Fortescue share price edges higher amid $9b 'industry-leading decarbonisation strategy'

Fortescue has announced its decarbonisation plans…

| More on:
A businesswoman looks out a window at a green, environmental project.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Fortescue Metals Group Limited (ASX: FMG) share price is trading slightly higher on Tuesday after the iron ore miner finally revealed how much it expects to spend to decarbonise its Pilbara operations.

In early trade, the Fortescue share price is up 0.8% to $17.57.

Fortescue share price higher on 'industry-leading decarbonisation strategy'

This morning Fortescue unveiled its heavy industry decarbonisation strategy which is aiming to eliminate fossil fuel use and achieve real zero terrestrial emissions (Scope 1 and 2) across its iron ore operations by 2030.

Management notes that this investment will eliminate Fortescue's fossil fuel risk profile and enable it to supply its customers with a carbon free product.

According to the release, although it will come at the significant cost of US$6.2 billion (A$9.2 billion), the company expects to generate attractive economic returns from operating cost savings due to the elimination of diesel, natural gas, and carbon offset purchases from its supply chain.

Management also believes that Fortescue is well positioned to capitalise on first-mover advantage and the ability to commercialise decarbonisation technologies.

Cost savings

It will take some time before the company's savings are realised. This could explain the lukewarm response to the announcement from the Fortescue share price in early trade.

Fortescue expects net operating cost savings of US$818 million per annum from 2030 with a payback of capital by 2034. This is based on prevailing market prices of diesel, gas and Australian carbon credit units.

The capital estimate is US$6.2 billion, with the investment largely planned between FY 2024 and FY 2028.

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.

Furthermore, 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.

Fortescue's executive chairman, Dr Andrew Forrest AO, commented:

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 – 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, 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.

No comments were made regarding Fortescue's dividend policy. However, it appears inevitable that its payout ratio will need to be lowered in the coming years in order to compensate for this increased investment each year.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

Miner standing in front of trucks and smiling, symbolising a rising share price.
Materials Shares

Core Lithium share price storming higher on 'excellent' exploration results

ASX investors are sending Core Lithium shares flying higher today.

Read more »

Image of young successful engineer, with blueprints, notepad and digital tablet, observing the project implementation on construction site and in mine.
Materials Shares

Forget Fortescue and buy this ASX mining stock for a 30%+ return

Goldman Sachs thinks this miner is a far better option for investors seeking iron ore exposure.

Read more »

Man with his hand on his face looking at a falling share price chart on a tablet.
Materials Shares

Is the beaten down Mineral Resources share price a bargain buy now?

Let's see what Bell Potter is saying about the miner after Monday's selloff.

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Materials Shares

Why did the Core Lithium share price hit a wall in October?

The Core Lithium share price rally came to an abrupt end in October. But why?

Read more »

Businessman walking down staircase with suitcase, at sunrise
Materials Shares

Mineral Resources shares sink 7% on CEO exit and 'major actions'

This mining company's CEO is leaving following a scandal.

Read more »

A man wearing glasses and a white t-shirt pumps his fists in the air looking excited and happy about the rising OBX share price
Materials Shares

Why this ASX lithium stock almost doubled in value in October

This lithium miner made its shareholders smile last month. But why?

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Materials Shares

Guess which ASX All Ords stock just rocketed 80%

What is getting investors excited about this stock today? Let's find out.

Read more »

two businessmen shake hands in a close up mid-level shot with other businesspeople looking on approvingly in the background.
Materials Shares

Core Lithium share price higher on 'invaluable' ex-Rio Tinto appointment

The lithium miner has made a new addition

Read more »