FMG through his family holding company, Minderoo Group, also known as Tattarang Ventures, who incidentally also own 19.7% of Swoop (SWP) which I also hold shares in. Twiggy is involved in a lot of philanthropy (giving money away via large donations and financial support of charities, plus he runs his own charity with his wife and daughter called the Minderoo Foundaion), and he invests in other companies that he is not directly involved in running, and he finances all of that through those large FMG dividends that he gets every 6 months. He wants to keep those coming, and as the largest shareholder and also the Chairman of the FMG board and also now the Managing Director and CEO/boss of the iron ore division (a role he has just returned to in recent months, although technically Elizabeth Gaines is still the MD of FMG until August - i.e. next month - when she moves to being a non-executive director and takes on the role of "Global Brand Ambassador for FFI"), Twiggy has a HUGE say in their dividend policy. Here's their recent dividend history followed by an iron ore price graph:
Source: Commsec [edited by me]
Source: https://tradingeconomics.com/commodity/iron-ore [screenshot edited by me]
So I think it's fair to assume that the FMG final dividend is likely to get reduced just like their interim dividend was, because of the lower iron price now.
Last year the interim dividend was $1.47/share. This year the interim dividend was 86 cents/share, so it was almost halved.
Last year their final dividend was $2.11/share. Let's assume they more than halve that, reducing it all the way back to 86 cents, the same as the reduced interim dividend. That would mean that they would still be on a dividend yield of 10.1%, plus franking, or a grossed-up dividend yield of over 14% (which includes the full value of the franking credits), based on their current share price of $17/share.
If they only halved the final dividend from last year (from $2.11 to $1.05) then their net yield would be 11.2% and their grossed-up dividend yield would be around 15.7% (based on a SP of $17).
I'm thinking 86c is about as low as they'll probably go with that final dividend because I wouldn't expect the final dividend to be lower than their most recent interim dividend when the iron ore price is around the same level but has been higher for basically the whole 6 months (than where it ended H1 of FY22 on 31-Dec-2021).
However, the other thing to consider is that there is now a second division to FMG, and it's called FFI, or Fortescue Future Industries, and with the iron ore price in decline, for now, until China stimulates their economy again with more infrastructure spending, or iron ore demand picks up for other reasons, Twiggy may want to conserve more cash from iron ore profits for FFI than what he has previously guided for.
The iron ore price would have to drop to below $20/tonne for Twiggy to start getting worried about FMG not being profitable, and the iron ore price is still over $100/tonne, (all in US$), but Twiggy is a man on a mission and he has the bit between his teeth (I'm probably using a horse analogy because Tattarang [the name of Twiggy's private family investment company] was the name of a favourite horse that they had back on the cattle station [called "Minderoo"] that he was raised on - and has since bought back - that's why Minderoo and Tatterang are the names he has given to his private family companies and his charity). And Twiggy might want to accelerate the Green Hydrogen work and other work that FFI is doing and that means he may choose to funnel more money into it.
From my own personal point of view, my main three reasons for being in FMG are (1) the above-market dividend yield, (2) FFI and that exposure to future green energy production and electric vehicles, and (3) because FMG are one of the lowest cost (per tonne) iron ore producers in the world with SO much iron ore within their tenements. They are not going to run out of ore any time soon. And if the iron ore price craters the last companies standing will be the lowest cost producers, and FMG is one of those. Also, their grades are good and they are value-adding with their Iron Bridge Magnetite Project - see below:
Source: Fortescue Metals Group gives green light to $3.6b Iron Bridge project in WA's Pilbara - ABC News
Source: Iron Bridge Magnetite Project, Australia (mining-technology.com)
Those last two images and links were from 2019 and 2020. Iron Bridge has come a fair way since then. And that's just one of many sites that FMG operate.
Our Operations | Fortescue Metals Group Ltd (fmgl.com.au)
So, where was I? I got side-tracked. Yeah, those were my three main reasons for investing in FMG, plus a couple of extra ones for good measure. If the dividends reduce and the FFI stuff accelerates I'm OK with that because it's adding value and the company will be worth more in future years one way or the other but the quicker they achieve their goals with FFI, the quicker the market will realise that FMG is going to become the world's first green iron ore company, with electric trains, electric haul trucks, carbon neutral operations, and a producer of green hydrogen to boot, plus the other areas that FFI are working on.
That's all going to take time clearly. It will take years. But if the market sees actual progress rather than just a series of positive announcements about investments and joint ventures, then I think they'll start to get looked at in a different way, and get positively re-rated by the market. If not, then Twiggy could always demerge FFI at some point and then shareholders will hold two different companies and can choose whether to keep one or both. A demerger is always a good way to highlight (or "unlock") value that is not being recognised within a business. Often the demerged entity goes on to have more success than their parent company. Not always but it's happened a few times. Twiggy has given NO indications that he has any intentions to demerge FFI, but I am just saying that if the market doesn't recognise the value in that division within the next couple of years, that is always an option that he has, and I would not be unhappy as an FMG shareholder if he did go down that path, or even just put it out there for discussion, because I think it would draw more attention to the value in that business.
There's value there now, but in future years it's going to be massive, in my opinion.
Down at $17, where they closed on Friday, they look cheap to me.
Source: Commsec.
However, they got down to around $14/share for that October-early November period last year, so perhaps they will drop back down there, if the iron ore price drops further.
They might get cheaper. They're in a downtrend right now. However, I'm happy to hold them through. That downtrend could reverse very quickly, as it has done before.
Their trailing dividend yield according to Commsec is now 17%, but that is based on the past two dividends, and one of those was the $2.11 final dividend they paid last year. I imagine that there isn't an ice-block's hope in hell (to borrow a saying that Twiggy used recently to describe his thoughts on the possibility of a recession this year) that FMG will declare a final dividend of that magnitude next month. The iron ore price was around US$224/tonne at the end of FY21 and at the end of FY22 (i.e. now) it's around US$118/tonne, so more than $100/tonne lower, and the iron ore price during the period as well as the iron ore price at the end of the period, and its trajectory (which is currently south) informs the amount of the dividend declared.
In basic terms, their profit margins were higher in H2 of FY21 than they were in H2 of FY22, so they made less money this year, so they have less cash to distribute to their shareholders.
For that reason, the 17% historical/trailing dividend yield is misleading and should be ignored.
However, as I have explained above, I believe they will at least match their interim dividend (of 86cps) which puts them on a net dividend yield of just over 10%, and a grossed-up yield of over 14% (including the franking credits).
And that's not even the ONLY reason to hold FMG. There's also FFI, as I have explained. Click on the first link below to get an idea of how busy FFI has been recently.
More reading:
Latest News | Fortescue Metals Group Ltd https://www.fmgl.com.au/in-the-news/media-releases
Who We Are | Tattarang https://www.tattarang.com/who-we-are/
Tattarang https://www.tattarang.com/
Co-Founders | About | The Minderoo Foundation https://www.minderoo.org/about/co-founders/
Fortescue Group announces leadership that will drive its transition to a global green renewables and resources company | Fortescue Future Industries (ffi.com.au) https://ffi.com.au/news/fortescue-group-announces-leadership-that-will-drive-its-transition-to-a-global-green-renewables-and-resources-company/
Disclosure: I hold FMG in all of my main RL portfolios and they are also held here in my Strawman portfolio. I will probably look to switch more money into FMG if they fall back to around that $14 level where they found support last year.
Nicola and John (Andrew) Henry Forrest ("Twiggy") from the Minderoo Foundation website.
Nicola and Twiggy at Minderoo Station, which he bought back after making his first few million from FMG. Source: Who We Are | Tattarang
Source: Fortescue's Forrest says German hydrogen deal is just the start | Reuters [January, 2022]
Source: Our Operations | Fortescue Metals Group Ltd (fmgl.com.au)
04-Feb-2022: Sparc Technologies | Joshua's resilient retail pick on Ausbiz
06-Feb-2022: That Ausbiz video (recorded on Friday, 4th Feb, i.e. last Friday) starts off with Joshua Baker from Capital H Management (also BkrDzn on Strawman.com) discussing small (/micro) caps opportunities and risks at this point in time, which is interesting, followed by Nadine Blayney interviewing Sparc Technologies' (SPN's) Executive Chairman, Stephen Hunt, on the company (Sparc, SPN) and their deal announced last week that will see FMG's FFI division paying $1.8m to buy 20% of Sparc Hydrogen, then moving to 36% of the JV at stage 2 (which will see FMG lob in another $1.475m cash to earn an additional 16%, taking their stake in the JV up to 36%.)
Prior to this deal, the owners of the Sparc Hydrogen JV were Sparc Technologies (SPN) with 72% and the University of Adelaide (UoA) with 28%. After stage 2, UoA will still own 28%, with SPN and FMG both owning 36% each.
FFI-to-Acquire-Interest-in-Sparc-Hydrogen.PDF
As well as their innovative and potentially cheaper Hydrogen tech, Sparc also have significant IP in Graphene, however it's unclear whether FMG's FFI division is also keen to develop that technology.
Nadine says in the video that FFI now owns 36% of Sparc (SPN), however it would appear that this is not the case. FFI (and their parent company FMG) will own 36% of Sparc's "Sparc Hydrogen" JV with UoA - after stage 2 funding is complete, but not 36% of Sparc (SPN), as I understand it.
I hold FMG shares (Fortescue Metals Group, who own FFI - Fortescue Future Industries) but I do not hold SPN (Sparc) shares.
I like the solid moves that FMG are making towards their "carbon neutral by 2030" goal, and the businesses and technologies that they are investing in. This latest deal comes after FMG announced on 24-Jan-2022 that they were acquiring UK-based Williams Advanced Engineering (WAE) for £164 million (approximately US$223 million). This is the same Williams that have been involved in F1 racing for decades and WAE have successfully designed, developed and installed electric motors into cars, mining trucks, boats and planes. FMG's FFI with WAE are planning to develop electric trains to replace the diesel-powered trains FMG currently use to haul their iron ore from their various mines to Port Hedland for shipping. They have said they will make a further announcement on this early in 2022, which should be soon-ish I'm guessing.
I have posted a straw a couple of weeks back about that announcement - see here: https://strawman.com/reports/FMG/Bear77?view-straw=16343
Due to a system bug, that link won't actually take you to the straw (like it should), it will take you to my report on FMG, which starts with my rather lengthy valuation for FMG, but if you scroll down until you get to the actual straws (below the valuation), that straw on the WAE acquisition should be at or near the top of my straws.
24-Jan-2022: Acquisition of UK Based Williams Advanced Engineering
ACQUISITION OF UK-BASED WILLIAMS ADVANCED ENGINEERING
Leading provider of high-performance battery and electrification technologies Fortescue Metals Group Ltd (Fortescue, ASX: FMG), has entered into a share sale and purchase agreement to acquire 100 per cent of Williams Advanced Engineering Limited (WAE) from private equity firm EMK Capital and Williams Grand Prix Engineering Limited for £164 million (approximately US$223 million). The transaction is expected to conclude by the end of March 2022, subject to the satisfaction of customary conditions precedent including United Kingdom foreign investment approval.
WAE will be vertically integrated into Fortescue’s diversified resources and green energy business and will be managed via Fortescue Future Industries (FFI), Fortescue’s green energy and green technology division. Fortescue has worked closely with WAE since early 2021 to design and build a prototype battery system to power an electric mining haul truck, an important first step in the decarbonisation of Fortescue's mining haul fleet.
The acquisition of WAE provides critical technology and expertise in high-performance battery systems and electrification and will enable Fortescue to accelerate and support the decarbonisation of Fortescue’s mining operations as well as establishing an important new business growth opportunity. Together, Fortescue and WAE will develop battery electric solutions for Fortescue’s rail, mobile haul fleet and other heavy mining equipment, to accelerate the rapid abatement of diesel usage to achieve the decarbonisation of Fortescue’s mining operations by 2030. In addition, Fortescue and WAE will work together to grow WAE’s world-leading green technology and engineering business.
One of the first major projects to be developed will be a world leading battery electric train concept. Fortescue and FFI will announce further details on this early in 2022.
--- end of excerpt ---
This is what I want to see. Steady progress with the FFI division of FMG. I like it.
Disclosure: I hold FMG shares both IRL and here.
22-July-2021: The following image is a screenshot from a LinkedIn profile and Activity Feed - see here for further details: https://strawman.com/forums/topic/5257
I've chosen to post it under FMG because FMG is Australia's highest profile pure-play Iron Ore company (BHP & RIO have other divisions), and it's about the value we attribute to a bar of iron.
