Fortescue abandons pledge to siphon 10% of iron ore profits into hydrogen and green energy businesses

Billionaire Andrew Forrest’s newly-branded mining and energy group Fortescue will no longer siphon off 10% of the profits from its iron ore operations into its green energy businesses, forcing the company’s green hydrogen projects to compete for funding alongside Fortescue’s other operations.

However, the chief executive of the Australian company’s green energy business said yesterday (Monday) that the newly-formed “Fortescue Energy” — which replaces Fortescue Future Industries (FFI) as the company’s main clean energy division — is still targeting five FIDs by the end of 2023.

“We are committed to progressing projects to FID this year,” said Mark Hutchinson, chief executive of Fortescue Energy, during a call on Fortescue’s full year results for 2023.

The company is still prioritising green hydrogen schemes in Australia, the US, Norway, Kenya and Brazil, which are all “tracking well”, Hutchinson noted, adding that the company is also considering those from the rest of its global portfolio.

“Our delivery timetable means we need to focus our efforts on those that make the most commercial and economic sense,” he warned.

Moreover, Hutchinson revealed that Fortescue Energy is targeting “double-digit” returns on the projects it submits to the board for approval — the first time the Australian company has given any insight into the projects’ economics.

The company also reported that it is in advanced offtake discussions with customers from Australia, Europe, the US and Asia, which if realised would significantly shore up project economics in a demand-constrained market.

But Fortescue’s new rules governing capital allocation to green hydrogen projects on merit alone could spell trouble for schemes now in competition with the company’s high-return iron-ore projects.

But Hutchinson appeared confident that the board would take into account the differing investment profiles of projects within each segment.

“You have to look at really the difference of the risk and the returns for different projects,” he said. “Energy projects are different than mining projects. That’s our job to offer up to the board the best possible opportunities on both the mining and on the energy side. It will be up to the board to decide.”

The new realignment will see Fortescue Energy replacing FFI as the company’s main clean energy division, and Fortescue Metals replacing FMG.

Fortescue Energy will in turn be comprised of three vertically integrated businesses:

This means that the company’s giant 2GW Gladstone electrolyser factory will now be managed by Fortescue Hydrogen Systems, rather than FFI.

Construction work has now been completed at the Gladstone facility, and manual assembly of the company’s proton exchange membrane (PEM) electrolysers has now begun, Fortescue reported yesterday.

The automated assembly line at the facility will be delivered and installed by this time next year.

In total, the Fortescue Energy has been allocated US$400m for capital spending for 2024, matching that from last year, although this figure excludes that allocated as part of any FIDs taken during the period.

Fortescue has already said that it will part-finance some of the projects taking FID with debt.

But the clean energy division has also been allocated $800m for operating costs, much of which will be put towards the development of its electrolyser and battery businesses.

Fortescue’s profits for the year dipped by 11% to $5.5bn, largely on the back of a write-down on one of its iron ore projects.

The results were accompanied by the shock exit of Fortescue Metals chief executive Fiona Hick after just six months in the role. Hutchinson and Hicks replacement — Dino Otranto, who was promoted from chief operating officer — both refused to give any further reasons for Hicks’ departure, insisting only that it was “mutual” and “friendly”.