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Billionaire Forrest’s green hydrogen venture FFI is a 'cash burn' and shareholders should sell up, says Credit Suisse

Swiss bank recommends ditching shares in highly profitable Fortescue Metals Group due to risks posed by opaque green H2 subsidiary Fortescue Future Industries

Australia's richest man, Andrew 'Twiggy' Forrest, speaking at the Green Hydrogen Global Assembly in Barcelona last year.
Australia's richest man, Andrew 'Twiggy' Forrest, speaking at the Green Hydrogen Global Assembly in Barcelona last year.Photo: Green Hydrogen Organisation
  • Rachel Parkes

A concerning lack of visibility at Australian billionaire Andrew “Twiggy” Forrest’s green hydrogen venture Fortescue Future Industries (FFI) makes it hard to justify continued investment in its parent company, Fortescue Metals Group (FMG), and is undermining the iron ore magnate’s otherwise profitable empire, a major Swiss bank has warned.

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In a note on Friday, seen by Hydrogen Insight, Credit Suisse raised the alarm about FFI’s “refusal to provide details on project economics and competitiveness” and urged its clients to ditch stock in FMG, and reinvest the cash in competitors.
FFI is planning five final investment decisions (FIDs) on green hydrogen-related projects this year, as well as first green H2 production by 2024, Credit Suisse says, but a lack of detail on offtake agreements and financing has made the bank wary.

Forrest has clinched a litany of outline deals for FFI over the past two years, mostly memoranda of understanding (MoUs) and strategic partnerships with potential customers or governments, but has only publicly committed cash to a very few projects.

These include a 2GW electrolyser factory in Queensland, which is scheduled to deliver its first products in the first half of this year, and a €130m ($128m) investment in Belgian green gas company Tree Energy Solutions (TES).
But US electrolyser maker Plug Power’s decision to exit a technology partnership for the Queensland electrolyser factory last week, citing unfavourable economics, only reinforced the bank's “doubts” about FFI, the analysts said.
Credit Suisse acknowledged that government funding, in particular from the US government’s Inflation Reduction Act, could boost FFI’s bottom line, while a long-term spin-off of the company from FMG could also be beneficial.

FMG is otherwise very profitable and “hard to fault” operationally, the two Credit Suisse analysts noted, but nevertheless downgraded its business rating to “underperforming”, meaning that its clients should sell.

Shares for the group have risen 50% since November, mostly on the back of positive outlooks for FMG’s iron-ore business and the potential for government subsidies for green hydrogen, but Credit Suisse believes that the upside has already been priced in and only risks remain, mostly related to FFI’s green hydrogen business.

“FFI projects may remain a cash burn into the medium-term, along with project execution risks, rendering a downward skewed risk profile, in our view,” the bank concluded.

Among other projects, FFI is also hoping to develop green hydrogen projects in Australia, including the conversion of an existing ammonia plant in Gibson Island to produce green NH3 from renewable hydrogen, and a 250MW project in Bell Bay. Forrest has also pledged to develop a giant 15GW green H2 scheme in Argentina.
The company is also developing a reported $7bn battery and renewables project to decarbonise FMG's iron-ore operations in Pilbara, Western Australia.
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Fortescue Future IndustriesAustraliaGreen H2
Published 31 January 2023, 13:15Updated 31 January 2023, 14:05